Question

how do conceptual framework of accounting attempt to create a theory of accounting

Answer 1

Conceptual frameworks of accounting attempts to create a theory of accounting by making use of the structured programs of all the inter-related concepts in the accounting domain. By doing so the aim is to use the conceptual framework to achieve consistency with regards to accounting standards. These accounting standards will, going forward, serve the purpose of replacing ad hoc solutions to specific problems.

Thus the conceptual frameworks of accounting serve as the building block for the theory of accounting. The components of IASB are objectives of financial statements, qualitative features of financial information like relevance, reliability, comparability etc., definitions of the basic elements of accounting reports like assets, liabilities, equity etc., and principles and rules of recognition and measurement of the basic elements and the nature of the information to be displayed in financial reports.

It should be noted that a conceptual framework of accounting is nothing but a structured theory of accounting. It serves as a coherent system of different interrelated objectives as well as fundamentals and these leads to consistent standards. The standards then prescribe the nature, function and limits of financial accounting and reporting. Theory of accounting is created based on the principles based and rules based standard.