Question

Provide a brief background in your own words to the role of a conceptual framework in accounting, including benefits of having one, together with problems and criticisms of the current (2010) framework

Answer 1

The role of a conceptual framework in accounting is very vital because it provides a framework for setting accounting standards, a basis that helps in resolving accounting disputes, fundamental principles without the necessity to be repeated in the accounting standards. It helps in forming a better understanding of the accounting information for the users of financial statements which are prepared in conformity with financial accounting standards. It also promotes harmonization by providing a basis for selecting the most appropriate accounting treatment as permitted by the accounting standards. Some of the problems in the current (2010) framework include lack of clarifications on important topics like presentation and disclosure, role of prudence and no measurement bases like fair value, value-in use and current cost in financial reporting, lack of guidance on the reporting of financial performance. Apart from this, the revised conceptual framework has also proposed better and slightly changed fundamental definitions of assets and liabilities, which is a big attempt to provide better clarity.