Question

Outline the key building blocks of conceptual frameworks. Conceptual Frameworks are yet to provide significant prescription in relation to measurement issues in accounting. Why do you think this is the case? Would you consider conceptual frameworks to have been successful in achieving their objectives? Justify your response.

Answer 1

ANSWER:   The Conceptual Framework (or “Concepts Statements”) is a body of interrelated objectives and fundamentals. The objectives identify the goals and purposes of financial reporting and the fundamentals are the underlying concepts that help achieve those objectives. Those concepts provide guidance in selecting transactions, events and circumstances to be accounted for, how they should be recognized and measured, and how they should be summarized and reported.

THE FASB'S CONCEPTUAL FRAMEWORK:

Helps the Board in setting sound financial accoung standards and helps members of the board's comstitiency not only understand and those standards but also constribute singnicantly to their development

Instended to help slove complx financial accounting or reporting problems by:

*providing a set of common premises as a basic for discussion

*providing pricise termnology

*Helping to ask the right question

*Limiting areas of judgment and discretion and excluding from considderation potential solution that are in confict with it

*Improsing an intelletual disicipline on what historically was a subjective and hoc reasoning process

Does not establish new accounting standards or change existing GAAP, but is a foundation in establishing new standards or amending existing standards.

HOW DOES THE FRAMEWORK AFFECT THE APPLICATION OF ACCOUNTING STANDARDS?

Concepts Statements do not affect practice directly. They do not change existing generally accepted accounting principles (GAAP). Certain aspects of existing GAAP conflict with the framework. For example, museum collections meet the Concepts Statements definition of an asset, but existing GAAP does not require those assets to be recognized in the financial statements. The framework affects practice over time because of its influence in the development of new accounting standards.