Question

You are the financial controller of a USA listed company. Your chief executive officer has noticed that it takes a substantial amount of time to follow the Conceptual Framework to prepare the company’s financial reports. As a result, he wants you to stop preparing the financial report s and concentrate on the core business development planning reports instead. As the financial controller, you need to explain to your chief executive officer the following:

a What is the meaning of the Conceptual Framework?

b What are the advantages and disadvantages of preparing financial reports based on a conceptual framework?

Answer 1

Answer (a)	Meaning of Conceptual Framework
Conceptual Framework in Financial Reporting means a system by which Policies & fundamentals are applies for preparing Financial Reports.
In Accounting Practice, it siginies the use of principles of accounting to be applied for maintaining consistency in Financial Reports.
It also serves as a standard Procedure to be applied in situations & serves as a guideline for accountants. It helps us to formulate practice of organizing financial information in a Financial Reporting Framework.
Answer (b)	Advantages of Conceptual Framework
1	It Serves any Layman in Accountancy basis to understand Financial Reports & even prepare one.
2	It provides consistency in Approach to prepate Financial Reports
3	Its guides the makers of accounting standards in discussion & resolving disputes.
4	Increases the confidence of users of Financial Reporting Framework
5	Because of consistency & Set Standard guidelines, it increases relaibilty in Financial Reporting
	Disdvantages of Conceptual Framework
1	The primary Disadvantage is that it is very difficult to establish such framework because of its vast use & number of possibilities.
	Because it is also very time consuming & hence costly
2	Sometimes Conceptual Framework is in conflict with the Accounting Standards which creates confusion & anamoly in preparation of Financial Reports
3	The nature of Conceptual Framework is a set standard guidelines which is not suitable in all condition & all types of industries So it is also very rigid.
4	The Conceptual Framework may not be useful for all Users of Financial Framework as Different users have different purpose which is not served by such guidelines.