Question

Why was the Conceptual Framework developed?

Answer 1

A Conceptual framework is a theory of accounting prepared by a standard setting body against which practical problems can be tested objectively.

It deals with fundamental financial reporting issues such as the objectives and users of financial statements, the characteristics that make accounting information useful,the basic elements of financial statements and the concepts for recognizing and measuring these elements in the financial statements.

Basically, Conceptual framework is a collection of rules, principles, assumptions and generally accepted practices that is intended to organize the thoughts of users regarding how to deal with issues in a certain area.

The primary purpose of the conceptual framework was to assist the IASB in the development of future IFRSs and in its review of existing IFRSs.

The Conceptual Framework may also assist preparers of financial statements in developing accounting policies for transactions or events not covered by existing standards or where there is a choice of accounting policy.

It also helps users of financial statements to understand and interprete IFRS.

Where there is a conflict between conceptual framework and IFRS, the IFRS shall prevail.