Question

Q1.

Users of financial statements can face different questions about the recognition and measurement of financial items. To help develop the type of financial information that can be used to answer these questions financial accounting and reporting rules on a conceptual framework.

Instructions

1.   What are the basic components of the conceptual framework? (1 mark)

2.   What are your views about the success of the conceptual framework? (1 mark)

Answer 1

1)

The components of the conceptual framework are :

1. The main objectives of financial statements and reporting: The purpose of developing the statements and report would be to inform the present and potential investors and other stakeholders about the progress of company’s business in numeric terms. The purpose of the report should be fulfilled.
2. All the information should be of quality: As per the FASB norms, the financial information should be of use in all the required decisions to be taken based on them. The all the information and statements should be relevant, reliable and compatible one. The investors conveys their confidence by taking decision on these figures, so the quality informations are always provide to them.
3. Financial Statement elements : The different parts or elements of the financial statements should be well defined and reconciled to balance the Balance Sheet. These parts of the statements could be revenues and expenses, assets, losses and liabilityies and equity, etc.
4. Recognition and figure measurement: As per the FASB, the figure is decisive in nature when it is recognized in the financial statements and provide a measuring numbers to them. According to the FASB, the figures should be defined, measurable, of relevance upon which investors should rely as verified and truth figures.

2)

We can make our views depending on the acceptance of the conceptual framework by the companies and investors while reporting and taking decisions on them respectively. The FASB has developed the conceptual framework are made keeping in view of the investors requirements and convenience of the company. The FASB should strengthen the conceptual farmework by adding more and more rules and disclosures for the better accessment of the company's position.