What_Is_an_International_Conceptual_Framework_for_Financial_Reporting

Question 2 What is an international conceptual framework for financial reporting' The IASB says the Framework for the Preparation and Presentation of Financial Statements is an accounting framework that sets out the concepts that underlie the preparation and presentation of financial statements for external users. A typical framework includes guidance on the objective of financial statements, the nature of the reporting entity, the qualitative characteristics of financial information, the elements of financial statements, recognition, measurement, presentation and accounting for interests in other entities. Why might one be useful' The Framework assists a number of potential users including: IASB Assists the IASB in the future development of consistent International Financial Reporting Standards and in the review of existing Standards. It helps IASB to promote the harmonisation of regulations, financial reporting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by International Financial Reporting Standards. Auditors Assists auditors in forming an opinion as to whether financial statements conform to International Financial Reporting Standards. Helps auditors to understand the IASB’s approach to formulating international standards and the nature and function of information reported in financial statements. Assists auditors faced with new or emerging issues to carry out an initial analysis in the absence of applicable national or international accounting standards Preparers Assists preparers in the preparation of financial statements by helping them to understand the IASB’s approach to formulating national and international standards and the nature and function of information reported in financial statements. As with the Auditors above, it helps preparers faced with new or emerging issues. Users Assists users of financial statements to understand the IASB’s approach to formulating national and international standards and the nature and function of the information reported in financial statements. Helps the user to interpret the information contained in financial statements which have been prepared in conformity with International Financial Reporting Standards. In addition to the above it can be argued that accounting frameworks produced by standard setters are devices to confer legitimacy and authority on a private sector standard setter lacking a public body’s legal authority. They may also serve a ‘political’ purpose for standard setters as a kind of ‘defensive shield’. Such frameworks may also be considered to be attempts to assemble a body of accounting theory based on a process of identification of ‘good practice’ related to assumed objectives of financial reporting. This raises some related issues such as whether such frameworks serve to explain current practice; to evaluate current practice; and/or to facilitate the development of future practice. 25 marks [100 marks in total]