The Accounting Conceptual Framework (ACF), developed by the International Accounting Standards Board (IASB), defines the objectives and basis of accounting to ensure consistency in the interpretation of various accounting policies. As a theory, the Accounting Conceptual Framework explains how the basic principle of financial reporting generally applies to financial statements prepared by accounting services.
Under the ACF, the objective and use of financial statements are clearly defined. In particular, it establishes principles for consistent interpretation of line items in financial statements that ensure uniform understanding and provide a basis for discussion (and resolution of disputes) among practitioners in the future. In this way, auditors will be better able to produce reports that are easy to read and understand virtually anywhere and at any time.
This document provides an overview of the basic features that make accounting information valuable. They range from detailed descriptions of the elements of financial statements (revenues, assets, liabilities, and provisions, etc.) to their purpose and standard understanding.
As mentioned earlier, the conceptual framework sets out the theory, concepts, and principles underlying accounting standards. In a conceptual framework, standards are grouped to ensure that they are coherent and consistent, like accounting principles. Therefore, standard setters often refer to the framework when developing and amending accounting standards. This ensures that the individual standards are coherent and also supported by the framework.
To demonstrate the quality of financial information, the conceptual framework sets out the objective for the preparation of financial reports and the characteristics of high-quality financial information. It not only provides the elements of the financial reporting system but also establishes the criteria used in practice to identify and measure financial performance.
The Purpose of the Conceptual Framework for Financial Reporting
- To assist the IASB in developing future accounting standards and in reviewing existing accounting standards to ensure consistency between standards.
- By providing a basis for reducing the number of alternative accounting methods permitted by accounting standards, the IASB will be able to promote the harmonization of regulations, accounting standards, and practices related to the presentation of financial statements.
- Assist in the development of national accounting standards by supporting national standard-setting bodies.
- To assist accounting and financial services in the application of international accounting standards, particularly those who deal with issues for which there is not yet an accounting standard.
- To provide users of financial statements with an easy way to interpret the information in financial statements prepared under International Financial Reporting Standards;
- To provide auditors with the means to form an opinion on whether financial statements comply with international accounting standards.
- It is intended to provide those interested in the work of the IASB with information about the IASB’s approach and methodology to the preparation of accounting standards.
- In reading this framework, you should keep in mind that it is not official accounting guidance and that it does not override any existing accounting standards.
There are a few instances where an accounting standard may conflict with the Conceptual Framework, but this is extremely rare. This means that if the accounting standard is applicable, it takes precedence over the requirements of the Conceptual Framework.
How The Conceptual Framework Affect The Application of Accounting Standards
The Concept Statements have no direct impact on practice. The new rules do not affect existing generally accepted accounting principles. There are some instances where existing accounting standards conflict with the Framework.
For example, collections of museum objects are described as assets in the Concept Statements. However, existing GAAP does not require such assets to be reported in financial statements. Because of the influence, the Conceptual Framework has had overtime on the development of new accounting standards, it also affects practice.
Benefits of Conceptual Framework and Why It is Necessary
A major direct beneficiary of the Framework is the Financial Accounting Standards Board (FASB). The Framework not only provides a roadmap for setting standards and concepts but also provides the FASB with a tool to resolve accounting and reporting issues.
In developing accounting standards, the FASB staff is guided by relevant concepts that provide the staff with insight into the development of its analysis of the issues the FASB should consider and determine the types of recommendations the FASB should make. Thus, these concepts play an important role in the FASB’s discussions of issues and evaluation of individual standards.
Use the framework to analyze the merits of alternative solutions to complex accounting or reporting problems. This framework does not provide all the answers, but it narrows the range of alternatives by excluding those that are incompatible. In this way, companies in UAE can set standards more efficiently and consistently by avoiding the need to constantly debate fundamental questions such as “What is an asset? ” To be constantly debated.
In Conclusion
In many cases, financial reports by accounting services in UAE are based on judgments, models, and estimates rather than on exact numbers. These judgments, estimates, and models are supported by the IASB Conceptual Framework. There are many firms like Farahat & Co is a top accounting services in UAE for SMEs. We provided accounting and financial service throughout UAE. Our team of chartered accountants are readily available to serve you. Get in touch today.
, developed by the International Accounting Standards Board (IASB), defines the objectives and basis of accounting to ensure consistency in the interpretation of various accounting policies.){kind=link}