Frequently Asked Questions on IFRS

Chapter 2

Frequently Asked Questions

1. What is the Conceptual Framework?

Consistency and comparability are at the heart of preparing general purpose financial statements, and over the years many authorities have attempted to officially define the purpose of accounting. The provision of a ‘coherent and consistent foundation for the development of accounting standards’ was a study carried out in 1940 by Paton and Littleton, and the intention was to provide an accounting framework that would do just that.

Answer

The truth of the matter is that financial reporting has evolved considerably—not necessarily from the position it was at, say, 100 years ago, but even in modern times. It is true to say that the information conveyed in financial statements is indeed more detailed than it was possibly even ten years ago, which is a legacy of today's globalization of business and the increased access to the global capital markets.

The definition of a Conceptual Framework is essentially a framework that contains a set of generally accepted theoretical principles that form the basis of new reporting practices (such as the introduction of a new IFRS) or evaluation of existing practices (such as when an IFRS is amended). The theoretical basis for a Conceptual Framework must keep in mind the overarching principle that the financial reporting process must be able to provide information to the user of the financial statements that allows them to make rational, informed and economic decisions.

It follows, ...