Despite The Disadvantages, Why Do Companies Use A Conceptual Framework When Preparing Their Financial Statements

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1.1 Understand the need for a conceptual framework.
“The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.” The conceptual framework for financial reporting is not an accounting standard but it has been developed by the International Accounting Standards Board (IASB) for the preparation and presentation of financial statements for external users. It assists in the development of future international reporting standards and the review of existing standards. If there is a conflict between the Framework and IFRS, the IFRS view will be implemented.
Users of financial information:
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1.2 Understand the fundamental concepts of relevance and faithful representation (“True and fair view”)
The conceptual framework for financial reporting identifies qualitative and enhancing characteristics that users of financial information will find most useful. Fundamental Qualitative Characteristics
• Relevance
-Must be capable of making a difference in the decisions made by users
-Helps the users to predict future outcomes
-Have confirmatory value which helps users to confirm previous evaluations

• Faithful representation
-Correspond to the effect of transactions
-Must include all necessary information, without bias and free from errors.

1.3 Understand and explain the enhancing characteristics of comparability, verifiability, timeliness and understandability.
Enhancing Qualitative Characteristics

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