Why The Conceptual Framework Is Important For International Company

Boundless (2015) said that a Conceptual Framework can be defined as a system of concepts and purposes that guide to the creation of a constant set of regulations and standards. Especially in accounting, the rule and standards set by the nature, function and limit of financial accounting and financial statements. IFRS(2015) stated that the purpose of the Conceptual framework is to enhance financial reporting and objective of accounting by offering a more accomplish, clear and updated set of concepts or guidelines. In Conceptual Framework, it will form a basis for define how transactions should be calculated (historical value or market value) and reported in financial report like how they are presented or communicated to internal or external users. To carry out this, the International Accounting Standards Board (IASB) is establishing on the currently existing Conceptual Framework updating it, enhancing it and padding it in the disparity instead of essentially reconsidering all respects of the Conceptual Framework.

The requirements of the applicable financial reporting framework relevant to accounting estimates, including related disclosures

Financial reports consist of a statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, notes, directors' declaration, directors' report and the auditor's report. The financial statements need to be prepared in accordance with applicable accounting standards, making the necessary disclosures in order to be transparent and fully inform readers about the activities and financial situation of the entity.

General Purpose Financial Reports can be defined as a financial report which is made with the intention to meet the need of information common to users who are unable to command the preparation of reports tailored so as to satisfy, specifically, all of their information needs (Statement of accounting concept – 2, Page – 5, paragraph – 4). In simple words, the users who do not have necessary power to demand financial statements from a company specifically depends on the information given in the general purpose financial reports. Under the Conceptual Framework released in 2010, the primary users of the financial reports are mentioned as

Accounting is specifically “a system by which economic information is identified, recorded, summarized and reported for the use of decision makers”; however, accounting involves interpretation and analyzing of all financial information, including taxing, personal financial information and investment (Alba, Bathija, & Thonton, 2005). Accounting is defined as the language of business, in that it specifically records the financial data that is required for businesses to operate both efficiently and effectively. Modern accounting includes

If financial statements are designed to be “useful”, it’s worth asking the question, “useful to whom”? So far, we’ve mostly considered the interests of the long-term investor, who usually desires that statements be as accurate as possible, but conservative where estimation is required. There are other constituencies interested in financial statements, including creditors, analysts, regulators, tax authorities, and firm managers. There may even be conflicts of interest

The conceptual framework was established by the Financial Accounting Standards Board (FASB) and is used to help define the boundaries of accounting. It gives definitions of key terms and establishes consistent standards by which fundamental issues are defined. This makes it easier to facilitate discussion and leads to greater efficiency in making accounting judgments.

In addition, a number of new business practices had developed that were not contemplated at the time of the original paper. Finally, several surveys of our members highlighted serious deficiencies in the financial reporting framework, problems that hampered their ability to analyze companies and make wellinformed financial decisions. Consequently, those CFA Institute staff and volunteer members who have the responsibility of advocating for high-quality financial reporting thought that the time had arrived for the views in the white paper to be refreshed and extended to better reflect the changed circumstances. Once the work was underway, however, the project scope was expanded to consider both conceptual issues as well as revisions to financial statement display—that is, the business reporting model in its entirety. A special group of CFA Institute volunteer members was assembled—the Business Reporting Subcommittee—and tasked with developing the new paper. The Subcommittee comprised a subset of members from two existing standing CFA Institute committees: (1) the Global Financial Reporting Advocacy Committee (GFRAC), which was responsible for addressing proposals of the International Accounting Standards Board (IASB), and (2) the Financial Accounting Policy Committee (FAPC), which had similar responsibilities for proposals of the U.S. Financial Accounting Standards Board (FASB). The Subcommittee held extensive discussions over the next

A conceptual framework can also lead to better understanding among accountants, auditors and users because all parties would be using a common set of definitions and criteria when interpreting company financial reports. The AASB’s Policy Statement 5 The Nature and Purpose of Statements of Accounting Concepts explicitly states the potential benefits of the conceptual framework as follows (paragraph 7):

Accounting conceptual frameworks are good examples of normative theories as they provide guidelines of what accounting steps should be taken and suggest what ought to be done in relation to accounting principles and practice. The International Financial Reporting Standards (IFRS) are principles-based

Taking the aforementioned fact that profit is main goal of a company into consideration, it is crucial to understand that accounting is the crux of every business organisation. The Conceptual Framework clearly states that all information within financial reports should be free of bias and material error, i.e. the information must be

Basing on the background that Conceptual Framework (CF) has offered a mixed model of measurement but giving not enough instructions to help the users of financial statements applying this model into their daily business activities; thus, the Discussion Paper (DP) is taken in place under that need, doing a revised job of the CF and offering its readers

This hierarchy plays a major role in the effectiveness of accounting information. It is important to use the qualities of accounting information to assess which is best suited for various circumstances. Determining which alternatives provides the most useful information for decision-making purposes, will help decide accounting methods, amounts, types of disclosures, and formats. FASB assists accountants by identifying the qualitative characteristics of accounting information that distinguish relevancy of accounting information for decision-making purposes. Restraints, are also, a part of the framework consisting mostly of cost-benefit and materiality. A simple comprehension remembrance is that the qualitative information has three levels. The first level deals with the objective

The most common user of general purpose financial reporting is present and potential investors, lenders, and creditors. So the objective of financial reporting is to provide relevant financial information that is useful for users in making decision about buying, selling and providing loans or setting loans. The user needs information about resources of the company as well as also wants to know how efficiently management of the company performs their duties to use resources of the entity. The IFRS framework says that financial reports cannot provide all the information to users that users may need to make decisions. They must need relevant information from other source.

The purpose of Statement of Financial Accounting Concepts No. 2, “Qualitative Characteristics of Accounting Information,” is to examine the characteristics that make accounting information useful. The characteristics or qualities of information discussed in SFAC No. 2 are the ingredients that make information useful and the qualities to be sought when accounting choices are made.