Conceptual Framework
RELEVANT TO ACCA QUALIFICATION PAPER F7 AND PERFORMANCE OBJECTIVES 10 AND 11
The need for and an understanding of a conceptual framework
This topic forms most of Section A (and has an influence on Section B) of the syllabus for Paper F7, Financial Reporting. A conceptual framework is important to the understanding of the many principles and concepts that underpin International Financial Reporting Standards (IFRS) and is an often-neglected part of candidates’ studies. Questions from these areas regularly appear in Paper F7 exams – usually as Question 4 – and I often comment in my examiner’s report that they are the least well-answered question in the exam paper; the questions also have a high incidence of candidates not attempting them at all. This article is intended to illustrate the relevance and importance of this topic. What is a conceptual framework? In a broad sense a conceptual framework can be seen as an attempt to define the nature and purpose of accounting. A conceptual framework must consider the theoretical and conceptual issues surrounding financial reporting and form a coherent and consistent foundation that will underpin the development of accounting standards. It is not surprising that early writings on this subject were mainly from academics. Conceptual frameworks can apply to many disciplines, but when specifically related to financial reporting, a conceptual framework can be seen as a statement of generally accepted accounting principles (GAAP) that form a frame of reference for the evaluation of existing practices and the development of new ones. As the purpose of financial reporting is to provide useful information as a basis for economic decision making, a conceptual framework will form a theoretical basis for determining how transactions should be measured (historical value or current value) and reported – ie how they are presented or communicated to users. Some accountants have questioned whether a conceptual framework is necessary in
The need for and an understanding of a conceptual framework
This topic forms most of Section A (and has an influence on Section B) of the syllabus for Paper F7, Financial Reporting. A conceptual framework is important to the understanding of the many principles and concepts that underpin International Financial Reporting Standards (IFRS) and is an often-neglected part of candidates’ studies. Questions from these areas regularly appear in Paper F7 exams – usually as Question 4 – and I often comment in my examiner’s report that they are the least well-answered question in the exam paper; the questions also have a high incidence of candidates not attempting them at all. This article is intended to illustrate the relevance and importance of this topic. What is a conceptual framework? In a broad sense a conceptual framework can be seen as an attempt to define the nature and purpose of accounting. A conceptual framework must consider the theoretical and conceptual issues surrounding financial reporting and form a coherent and consistent foundation that will underpin the development of accounting standards. It is not surprising that early writings on this subject were mainly from academics. Conceptual frameworks can apply to many disciplines, but when specifically related to financial reporting, a conceptual framework can be seen as a statement of generally accepted accounting principles (GAAP) that form a frame of reference for the evaluation of existing practices and the development of new ones. As the purpose of financial reporting is to provide useful information as a basis for economic decision making, a conceptual framework will form a theoretical basis for determining how transactions should be measured (historical value or current value) and reported – ie how they are presented or communicated to users. Some accountants have questioned whether a conceptual framework is necessary in