Conceptual framework for financial reporting Essay

Conceptual framework for financial reporting - Essay Example This made accounting standards haphazard, and many scandals could be witnessed (Alexander et al. 2007, p.150). This saw the introduction of ‘a conceptual framework for financial reporting.’ The aim of this paper is to examine what a conceptual framework for financial reporting is, and discuss the usefulness of such a framework. In addition, the paper will assess whether conceptual frameworks such as the International Accounting Standards Board for the preparation and presentation of financial reports has succeeded in achieving the stated objectives. What is a conceptual framework for financial reporting? The conceptual framework for financial reporting refers to a set of standards that public sector entities use to guide them in preparing financial statements. The standards in a conceptual framework establish the guidelines to be used in developing International Public Sector Accounting Standards, as well as other concepts that give guidelines about information that will be contained in financial reports (IASB, 2010). The conceptual framework focuses on the financial statements that business enterprises, including state owned corporations, should prepare and present annually in order to meet the information needs of users of financial statements (Zeff 2000, p.8). The IASC Board approved the Conceptual Framework for the Preparation and Presentation of Financial Statements in April 1989; the framework was later published in July the same year. In April 2001, the IASB adopted the framework (Bragg 2010, p.16). Why the Conceptual Framework for financial Reporting may be considered useful The conceptual framework for financial reporting can be considered useful based on the benefits derived from the use of such a system. First, use of the conceptual framework decreases the risk of inconsistency in financial standards. As such, the framework ensures that there is an objective that guides the preparation of financial statements by organizations (Barth et al. 2001, p.81). The conceptual framework is also useful as it incorporates a statement of the functions and roles played by financial statements. This helps to improve the process of setting standards, enhances consistency in financial reporting, and facilitates the development of future standards in the field of accounting (Barth 2008, p.1161). The framework can also be considered useful since it assists users of financial statements to interpret the information in financial statements. This is because it enhances understanding of the princ iples upon which the statements are prepared (Deegan, 2009). The conceptual framework of financial reporting can also be considered useful since it helps accounting bodies to review the International Accounting Standards already in existence. Moreover, the framework plays an essential role in assisting the IASC Board to promote the harmonization of accounting standards, regulations, as well as procedures that relate to the presentation of financial statements (Ellwood & Newbury, 2006). Another role played by the conceptual framework includes assisting national bodies that set standards to develop national accounting standards. The framework may also be considered useful as it helps auditors to form opinions on whether an organization’s financial statements conform to the International Accounting Standards (Greuning 2009, p.2). The conceptual framework also assists users of financial statements to interpret the information contained in financial statements, which conform to In ternational Accounting Standards (Macve, 1997). Critical Assessment whether conceptual frameworks have succeeded in achieving their objectives A look at the conceptual fr