The document outlines a conceptual framework in accounting, which provides principles and guidelines for financial reporting, ensuring information is relevant, reliable, and comparable for stakeholders. It distinguishes between principles-based and rule-based standards, emphasizing the importance of the decision-theory approach in aiding informed decisions. Additionally, it addresses essential qualities of financial information and critiques the conceptual framework for its potential issues, such as circular reasoning and mechanical decision-making.

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2. Topic :
Conceptual Framework
Presented by
Name ID
Apurbo Gosh M23040201557
Mohammad Mohsin M23040201531
Pratap Saha Anik M23040201553
Opu Raihan M23040201502
Group - G

3. Conceptual Framework
• A conceptual framework in accounting is a set of
principles and guidelines that establishes the
objectives and fundamental concepts for financial
reporting. It serves as a foundation for creating
consistent and logical accounting standards and
practices.
• The framework helps to ensure that financial
information is relevant, reliable, and comparable,
which enhances its usefulness to investors, creditors,
and other stakeholders in making economic
decisions
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4. The role of a conceptual framework
A structured theory of accounting.
States the scope and objective of financial
reporting.
Identifies and defines qualitative
characteristics of financial information and the
basic elements of accounting.
Deals with principles and rules of recognition
and measurement, and report disclosures.
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5. Objectives of conceptual frameworks
 Financial reporting should provide
information that is useful to present and
potential investors and creditors and other
users in making rational investment, credit
and similar decisions.
 Both the IASB and FASB frameworks consider
the main objective of financial reporting is to
communicate financial information to users.
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6. Objectives of conceptual frameworks
• For that reason, the information should be:
Useful in making economic decisions.
Useful in assessing cash flow prospects.
About enterprise resources, claims to those
resources and changes in them.
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7. Differences between Principles-based
and rule-based standard setting
Topic Principles-based Rule-based
Definition
These standards are flexible
and can be applied to
different situations and
across cultures.
These standards are rigid
and mandate the same
benchmark for all projects.
Used Principles-based accounting
is the most popular method
globally.
Rule-based accounting is
mostly used in the US.
Example International Financial
Reporting Standards (IFRS).
Generally Accepted
Accounting Principles (GAAP).
Economic
substance
Principles-based approach,
transactions reflect true
economic substance
Rule-based approach,
transactions do not reflect
true economic substance
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8. Decision-theory approach
In the decision-theory approach, accounting
information plays a critical role by providing
relevant data that aids users in making
informed decisions. This approach focuses on
how accounting information supports
decision-makers, such as investors or
managers, in assessing options, evaluating
risks, and predicting outcomes.
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9. Information for decision making and
the decision-theory approach
Decision-theory process
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Overall theory
of accounting
Individual
accounting system
Prediction
model of user
Decision
model of user

10. Qualities that make financial
information useful
Qualities are mainly two categories:
I. Primary qualities
II. Secondary qualities
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11. Primary Qualities
Primary qualities are the fundamental qualities
those must be present on the financial
information.
 Relevance: Financial information is relevant if it can
influence decision-making by helping users predict future
outcomes (predictive value) or confirm past evaluations
(confirmatory value). Relevant information is closely
related to the specific needs of users.
 Faithful Representation: Information should be a true
and fair representation of what it aims to show. This
means it must be complete, neutral (unbiased), and free
from errors, allowing users to rely on its accuracy.
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12. Secondary Qualities
Secondary qualities are the enhancing qualities
those must be present on the financial
information.
 Comparability: Users should be able to compare financial
information across different periods or with other companies
to identify similarities and differences. Standardized reporting
formats and consistent policies enhance comparability.
 Verifiability: Information is verifiable when different
knowledgeable users can reach a consensus that it accurately
represents the underlying transactions. Verification can be
direct or indirect.
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13. Secondary Qualities
 Timeliness: Information must be provided in a
timely manner to be relevant for decision- making. If
delayed, the value of information in influencing
decisions may diminish.
 Understandability: Information should be presented
clearly and concisely so that users with reasonable
financial knowledge can understand it. Complex
information should be simplified without sacrificing
essential details.
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14. Scientific critique of conceptual
framework projects
Scientific criticisms:
Prescriptive
Unspecified rules and conventions
Do not resolve contemporary disclosure issues
Do not address measurement issues
Risk of mechanical decision making
Framework may become an end in itself
Overreliance on definitions
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15. Circularity of reasoning
Circular reasoning occurs when a concept is defined
in a way that relies on itself, making it difficult to
clearly understand or apply the concept.
For example, a framework might define "relevant
information" as information that is useful for
decision-making but then define "useful information"
as information that is relevant. This creates a loop
that doesn't clarify what makes information
specifically useful or relevant.
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16. Financial reports should provide
information
 Financial Position: Information on assets, liabilities, and
equity, which helps assess the company‘s.
 Financial Performance: This shows how well the company
generates revenue and controls costs, which is crucial for
evaluating operational efficiency and profitability.
 Cash Flows: This helps users understand how well the
company generates cash and meets liquidity needs.
• .
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17. Financial reports should provide
information
 Changes in Financial Position: This gives insights into
shareholder value and retained earnings' contribution to
growth.
 Risk and Uncertainty: Notes on contingent liabilities, market
risks, and other uncertainties affecting future performance.
 Comparability and Trends: Historical data that allows for
period-to-period comparisons and trend analysis, enabling
users to forecast future performance based on past trends.
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