The Financial Reporting Framework

1. The Financial
Reporting
Framework
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2. The meaning of Conceptual Framework
System of concepts and principles that underpin the preparation of financial statements. These
concepts and principles should be consistent with one another.
Recently, the term ‘conceptual framework’ has come to mean not only the principles themselves, but
a document or statement that sets out and explains the concepts and principles that support the
preparation of financial statements. A conceptual framework is developed for a particular regulatory
system or a particular set of ‘generally accepted accounting principles’ or GAAP.

3. The Purpose of Conceptual Framework
Rulemaking must be based on and linked to a clear concept in order to be used as a basis for the IASB
to issue rules over time.
IASB Frameworks cover the following topics:
- The objective of financial statements
- Underlying assumptions of financial statements
- Qualitative characteristics of financial statements
- The elements of financial statements
- Recognition of the elements of financial statements
- Measurement of the elements of financial statements
- Concepts of capital and capital maintenance.

4. The cause of Conceptual Framework
Lack of a formal
framework
Inconsistent with each
other or with
legislation.
accounting standards
fail to address
important issues.
The business environment
is becoming increasingly
complex.
accounting standards
cant cover all possible
transactions.

5. Framework
for financial
Reporting

6. IASB:

7. First Level: Objective
Provide financial information that can be used by potential investors, leaders and other creditors to
make decisions in their capacity as providers of capital.

8. Second Level: Characteristics
identify the characteristics of accounting information that are more useful with information that is
less useful for decision making.

9. Second Level: Elements
Directly related to the measurement of financial position.
1. Asset
◦ Resource controlled by the entity as a result of past events and future economic benefits are expected.
2. Liability
◦ Present obligation from pas events, the settlement of which is expected to result in an outflow
3. Equity
◦ Residual Interest in the asset after deducting all the liabilities.
4. Income
◦ Increase in economic benefits in the form of inflows or decreases of liabilities that increases in equity.
5. Expenses
◦ Decrease in economic benefits in the form of outflows or increases of liabilities that decreases in equity.

10. Third Level: Recognition, Measurement, Disclosure
The IASB Framework states that an element (asset, liability, equity, income or expense) should be
recognised in the statement of financial position or in profit and loss (the income statement) when
it:
o meets the definition of an element
o satisfies certain criteria for recognition.
The criteria for recognition are as follows:
oIt must be probable that the future economic benefit associated with the item will flow either into
or out of the entity.
oThe item should have a cost or value that can be measured reliably.

11. Thank You