Conceptual Framework
1. INTRODUCTION
Before conceptual framework is formed, companies prepared their financial report by their own methods. As to increase the utility of the financial report to the users for making economic decisions, conceptual framework is begun to develop by various professional bodies and organizations.
2. DEVELOPMENT OF CONCEPTUAL FRAMEWORK
In 1970s, Financial Accounting Standards Board (‘FASB’) of United States began to develop a conceptual framework. The FASB defined the conceptual framework as a
“…constitution, a coherent system of interrelated objectives and fundamentals that can lead to a consistent standard and that prescribes the nature, function and limits of financial accounting and financial statements.”
Since there was no single framework is accepted by the universally at that moment, it became a basis for setting and resolving the accounting standards and financial reporting.
In the late 1980s, the International Accounting Standard Committee (‘IASC’) developed conceptual framework for the “Preparation and Presentation of Financial Statements”. Nowadays, because of similar accounting standards and accounting policies, conceptual framework became the mandatory model to prepare the financial report almost all over the world.
3. NECESSARY FOR CONCEPTUAL FRAMEWORK
As per the Statement of Principles follows the IASC Framework, we know that there are seven user groups using the financial report for decisions making. Groups were being defined as follows. Investors Lenders Suppliers Employees Customers Government and other agencies Public Since different groups of user concentrate on different parts of financial report, conceptual framework provided a basis setting to standardize the presentation of it. The Statement of Principles also proposed that the financial report should include the financial performance, financial position, generation and use of cash, and also financial adaptability.
As
Before conceptual framework is formed, companies prepared their financial report by their own methods. As to increase the utility of the financial report to the users for making economic decisions, conceptual framework is begun to develop by various professional bodies and organizations.
2. DEVELOPMENT OF CONCEPTUAL FRAMEWORK
In 1970s, Financial Accounting Standards Board (‘FASB’) of United States began to develop a conceptual framework. The FASB defined the conceptual framework as a
“…constitution, a coherent system of interrelated objectives and fundamentals that can lead to a consistent standard and that prescribes the nature, function and limits of financial accounting and financial statements.”
Since there was no single framework is accepted by the universally at that moment, it became a basis for setting and resolving the accounting standards and financial reporting.
In the late 1980s, the International Accounting Standard Committee (‘IASC’) developed conceptual framework for the “Preparation and Presentation of Financial Statements”. Nowadays, because of similar accounting standards and accounting policies, conceptual framework became the mandatory model to prepare the financial report almost all over the world.
3. NECESSARY FOR CONCEPTUAL FRAMEWORK
As per the Statement of Principles follows the IASC Framework, we know that there are seven user groups using the financial report for decisions making. Groups were being defined as follows. Investors Lenders Suppliers Employees Customers Government and other agencies Public Since different groups of user concentrate on different parts of financial report, conceptual framework provided a basis setting to standardize the presentation of it. The Statement of Principles also proposed that the financial report should include the financial performance, financial position, generation and use of cash, and also financial adaptability.
As
Bibliography: Books a.) Alexander D, Britton A and Jorissen A (2005), International Financial Reporting and analysis 2nd Edition b.) Chow L, Kan S, Toylor D & Tsui C (2006), Advanced Financial Accounting 5th Edition c.) Elliott B and Elliott J (2007), Financial Accounting and Reporting 11th Edition d.) Kieso, Weyandt, and Warfield (2005), Intermediate Accounting 12th Edition Web Reference Article from The FASB Report, December 28, 2004 http://www.fasb.org/articles&reports/conceptual_framework_tfr_dec2004.pdf (4th November 2007) The Conceptual Framework- the International Experience, 22 June 2001 http://www.cairns.co.uk/pdf/ConceptualFramework-InternationalExperience.pdf (10th November 2007) Others a.) Cathay Pacific Airway Limited (2006), Annual Report