Iasb's Conceptual Framework

A Report on the Significance of the IASB’s Conceptual Framework and the Exposure Draft ‘Conceptual Framework for Financial Reporting – The Reporting Entity’


This report is intended to discuss the significance of the IASB’s Conceptual Framework. It will layout the basis of the Conceptual Framework and then discuss its significance and relevance with regards to previous and future accounting industry standards.


The IASB’s (International Accounting Standards Board) Conceptual Framework is a set of rules and standards that the accountancy industry, within the Global market, adheres to in order to produce clarity across the board when producing financial statements and information for users of those statements.

IASB will replace the standards set by the FASB (Financial Accounting Standards Board) in which the UK accountancy industry required companies to comply with generally accepted accounting practice (GAAP). GAAP offers a certain amount of legal backing to the accounting standards produced by the FASB, however problems occurred when direct comparisons were made between the financial statements of companies from different countries using a variety of methods.

This difficulties arose as a result of these countries using different reporting standards to those set by the FASB. This problem was not just between UK and other countries, but also between financial statements produced in any differing countries. As such, like for like comparisons between entities based in different countries was time consuming and complicated.

The accounting standards with the biggest international widespread use, before the change in reporting, was the United States (US) GAAP (generally accepted accounting practice), as at the time this was mandatory reporting for all American companies and all foreign companies wishing to be listed on the American stock exchange.

However, because of the international differences in reporting, this lead to a huge amount of both confusion and differences in the reporting details and styles. This also meant that any UK based companies with US parents, listed on the stock exchange, were required to provide two sets of financial statements, one conforming to UK GAAP and one conforming to US GAAP. This, in turn, had it’s own financial ramifications because of the extra cost involved in both preparation and audit. Moreover, one of the biggest problems may be seen as the possibility of conflicting audit opinions, as well as the difficulties faced by the company in the appointment of auditors, as they would need to have experience in both the UK and US standards.

With increased globalisation of industries and multi national companies and the financing of such companies becoming worldwide, there became an apparent need for standardisation of accounting standards. The intention being that all financial statements would be comparable regardless of the country of origin. This would then enable users of these statements to more easily evaluate the statements when considering the company for investment, lending and trade.

Once this need was identified the original standards committee, IASC (International Accounting Standards Committee) was tasked with establishing the standards required in order to facilitate this. The IASC later went onto become the IASB because of a deemed restructure due to its agreement with the IOSCO (International Organisation of Securities Commission) which had endorsed the reporting regime for the global marketplace of raising of finance and trading of shares. (Utopian Global Stock Exchange).

The IASB conceptual framework has set the new IFRS (International Financial Reporting Standards) in order that the preparation and presentation of financial statements for external users are all of the same concept and that all statements are presented in the same way for companies listed across the European and American market. This will aide those users of the...
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