Conceptual Framework Flashcards
When was the first conceptual frame work made
The IAS developed the first one in 1989
Prior to CF
Standards were issued based on observations of best practices and could contradict each other
What does a CF do
Sets out the concepts that underlie the preparation and presentation of IFRS. Complaint reports.
Benefits of CF
It helps in the development of future standards
Reviews existing standards
Reduces the number of alternative accounting treatment
Helps users interpret financial statements
Drawbacks of CF
Whose viewpoint should the framework be set
Accounting has existed for centuries without conceptual framework why is one needed now when local accounting requirements have grown up to meet local requirements
Measurement definition
The frame work recognises that a number of different bases may be used for asset’s liabilities etc. the framework does not prescribe any measurement basis but rather describes a number that can be used including historical cost, current cost, fair value and value in use
Measurement examples
Doesn’t prescribe a measurement basis so different companies can use different valuation based e.g PPE at valuation , inventory as lower cost and NRV
When can an asset be recognised
Probable flow of economic benefits
Cost of value can be measured reliably
2 main theoretical approaches.
Inductive
Deductive
Advantages and disadvantages of inductive
Advantages
Dealing with real issues rather than abstract issues
It also has the advantage of gaining acceptance from practitioners/ auditors because they are effectively setting the standards
Disadvantages
Difficult to apply to new developments in a period of rapid economical and political change because there is little time for uniform practices to evolve
There can be concern because existing practice can be perceived as having been tainted due to be img determined by directors and auditors
Advantages and disadvantages of deductive approach
Advantages
Quicker to apply in new situations because starting point is theoretical rather than observational
Existing theory will be free from bias as finance teams are not involved in the process
Disadvantages
Is criticised as being pretty distant from real issues as it’s based on abstract issues being theory based
Going concern definition
An accounting principle that assumes a company will continue its operations into the foreseeable future and will not be forced to liquidate
