Accounting Theory & Contemporary Issues: Conceptual Framework Report

This report analyzes the revised (2018) conceptual framework for financial reporting finalized by the International Accounting Standards Board (IASB). It explores the framework's role in assisting the IASB in developing and reviewing International Financial Reporting Standards (IFRS) and aiding preparers in developing accounting policies. The report discusses the objectives of general-purpose financial reporting, emphasizing the importance of providing information beneficial to investors, creditors, and lenders. It also examines key concepts such as prudence (conservatism) and the principle of substance over form, highlighting their significance in ensuring accurate and fair financial representations. The analysis includes references to IFRS documents and academic research, providing a comprehensive overview of the conceptual framework's impact on accounting practices.

ACCOUNTING THEORY

ROLE OF CONCEPTUAL FRAMEWORK IN ACCOUNTING
• The conceptual framework helps in playing important role in the accounting. The major role of conceptual
framework is for assisting IASB in IFRS future development and reviewing current IFRS.
• It assists the preparers of the financial statements in development of policies of accounting for the
transactions or the events, which are not covered by existing standards.
• The major benefits for having conceptual framework is for setting of standards of the accounting, a basis
for the resolution of the disputes of the accounting as well as the fundamental principles, which does not
requires to be repeated in standards of accounting (Ifrs.org. 2019).
• The conceptual framework of the year 2010 was heavily criticized regarding the lack of clarity, for being
outdated in relation to current thinking of the IASB as well as exclusion of the some of the important
concepts.
• As the result of which, IASB has proposed for shifting the fundamentals concepts of the assets as well as
liabilities for improving the clarity (Ifrs.org. 2019).

GENERAL PURPOSE FINANCIAL REPORTING OBJECTIVES
• Throughout the year, general-purpose financial statements are prepared for providing aid to the
stakeholders in the process of decision-making.
• The major objective of the general purpose financial reporting is for providing the information
about the reporting entity, which is beneficial to the existing as well as prospective investors,
creditors and lenders for taking the decisions regarding providing the resources to the organization
(Ifrs.org. 2019).
• The concept of prudence is also referred as conservatism principle, which is the key principle of
accounting that helps in making sure that there is no overstatement of the income as well as
assets and the provisions are made for all the losses and the expenses, whether amount is being
known for just an estimation (Ifrs.org. 2019).
• This concept helps in taking the considerations of all the prospective losses rather than taking
prospective profits.
• The prudent exercise does not help in allowing for assets as well as the income understatements
or the overstatements of the liabilities as well as expenses. It is because these misstatements can
lead towards income overstatement or expenses understatements in future period.

SUBSTANCE OVER FORM AND FAITHFUL
REPRESENTATION
• The concepts of Substance over form in the accounting is economic
substance of the events as well as transactions, which requires to be
recorded in the financial statements in comparison to be just in legal form for
presenting true as well as fair view of company’s affairs.
• The Board decision regarding stating explicitly that the faithful representation
helps in representing the substance of the economic phenomenon is correct.
• The faithful representation helps in seeking for maximizing the underlying
characteristics of the freedom from the error, completeness as well as
neutrality.

REFERENCE
• Ifrs.org. 2019. [online] Available at: https://www.ifrs.org/-/media/project/conceptual-framework/exposure-draft/published-
documents/ed-conceptual-framework.pdf [Accessed 10 Sep. 2019].
• Ifrs.org. 2019. [online] Available at: https://www.ifrs.org/-/media/project/conceptual-framework/exposure-draft/published-
documents/ed-conceptual-framework-basis-conclusions.pdf [Accessed 10 Sep. 2019].
• Ifrs.org. 2019. [online] Available at: https://www.ifrs.org/-/media/project/conceptual-framework/current-stage/conceptual-
framework-summary-of-tentative-decisions.pdf [Accessed 10 Sep. 2019].
• Ifrs.org. 2019. IFRS . [online] Available at: https://www.ifrs.org/news-and-events/2018/03/iasb-completes-revisions-to-its-
conceptual-framework/ [Accessed 10 Sep. 2019].
• Lewandowski, M., 2016. Designing the business models for circular economy—Towards the conceptual
framework. Sustainability, 8(1), p.43.
• Morioka, S.N. and de Carvalho, M.M., 2016. A systematic literature review towards a conceptual framework for integrating
sustainability performance into business. Journal of Cleaner Production, 136, pp.134-146.
• Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1),
pp.17-26.