The Role of Conceptual Framework in Financial Reporting

This report delves into the significance of the conceptual framework (CF) in enhancing the quality of financial reporting. The research investigates the importance of the CF developed by the IASB in preparing high-quality financial information, driven by increased global investor pressure for understandable and comparable financial disclosures. The report critically analyzes eight academic journal articles, evaluating their relevance to the research question: "What is the role and function of the conceptual framework in improving the quality of financial reporting?" The analysis reveals that integrating CF principles improves accounting information quality. The CF, based on normative accounting theory, guides accountants in providing specific accounting policies for financial report development, catering to stakeholder needs and promoting uniformity in global financial reporting. Findings highlight the framework's impact on financial statements and its role in facilitating economic decision-making. The report also addresses the role of fair value accounting and the CF's building blocks. The research underscores the CF's role in setting accounting rules and regulations, promoting uniformity, and ensuring the comparability of financial reports globally.

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Importance of Conceptual Framework
Research report

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Abstract
This report has carried out a research into the issue of examining the effectiveness of
developing and implementing conceptual accounting framework to develop the quality financial
reports. In this context, it has been presented through critical analysis of the selected research
articles that conceptual framework (CF) has described the essential characteristics of financial
reporting. As such, it is largely facilitating the business entities for reporting useful and complete
information that helps in taking relevant economic decisions as supported by normative and
stakeholder accounting theories.

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Contents
Abstract............................................................................................................................................2
Introduction......................................................................................................................................4
Research Areas of interest and importance.....................................................................................4
Research Question...........................................................................................................................4
Evaluation of 8 articles on the selected research topic....................................................................4
Finding concluded through critical review of research articles.......................................................7
Theories applied to the research......................................................................................................7
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

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Introduction
This report is developed for the purpose of carrying out a research work about a recent
issue in the relation of financial reporting. In this context, the research issue that is addressed
through developing the report is examining the importance that accounting framework developed
by IASB holds in preparation of the quality financial information. The overall analysis of this
research issue is conducted by examination of the views and opinions of different researchers in
its context through selected of pertinent research articles. The finding that has been derived with
the overall analysis carried out is also presented in the report. Also, the accounting theories that
can be used for addressing the research issue have also been discussed in this research report.
Research Areas of interest and importance
The importance of conceptual accounting framework to present quality financial
information to the end-users can be regarded as a contemporary topic in the field of financial
reporting. This is because the increased pressure from the global investors is causing the need for
business entities to disclose the financial information in a format so that it is easily
understandable and comparable. This is causing the need for developing a coherent set of
principle that needs to be applied by the business entities during development of their financial
reports. The conceptual accounting framework has been developed by the IASB in this regard
only as its main purpose is to enrich the usefulness of financial information for economic
decision-making. The role of financial reporting is very important to support the growth and
development of the stakeholders. As such, there was an increasing need for IASB to developing
an accounting framework that could help in promoting uniformity and reduce inconsistencies
that exist in the financial reporting mechanism of different countries globally. As such, the
investigation held in the research area through this report will help in establishing the relation
between the conceptual framework principles and the accounting quality.
Research Question
The research area focuses on role played by the conceptual framework in providing the
effective accounting rules and policies to enhance the quality of financial reporting. Keeping in
mind this research area, the research question has been framed as under:

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“What is the role and function of the conceptual framework in improving the quality of
financial reporting?”
Evaluation of 8 articles on the selected research topic
Vorster (2007) has carried out a study related to the present area of research that has
examined the theoretical approaches in financial accounting that has lead to the development of
conceptual framework of accounting. Accounting theories as stated in the article can be regarded
as a general frame of reference that is used for developing new accounting practices and
procedures. The article is highly important for examining the various perspectives offered by
different accounting theories such as positive and normative that leads to the development of
conceptual accounting framework. The study carried out has concluded that normative theory of
accounting that emphasizes on the norms and values of the researchers and as such describes the
financial accounting practices to be used on the basis of observation. The qualitative
characteristics of Conceptual Framework (CF) as such are based on the observed norms and
values that need to be present within the financial formation and as such can be stated to be
highly essential for quality financial reporting (Vorster, 2007).
Liana (2012) has also presented his views and opinions about the research area through
presenting a research article in its context. The article has provided an insight into the useful
characteristics of accounting information that need to be present within the financial statements.
The article can be attributed to be extremely pertinent for addressing the research issue as it has
explained the qualitative characteristics that conceptual framework has stated to be present
within the financial reporting. The contribution of these characteristics in improving the financial
reporting quality has been analyzed in this article by comparing the information that entity at an
international level discloses before and after the adoption of the conceptual framework. As such,
this article by eliminating the differences in the nature of financial reporting process before and
after the development and integration of the CF principles has adequately addressed the research
context (Liana, 2012).
Whittington (2008) has presented a research article that has addressed the issues that need
to be addressed by the IASB and FASB for successful integration of the conceptual framework
to enhance the usefulness of financial information for the end-users. In this context, the article

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has most importantly elaborated on the issue of fair value accounting that is responsible for
causing major criticism for the adoption of the IASB’s standards. As such, the article has
analyzed specifically the measurement issues that have risen due to the development of
conceptual accounting framework. The CF has provided the use of fair value accounting
approach to measure the value of its key financial items such as assets and liabilities. In addition
to this, the article has provided a brief explanation about the different building blacks of the CF
that will help to adequately understand the contribution of this framework in developing
improved quality financial reports (Whittington, 2008).
The research article written by Achim and Chis (2014) in this context has highlighted the
importance of developing high-quality financial statements and maximizing the value created for
the shareholders. It has been expressed by the authors in the article that conceptual framework by
developing and describing the essential quality of accounting information have lead to the
development of improved finical reporting process. The article in relation to the selected research
issue has provided a theoretical qualitative study in the field of financial accounting quality and
the qualitative characteristics of the financial information. The importance of providing
accounting information that is of high quality is very useful for facilitating the economic decision
making process has been examined in detail through theoretical discussion carried out in the
article (Achim and Chis, 2014).
As per the research article written by Bala (2012), the conceptual framework has been
defined as the significant part on which accounting rules, standards and regulations have been
drawn. Critical research has been conducted by the Bala to provide for the complete overview of
new conceptual framework drawn in year 2010 and how it has helped in delivering the objectives
of International Accounting Standard Board. It has been mentioned in the article that although
the new conceptual framework was incomplete as it lack some information but it was successful
in delivering the complete set of objectives required for the purpose of financial reporting. The
purpose of including this research article is to review the changes made by the new conceptual
framework and how it has improved the financial reporting. This article has successfully drawn
conclusions on benefits gained through the new conceptual framework and major changes that
have been provided after the global financial crises (Bala, 2012).

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The journal article provided by Herath and Albarqi (2017) was related to role played by
the conceptual framework in enhancing the financial quality reports developed by the entities.
The purpose of this research article is to review the existing literature on importance of
conceptual framework and how it has improved the quality of financial reporting. Through this
article, author has found that there is a significant gap in existing literature as they are
incomplete or short to provide sufficient information. However, it can be articulated from this
article that there was major role of conceptual framework in improving the financial quality as it
set downs all the required information upon which all the accounting rules and regulations has
been drafted. It helps in maintaining uniformity in accounting standards and allows the
comparability of the financial reports all around the world. As the purpose of current research is
provide a gene comment on role of conceptual framework not in particular context, the selected
will be helpful in meeting the requirement of research (Herath and Albarqi, 2017).
Cuong and Ly (2017), provides that quality of information provided in the financial
reports is very important from the view point of the financial users and without the help of
conceptual framework it is not possible to deliver such quality information. The research article
by Cuong and Ly was specifically drawn on the quality of financial reporting by the companies
listed on Vietnam stock exchange. The article provides that format given by the conceptual
framework to develop the financial statements is very useful in interpreting the financial
performance of the company. The conceptual framework has been defined as statement that
contained various definitions, rules, guidelines, elements of financial statements, measurement
criteria and important disclosures that need to be followed by accountants, entities, accounting
bodies and other concerned individual while preparing the financial report. The results drawn
from the selected research articles clearly mentions that quality of information provided in the
financial reports helps to compare and easily understand which is very critical for the investors
point of view (Cuong and Ly, 2017).
As per the views of Ohlson et al. (2010), the financial reporting is the essential part of
every company and there must a common platform on which whole accounting procedure must
be based. Further this article provides that conceptual framework developed by the IASB act as
the necessary base on which international accounting standards have been drawn. So it can be
said that conceptual framework is very significant part of financial reporting or it can be said

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whole reporting is based on it. The purpose of chose this research article is to gain information
on CF has laid down the foundation stone to provide for all necessary information needed to
draft the standards and prepare the financial report (Ohlson, et al., 2010).
Finding concluded through critical review of research articles
The critical analysis of the selected research articles in the context of the research issue
has depicted that quality of accounting information can largely improvise through the integration
of the characteristics and principles stated in the conceptual framework of reporting. The
framework developed by the IASB has clarified the concepts of the financial accountants and
helped them in providing a specific set of accounting policies that need to be used to develop the
financial reports. The use of the accounting policies and method stated out in the CF will largely
facilitate the business entities to address the varying needs of stakeholders. The CF is based on
the normative theory of accounting that has stated that accounting policies and choices are
largely pendent on the norms and values of the accounting researchers. The CF developed on the
observed ethical norms and values can be regarded to be best suited for developing quality
financial reports.
Theories applied to the research
The accounting theories has been defined as set of principles that provides the framework
through which practices in accounting can be analyzed and it also act as the guide for the
development of new practices and procedures of in accounting field. In this respect various
accounting theories have been drafted to purse the practice of accounting and to present what is
right in front of stakeholders. The most important accounting theory on which complete
accounting is based is known as normative accounting theory. This theory is based on the
principle that once should act or perform as per circumstances it means one should be liable for
act that he has performed and has to report in same way as it was. The development of
conceptual framework is based on normative theory as while drafting the framework one should
consider the facts and relevancy of information to be included in financial reporting. Normative
theory is not based observations but it considers facts to derive the values of accounting.
Definition of elements of financial statements are derived from the normative theory as it is this

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theory considers practical observations and measurement which is very important in to drafting
the definition of assets, liabilities etc (Deegan, 2014).
Stakeholder’s theory is also applicable on the research study as it provides that it is
management duty to provide all such information that is needed by the users to measure and
compare the performance of entities. In this context CF plays an important role in delivering the
financial quality to the users (Belal, 2016).
Conclusion
It can be implied form the overall discussion carried in the research report that conceptual
framework has reduce uncertainty that exist in the mind of accountants during development of
financial reports and assisting them to provide complete and error-free information that has high
relevance in decision-making process.

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References
Achim, A. and Chis, A. 2014. Fair Value and the IASB/FASB Conceptual Framework Project:
An Alternative View. Practical Application of Science II(3), pp. 93-98.
Bala, S.K. 2012. The New Conceptual Framework for Financial Reporting 2010: Some
Reflective Comments. Independent Business Review 5(2), pp. 1-25.
Belal, A.R. 2016. Corporate Social Responsibility Reporting in Developing Countries: The Case
of Bangladesh. Routledge.
Cuong, N.T. and Ly, D.T. 2017. Measuring and Assessing the Quality of Information on the
Annual Reports: The Case of Seafood’s Companies Listed on the Vietnam Stock Market.
International Research Journal of Finance and Economics 160, pp. 26-40.
Deegan, C. 2014. Financial Accounting Theory. McGraw-Hill Education Australia.
Herath, S.K. and Albarqi, N. 2017. Financial Reporting Quality: A Literature Review.
International Journal of Business Management and Commerce 2(2), pp. 1-14.
Liana, G. 2012. The Quality Increasing Of Information in The Financial Statements: A
Rearrangement Of The Qualitative Characteristics. Economy Series 3, pp. 125-130.
Ohlson, J.A. et al. 2010. A Framework for Financial Reporting Standards: Issues and a
Suggested Model. American Accounting Association 24(3), pp. 471-485.
Schroeder, R.G., Clark, M. and Cathey, J.M. 2016. Financial Accounting Theory and Analysis:
Text and Cases. Wiley.
Vorster, Q. 2007. The Conceptual Framework, Accounting Principles And What We Believe Is
True. Accountancy, pp. 30-33.
Whittington, G. 2008. Fair Value and the IASB/FASB Conceptual Framework Project: An
Alternative View. ABACUS 44(2), pp. 139-168.