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LO 5.1: Explain what a conceptual framework is

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Gerard Ilott

A conceptual framework (CF) is a collection of concepts and objectives that guide financial reporting. The CF for financial reporting was developed in the 1960s and 1970s in the US and UK to establish a consistent set of principles for recognizing, measuring, and reporting financial information. The objective of general purpose financial reporting is to provide useful information to investors and creditors for decision making. In the 1980s and 1990s, Australia and other countries developed CFs broadly consistent with the framework being developed by the International Accounting Standards Board, though convergence efforts between the IASB and FASB in the 2000s were suspended.

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LO 1: Explain what a conceptual framework is, and how conceptual frameworks around the world came to be developed 1 Created by Dr G. L. Ilott, CQUniversity Australia
What is the conceptual framework for financial reporting? A conceptual framework (CF) is simply a coherent collection of ideas, concepts and objectives that systematically flow from an objective and guide the fulfilment of that objective. The conceptual framework for financial reporting flows from the objective of financial reporting. The objective of financial reporting is supported by the CF to define what financial reporting is, what it seeks to do, and what it contains. This includes principles for recognising, measuring and reporting the elements of financial reports. 2 Created by Dr G. L. Ilott, CQUniversity Australia
3 Created by Dr G. L. Ilott, CQUniversity Australia
So, what is the objective of (general purpose) financial reporting? …to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit. — (IASB 2010, cited in Deegan 2014, p. 217) Can you see the decision-usefulness nature of this objective? 4 Created by Dr G. L. Ilott, CQUniversity Australia
The development of the conceptual framework for financial reporting Around the world, the development of conceptual frameworks for financial reporting are relatively recent. • Studies occurred in the USA in 1960s. • The American Institute of Certified Practicing Accountants (AICPA) took up the challenge during the 1970s. • The US' Financial Accounting Standards Board (FASB) began publishing statements of accounting concepts (SACs) in 1978. • The UK's Corporate Report issued by Institute of Chartered Accountants in England and Wales in 1975. Impetus for CF development in UK. 5 Created by Dr G. L. Ilott, CQUniversity Australia
…Meanwhile in Australia, Australia began development of its CF in 1980s. Began issuing SACs in 1990. Through 1990s, both Australia and UK began to develop conceptual frameworks broadly consistent with that being developed by the IASB. 6 Created by Dr G. L. Ilott, CQUniversity Australia
The IASB From 2005 to 2010, the IASB and FASB had been undertaking joint development of a single CF -> Convergence project. • This was suspended in 2010. Since 2010, the IASB has concentrated on its CF with its member nations. The FASB has been less interested. 7 Created by Dr G. L. Ilott, CQUniversity Australia
Coming up next… In the next presentation, we will consider the common elements within conceptual frameworks for financial reporting. 8 Created by Dr G. L. Ilott, CQUniversity Australia

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LO 5.1: Explain what a conceptual framework is

  • 1. LO 1: Explain what a conceptual framework is, and how conceptual frameworks around the world came to be developed 1 Created by Dr G. L. Ilott, CQUniversity Australia
  • 2. What is the conceptual framework for financial reporting? A conceptual framework (CF) is simply a coherent collection of ideas, concepts and objectives that systematically flow from an objective and guide the fulfilment of that objective. The conceptual framework for financial reporting flows from the objective of financial reporting. The objective of financial reporting is supported by the CF to define what financial reporting is, what it seeks to do, and what it contains. This includes principles for recognising, measuring and reporting the elements of financial reports. 2 Created by Dr G. L. Ilott, CQUniversity Australia
  • 3. 3 Created by Dr G. L. Ilott, CQUniversity Australia
  • 4. So, what is the objective of (general purpose) financial reporting? …to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit. — (IASB 2010, cited in Deegan 2014, p. 217) Can you see the decision-usefulness nature of this objective? 4 Created by Dr G. L. Ilott, CQUniversity Australia
  • 5. The development of the conceptual framework for financial reporting Around the world, the development of conceptual frameworks for financial reporting are relatively recent. • Studies occurred in the USA in 1960s. • The American Institute of Certified Practicing Accountants (AICPA) took up the challenge during the 1970s. • The US' Financial Accounting Standards Board (FASB) began publishing statements of accounting concepts (SACs) in 1978. • The UK's Corporate Report issued by Institute of Chartered Accountants in England and Wales in 1975. Impetus for CF development in UK. 5 Created by Dr G. L. Ilott, CQUniversity Australia
  • 6. …Meanwhile in Australia, Australia began development of its CF in 1980s. Began issuing SACs in 1990. Through 1990s, both Australia and UK began to develop conceptual frameworks broadly consistent with that being developed by the IASB. 6 Created by Dr G. L. Ilott, CQUniversity Australia
  • 7. The IASB From 2005 to 2010, the IASB and FASB had been undertaking joint development of a single CF -> Convergence project. • This was suspended in 2010. Since 2010, the IASB has concentrated on its CF with its member nations. The FASB has been less interested. 7 Created by Dr G. L. Ilott, CQUniversity Australia
  • 8. Coming up next… In the next presentation, we will consider the common elements within conceptual frameworks for financial reporting. 8 Created by Dr G. L. Ilott, CQUniversity Australia