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558 views

Slide Presentation - Accounting Conceptual Framework PDF

Uploaded by

Yusuf
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Accounting Theory

Jesus Obana, CPA

What is
Accounting
Conceptual
Framework?

A conceptual framework considers the


theoretical and conceptual issues surrounding
financial reporting and form a coherent and
consistent foundation that will underpin the
development of accounting standards.
A conceptual framework can be seen as a
statement of generally accepted accounting
principles (GAAP) that form a frame of reference
for the evaluation of existing practices and the
development of new ones.
A conceptual framework forms a theoretical
basis for determining how transactions should be
measured and reported.

What is a conceptual framework?


In the absence of a
conceptual framework...

Standards were produced on a


firefighting approach rather
than proactive

Some standard-setting body


were biased in their
composition which influenced
the quality of standards

Same theoretical issues were


revisited many times in
successive standards

Led to the proliferation of


rules-based accounting
systems

Accounting standards produced will


have serious defects:

Inconsistencies in standards
with regards to the role of
prudence vs. accruals/matching
Standards are internally
inconsistent (i.e. effect of
transaction on BS was more
important than its effect on IS

What is a conceptual framework?


The Benefits of a
conceptual framework...

Establishing precise definitions


that facilitate discussion of
accounting issues;

Providing guidance to
standard-setters when
developing and reviewing
financial reporting rules;

Ensuring that accounting


standards are internally
consistent;

Helping preparers and auditors


to resolve financial reporting
problems in the absence of an
accounting standards; and

Helping to limit the volume of


accounting standards by
providing an overarching
theory of accounting that can
be applied to specific
accounting problems

Why is the IASB Revising the Conceptual


Framework?
Development and
Revision of the
Conceptual Framework

Reasons for revising the


existing conceptual
framework

The conceptual framework was


developed by the IASC in 1989

some important areas are not


covered;

The objective of financial


reporting and the qualitative
characteristics of financial
information was revised by the
IASB in 2010 - a joint project
with US FASB

the guidance ins some areas is


unclear; and

some aspects are out of date.

Why is the IASB Revising the Conceptual


Framework?
Current developments

Setting the agenda - the IASB


carried out a public
consultation on its agenda in
2011

Planning the project - most


respondents identified the
conceptual framework as a
priority project and the IASB
restarted its project in 2012

Issue discussion paper - the


Discussion: A Review of the
Conceptual Framework for
Financial Reporting was
published in 2013

Issue Exposure Draft (ED) - the


IASB published an Exposure
Draft on the proposed revised
conceptual framework in 2015

The revised conceptual


framework is expected to be
finalized in 2016

Who Will Be Affected By the Revised


Conceptual Framework?

There will be no immediate


effect on the financial
statements of most reporting
entities

Some entities can be affected


by the changes if they need to
use the conceptual framework
to develop or select accounting
policies when no specific
Standard applies to a
transaction

In the future, the conceptual


framework will guide the IASB
when it develops accounting
standards, which will affect
financial statements indirectly
when entities implement new
or revised standards based on
revised conceptual framework

Main Purpose(s) of the Conceptual


Framework?

Used by the IASB in developing


or revising its IFRSs

Sets out the underlying


concepts for the preparation
and presentation of financial
statements

Forms the basis for the specific


recognition and measurements
in IFRSs

Enable the IASB to reach


consistent conclusions on a
variety of complex financial
reporting matters

Assist other parties when


accounting for items not
covered by a particular IFRS

Scope of the IFRS Conceptual


Framework?

the objectives of financial reporting

the qualitative characteristics of useful financial information

the reporting entity

the definitions, recognition and measurement of the elements from


which the financial statements are constructed

concepts of capital and capital maintenance

Objectives of
financial reporting

The primary objective of financial reporting is


to is to provide useful financial information.

The Objective of General Purpose Financial


Reporting
Primary Users

Present and potential


investors, lenders, and other
creditors

They need/use information:

to make decisions about


buying, selling or holding
equity or debt instruments
and providing or settling
loans or other forms of credit
assess an entitys prospects
for future cash inflows
assess the managements
effectiveness and efficiency

Important notes:

general purpose financial


statements CANNOT provide
all the information that users
may need to make economic
decisions

users need to consider


pertinent information from
other sources as well

Other parties, including


prudential and market
regulators are not considered
as a primary user

All rights reserved. 2016

CONTACT INFORMATION:
JESUS OBANA, CPA
Office: BS047
Ext. 5216
Email: [email protected]
www.hct.edu.om
https://om.linkedin.com/in/jesusobana

cafeprojectX
Center for Accounting and Financial
Education
jessobana.wix.com/cafeproject

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