Conceptual Framework Essay

Question 1

Purpose and advantages of conceptual framework

Answer 1

Basis from which to develop standards

Promote harmonisation if regulations

Help standard setters withstand political pressure

Prevent large numbers of highly detailed standards eg US

Assist preparers of financial statements where there is no IFRS

Assist auditors in deciding whether statements comply with IFRS

Assist users in interpreting financial statements

Question 2

Relevance

Answer 2

Make difference to decision of user

Predictive value (help predict future values )

Confirmatory value (Confirm or refute previous predictions )

Materiality - could it’s omission or misstatement influence a users decision

Question 3

Faithful representation

Answer 3

Complete

All information required for user to understand transaction / events

Neutral (unbiased )

Free from error

Need not be 100% accurate but free from material error

Question 4

Comparability

Answer 4

Enables comparison with different periods of some entity with same period of another entity

Improved consistency (same accounting treatment of same types of item )

Question 5

Timeliness

Answer 5

In time to influence economic decisions

Question 6

Understandability

Answer 6

By users with a reasonable knowledge of business and economic activities

Improves by classifying and presenting clearly and concisely

Question 7

What is the conceptual framework

Answer 7

A set of fundamental principles which underpin financial statements