Chapter 2 Conceptual Framework for Financial Reporting
Proposed Conceptual Framework for Financial Reporting: Objective of Financial Reporting and
Qualitative Characteristics of Decision-Useful Financial Reporting Information
FASB, May 29, 2008), page ix. Recall from our discussion in Chapter 1 that while the
conceptual framework and any changes to it pass through the same due process (discussion
paper, public hearing, exposure draft, etc.) as do the IFRSs, the framework is not an IFRS.
That is, the framework does not define standards for any particular measurement or
disclosure issue, and nothing in the framework overrides any specific IFRS.
C. Horngren, “Uses and Limitations of a Conceptual Framework,”
Journal of Accountancy
(April 1981), p. 90.
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
This IFRS Supplement provides expanded discussions of accounting guidance under
International Financial Reporting Standards (IFRS) for the topics in Intermediate
Accounting. The discussions are organized according to the chapters in
Editions) and therefore can be used to supplement the U.S. GAAP
requirements as presented in the textbook. Assignment material is provided for each sup-
plement chapter, which can be used to assess and reinforce student understanding of IFRS.
establishes the concepts that underlie financial reporting.
A conceptual framework is a coherent system of concepts that flow from an objective.
The objective identifies the purpose of financial reporting. The other concepts provide
guidance on (1) identifying the boundaries of financial reporting; (2) selecting the trans-
actions, other events, and circumstances to be represented; (3) how they should be rec-
ognized and measured; and (4) how they should be summarized and reported.
Need for a Conceptual Framework
Why do we need a conceptual framework? First, to be useful, rule-making should build
on and relate to an established body of concepts. A soundly developed conceptual
framework thus enables the IASB to issue
more useful and consistent pronouncements
, and a coherent set of standards should result. Indeed, without the guidance
provided by a soundly developed framework, standard-setting ends up being based
on individual concepts developed by each member of the standard-setting body. The
following observation by a former standard-setter highlights the problem.
“As our professional careers unfold, each of us develops a technical conceptual framework.
Some individual frameworks are sharply defined and firmly held; others are vague and
weakly held; still others are vague and firmly held. . . . At one time or another, most of us
have felt the discomfort of listening to somebody buttress a preconceived conclusion by
building a convoluted chain of shaky reasoning. Indeed, perhaps on occasion we have voiced
such thinking ourselves. . . . My experience . . . taught me many lessons. A major one was