Purpose and Role of the Conceptual Framework
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Purpose of the Conceptual Framework
Development of IFRS Standards: The Conceptual Framework assists the IASB in developing and revising IFRS Accounting Standards by providing a coherent foundation and guiding principles.
Guidance for Entities: It helps entities develop consistent accounting policies in situations where no specific IFRS Standard applies or when a Standard permits a choice of accounting policy.
Understanding IFRS Standards: The Conceptual Framework aids stakeholders—such as investors, regulators, and auditors—in understanding and interpreting IFRS Accounting Standards effectively.
Precedence of IFRS Standards: IFRS Standards take precedence over the Conceptual Framework. However, any departure by new Standards from the Framework requires the IASB to explain the rationale in the Basis for Conclusions.
Development of IFRS Standards: The Conceptual Framework assists the IASB in developing and revising IFRS Accounting Standards by providing a coherent foundation and guiding principles.
Guidance for Entities: It helps entities develop consistent accounting policies in situations where no specific IFRS Standard applies or when a Standard permits a choice of accounting policy.
Understanding IFRS Standards: The Conceptual Framework aids stakeholders—such as investors, regulators, and auditors—in understanding and interpreting IFRS Accounting Standards effectively.
Precedence of IFRS Standards: IFRS Standards take precedence over the Conceptual Framework. However, any departure by new Standards from the Framework requires the IASB to explain the rationale in the Basis for Conclusions.
Objective of General-Purpose Financial Reporting
Focus on Stewardship: The IASB highlights the concept of stewardship, emphasizing management's responsibility to safeguard and efficiently use the entity’s resources for the benefit of stakeholders.
Decision-Making Utility: General-purpose financial reporting aims to provide information that helps users make decisions about providing resources to the entity.
Focus on Stewardship: The IASB highlights the concept of stewardship, emphasizing management's responsibility to safeguard and efficiently use the entity’s resources for the benefit of stakeholders.
Decision-Making Utility: General-purpose financial reporting aims to provide information that helps users make decisions about providing resources to the entity.
User Expectations and Information Needs
Future Cash Flows: Users base their decisions on their assessment of the amount, timing, and uncertainty of future net cash inflows to the entity.
Management’s Accountability: Users also evaluate management’s stewardship of the entity’s resources, which reflects how effectively resources are managed and used to generate returns.
Future Cash Flows: Users base their decisions on their assessment of the amount, timing, and uncertainty of future net cash inflows to the entity.
Management’s Accountability: Users also evaluate management’s stewardship of the entity’s resources, which reflects how effectively resources are managed and used to generate returns.
Role of the Conceptual Framework in Financial Reporting
Foundation for Consistency: The Framework promotes consistency and coherence in financial reporting by serving as a reference point for developing accounting policies and Standards.
Enhancing Transparency: By incorporating stewardship and user-focused objectives, the Framework ensures that financial reporting provides relevant, reliable, and transparent information to stakeholders.
Foundation for Consistency: The Framework promotes consistency and coherence in financial reporting by serving as a reference point for developing accounting policies and Standards.
Enhancing Transparency: By incorporating stewardship and user-focused objectives, the Framework ensures that financial reporting provides relevant, reliable, and transparent information to stakeholders.
These principles reinforce the Conceptual Framework’s role as a cornerstone of IFRS financial reporting, guiding standard-setting and supporting stakeholders in decision-making
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