CONCEPTUAL FRAMEWORK (Objective of Financial Reporting)
PURPOSES OF THE CONCEPTUAL FRAMEWORK
Conceptual Framework for Financial Reporting
- is a complete, comprehensive and single document promulgated by the
International Accounting Standards Board.
- is a summary of the terms and concepts that underlie the preparation and
presentation of financial statements for external users.
- describes the concepts for general purpose financial reporting.
- is intended to guide standard-setters, preparers and users of financial
information in the preparation and presentation of statements.
- is the underlying theory for the development of accounting standards and
revision of previously issued accounting standards.
- will be used in future standard setting decision but no changes will be
made to the current IFRS.
The Conceptual Framework provides the foundation for Standards that:
a. Contribute to transparency by enhancing international comparability and
quality of financial information.
b. Strengthen accountability by reducing information gap between the providers
of capital and the people to whom they have entrusted their money.
c. Contribute to economic efficiency by helping investors to identify
opportunities and risks across the world
a. To assist the Board in the development of future IFRSs and in its review of existing IFRSs
b. To assist the Board in promoting harmonisation of regulations, accounting standards and
procedures relating to the presentation of financial statements by providing a basis for
reducing the number of alternative accounting treatments permitted by IFRSs
c. To assist national standard-setting bodies in developing national standards;
d. To assist preparers of financial statements in applying IFRSs and in dealing with topics
that have yet to form the subject of an IFRS
e. To assist auditors in forming an opinion on whether financial statements comply with IFRSs
f. To assist users of financial statements in interpreting the information contained in
financial statements prepared in compliance with IFRSs
g. To provide those who are interested in the work of the IASB with information about its
approach to the formulation of IFRSs.
AUTHORITATIVE STATUS OF CONCEPTUAL FRAMEWORK
- nothing in the Conceptual Framework overrides any specific international
financial reporting standard
- if there is a standard or an interpretation that specifically applies to a
transaction, the standard or interpretation overrides the Conceptual
Framework
- in the absence of a standard or an interpretation that specifically applies to a
transaction, management shall consider the applicability of the Conceptual
Framework in developing and applying an accounting policy that results in
information that is relevant and reliable.
- Conceptual Framework is not an International Financial Reporting Standard
- in case where there is a conflict, the requirements of the IFRS shall prevail
over the Conceptual Framework.
USERS OF FINANCIAL INFORMATION OBJECTIVE OF FINANCIAL REPORTING

a. Primary users – parties to whom general purpose financial reports are primarily
directed (provides resources to the entity; have the most critical and immediate need
for information in financial reports)
i) Existing and potential investors – concerned with the risk inherent in and
return provided by their investments.
ii) Lenders and other creditors – interested in information which enables then to
determine whether their loans, interest thereon and other amounts owing to
them will be paid when due.
b) Other users – parties that may find the general purpose financial reports useful but the
reports are not directed to them primarily.
i) Employees – interested in information about the stability and profitability of the
entity; interest in info which enables them to assess the ability of the entity to
provide remuneration, retirement benefits and employment opportunities.
ii) Customers – have an interest in info about the continuance of an entity
especially when they have a long-term involvement with or are dependent on the
entity.
iii) Governments and their agencies – interested in the allocation of resources
and therefore the activities of the entity; these users require information to regulate
the activities of the entity, determine taxation policies and as a basis for national
income and similar statistics.
iv) Public – financial statements may assist the public by providing information
about the trend and the range of its activities.
- The objective of financial reporting forms the foundation of the Conceptual Framework.
- The overall objective of financial reporting is 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.
- Financial reporting is the provision of financial information about an entity to
external users that is useful to them in making economic decisions and for
assessing the effectiveness of the entity’s management.
- The principal way of providing financial information to external users is through the
annual financial statements.
- However, financial recording encompasses not only financial statements but also other
information such as financial highlights, summary of important financial figures,
analysis of financial statements and significant ratios.
- Financial reports also include nonfinancial information such as description of major
products and a listing of corporate officers and directors.

SCOPE OF REVISED CONCEPTUAL FRAMEWORK SPECIFIC OBJECTIVES OF FINANCIAL REPORTING

- The overall objective of financial reporting is to provide information that is useful for decision making.
a. Objective of financial reporting - The conceptual framework places more emphasis on the importance of providing information needed to assess the
b. Qualitative characteristics of useful financial information management stewardship of the entity’s economic resources.
- The specific objectives of financial reporting are:
c. Financial statements and reporting entity a. To provide information useful in making decisions about providing resources to the entity.
d. Elements of financial statements (a) Existing and potential investors- enable them in making decisions whether to buy, sell or hold
equity investments.
e. Recognition and derecognition (b) Existing and potential lenders and other creditors – enable them in making decisions weather
f. Measurement to provide or settle loans and other forms of credit.
b. To provide information useful in assessing the cash flow prospects of the entity.
g. Presentation and disclosure (a) Existing and potential investors- decisions depend on the returns that they expect from an
h. Concepts of capital and capital maintenance investment (e.g. dividends)
(b) Existing and potential lenders and other creditors- decisions depend on the principal and
interest payments or other returns that they expect.
(c) Financial reporting should provide information useful in assessing the amount, timing and
uncertainty of prospects for future net cash inflows to the entity
c. To provide information about entity resources, claims and changes in resources and claims.
(a) The economic resources are the assets and the claims are the liabilities and equity of the entity-
Financial Position- can help users to assess the entity’s liquidity, solvency and the need for
additional financing.
(b) Changes in economic resources and claims result from financial performance (includes
revenue, expenses and net income or loss for a period of time) and from other events or
transactions, such as issuing debt or equity instruments.
(c) Financial performance – helps users understand the return that the entity has produced on
the economic resources; useful in assessing the entity’s ability to generate future cash flow
inflows from operations; return- provides an indication of how well management has
discharged its responsibilities to make efficient and effective use of the entity’s economic
resources; past financial performance- usually helpful in predicting the future returns on the
entity’s economic sources.
CONCEPTUAL FRAMEWORK (Objective of Financial Reporting)
Conceptual Framework for Financial Reporting
- is a complete, comprehensive and single document promulgated by the
International Accounting Standards Board.
- is a summary of the terms and concepts that underlie the preparation and
presentation of financial statements for external users.
- describes the concepts for general purpose financial reporting.
- is intended to guide standard-setters, preparers and users of financial
information in the preparation and presentation of statements.
- is the underlying theory for the development of accounting standards and
revision of previously issued accounting standards.
- will be used in future standard setting decision but no changes will be
made to the current IFRS.
The Conceptual Framework provides the foundation for Standards that:
d. Contribute to transparency by enhancing international comparability and
quality of financial information.
e. Strengthen accountability by reducing information gap between the providers
of capital and the people to whom they have entrusted their money.
f. Contribute to economic efficiency by helping investors to identify
opportunities and risks across the world
PURPOSES OF THE CONCEPTUAL FRAMEWORK
h. To assist the Board in the development of future IFRSs and in its review of existing IFRSs
i. To assist the Board in promoting harmonisation of regulations, accounting standards and
procedures relating to the presentation of financial statements by providing a basis for
reducing the number of alternative accounting treatments permitted by IFRSs
j. To assist national standard-setting bodies in developing national standards;
k. To assist preparers of financial statements in applying IFRSs and in dealing with topics
that have yet to form the subject of an IFRS
l. To assist auditors in forming an opinion on whether financial statements comply with IFRSs
m. To assist users of financial statements in interpreting the information contained in
financial statements prepared in compliance with IFRSs
n. To provide those who are interested in the work of the IASB with information about its
approach to the formulation of IFRSs.
AUTHORITATIVE STATUS OF CONCEPTUAL FRAMEWORK
- nothing in the Conceptual Framework overrides any specific international
financial reporting standard
- if there is a standard or an interpretation that specifically applies to a
transaction, the standard or interpretation overrides the Conceptual
Framework
- in the absence of a standard or an interpretation that specifically applies to a
transaction, management shall consider the applicability of the Conceptual
Framework in developing and applying an accounting policy that results in
information that is relevant and reliable.
- Conceptual Framework is not an International Financial Reporting Standard
- in case where there is a conflict, the requirements of the IFRS shall prevail
over the Conceptual Framework.
ACCRUAL ACCOUNTING
- depicts the effects of transaction and other events and circumstances on an
entity’s economic resources and claims in the periods in which those effects
occur even if the resulting cash receipts and payments occur in a different
period.
- The effects of transactions and other events are recognized when they occur,
and not as cash is received or or paid.
- Accrual Accounting means that income is recognized when earned regardless
of when received and expense is recognized when incurred regardless of
when paid.
LIMITATIONS OF FINANCIAL POSITION
a. General purpose financial reports do not and cannot provide all of the
information that existing and potential investors, lenders and other creditors
need.
b. General purpose financial reports are not designed to show the value of an
entity but the reports provide information to help the primary users estimate
the value of the entity.
c. General purpose financial reports are intended to provide common information
to users and cannot accommodate every request for information.
d. To a large extent, general purpose financial report are based on estimate and
judgement rather than exact depiction.
MANAGEMENT STEWARDSHIP
- How efficiently and effectively management has discharged its responsibilities
to use the entity’s economic resources.
-
SPECIFIC OBJECTIVES OF FINANCIAL REPORTING
- The overall objective of financial reporting is to provide information that is useful for decision making.
- The conceptual framework places more emphasis on the importance of providing information needed to assess the
management stewardship of the entity’s economic resources.
- The specific objectives of financial reporting are:
d. To provide information useful in making decisions about providing resources to the entity.
(c) Existing and potential investors- enable them in making decisions whether to buy, sell or hold
equity investments.
(d) Existing and potential lenders and other creditors – enable them in making decisions weather
to provide or settle loans and other forms of credit.
e. To provide information useful in assessing the cash flow prospects of the entity.
(d) Existing and potential investors- decisions depend on the returns that they expect from an
investment (e.g. dividends)
(e) Existing and potential lenders and other creditors- decisions depend on the principal and
interest payments or other returns that they expect.
(f) Financial reporting should provide information useful in assessing the amount, timing and
uncertainty of prospects for future net cash inflows to the entity
f. To provide information about entity resources, claims and changes in resources and claims.
(d) The economic resources are the assets and the claims are the liabilities and equity of the entity-
Financial Position- can help users to assess the entity’s liquidity, solvency and the need for
additional financing.
(e) Changes in economic resources and claims result from financial performance (includes
revenue, expenses and net income or loss for a period of time) and from other events or
transactions, such as issuing debt or equity instruments.
(f) Financial performance – helps users understand the return that the entity has produced on
the economic resources; useful in assessing the entity’s ability to generate future cash flow
inflows from operations; return- provides an indication of how well management has
discharged its responsibilities to make efficient and effective use of the entity’s economic
resources; past financial performance- usually helpful in predicting the future returns on the
entity’s economic sources.