Conceptual Framework:

Objective of Financial
Reporting
Course Module 02
Conceptual Framework
The Conceptual Framework for Financial Reporting is a complete, comprehensive,
and single document promulgated by the International Accounting Standards
Boards.

- For the preparation and presentation of financial statements for external users
- Concepts for general purpose financial reporting
- Provides the theoretical framework for accounting
Conceptual Framework
Foundation for Standards that:

● Contribute to transparency by enhancing international comparability and

quality of financial information
● Strengthen accountability by reducing information gap between the providers
of capital and the people to whom they have entrusted their money.
● Contribute to economic efficiency by helping investors to identify opportunities
and risks across the world
Purposes of Revised Conceptual Framework
a. To assist the International Accounting Standards Board to develop IFRS
Standards based on consistent concepts
b. To assist preparers of financial statements to develop consistent accounting
policy when no standard applies to a particular transaction or other event or
where an issue is not yet addressed by an IFRS
c. To assist preparers of financial statements to develop accounting policy when
a Standard allows a choice of an accounting policy
d. To assist all parties to understand and interpret the IFRS Standards
Authoritative Status of 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
● Nothing in the Conceptual Framework overrides any specific International
Financial Reporting Standard
Users of Financial Information
1. Primary Users
a. Existing and potential investors
b. Lenders and other creditors
2. Other Users
a. Employees
b. Customers
c. Government and their agencies
d. Public
Scope of Revised Conceptual Framework
1. Objective of financial reporting
2. Qualitative characteristics of useful financial reporting
3. Financial statements and reporting entity
4. Elements of financial statements
5. Recognition and derecognition
6. Measurement
7. Presentation and disclosure
8. Concepts of capital and capital maintenance
Objective of Financial Reporting
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.

Specific objectives

1. To provide information useful in making decisions about providing resources to the

entity
2. To provide information useful in assessing the cash flow prospects of the entity
3. To provide information about entity resources, claims and changes in resources
and claims
Financial Statements provide information on:
1. Economic Decisions
2. Assessing cash flow prospects
3. Economic resources and claims
4. Changes in economic resources and claims
5. Management stewardship
Accrual Accounting
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 Reporting
1. General purpose financial reports do not and cannot provide all of the
information that existing and potential investors, lenders and other creditors
need.
2. GPFR 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
3. GPFR are intended to provide common information to users and cannot
accommodate every request for information.
4. To a large extent, GPFR are based on estimate and judgment rather than
depiction