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Important of Iasb

In: Business and Management

Submitted By yuganeswaran
Words 1087
Pages 5
In a broad sense a conceptual framework can be seen as an attempt to define the nature and purpose of accounting. A conceptual framework must consider the theoretical and conceptual issues surrounding financial reporting and form a coherent and consistent foundation that will underpin the development of accounting standards.

Conceptual frameworks can apply to many disciplines, but when specifically related to financial reporting, a conceptual framework can be seen as a statement of generally accepted accounting principles (GAAP) that form a frame of reference for the evaluation of existing practices and the development of new ones. As the purpose of financial reporting is to provide useful information as a basis for economic decision making, a conceptual framework will form a theoretical basis for determining how transactions should be measured by historical value or current value and reported is how they are presented or communicated to users.

Some accountants have questioned whether a conceptual framework is necessary in order to produce reliable financial statements. Past history of standard setting bodies throughout the world tells us. In the absence of a conceptual framework, accounting standards were often produced that had serious defects that is:

* They were not consistent with each other particularly in the role of prudence versus accruals or matching.

* They were also internally inconsistent and often the effect of the transaction on the statement of financial position was considered more important than its effect on income statement.

* Standards were produced on a ‘fire fighting’ approach, often reacting to a corporate scandal or failure, rather than being proactive in determining best policy.

* Some standard setting bodies were biased in their composition is not fairly representative of all user groups and this influenced...

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