Conceptual framework

Definition

A conceptual framework in accounting is a system of interrelated objectives and fundamentals that provides the foundation for financial reporting and accounting standards. It ensures consistency, transparency, and comparability in financial statements.

5 Must Know Facts For Your Next Test

1. The conceptual framework establishes the objectives of financial reporting, which include providing useful information to investors, creditors, and other stakeholders.
2. It includes fundamental qualitative characteristics such as relevance and faithful representation.
3. The framework outlines specific assumptions like the going concern assumption and economic entity assumption.
4. It defines basic elements of financial statements such as assets, liabilities, equity, revenues, and expenses.
5. The conceptual framework guides the development of new accounting standards and helps resolve accounting issues not directly addressed by existing standards.

Review Questions

• What are the primary objectives of a conceptual framework in accounting?
• Name two fundamental qualitative characteristics outlined in the conceptual framework.
• How does the conceptual framework assist in resolving accounting issues?

Related terms

Accounting Principles: These are the broad rules used to prepare financial statements.

Going Concern Assumption: This assumes that a business will continue to operate indefinitely.

Economic Entity Assumption: This principle states that a business's transactions should be separate from those of its owners or other businesses.