Conceptual framework -a conceptual framework is a theory of accounting prepared by a standard-setting body against

which practical problems can be tested objectively. A conceptual framework deals with fundamental financial reporting
issues such as the objectives and users of financial statements, the characteristics that make accounting information
useful, the basic elements of financial statements (e.g., assets, liabilities, equity, income, and expenses), and the
concepts for recognizing and measuring these elements in the financial statements.
Benefits of a conceptual framework for financial reporting include:
1. Establishing precise definitions that facilitate discussion of accounting issues;
2. Providing guidance to accounting standard setters when developing and reviewing financial reporting rules;
3. Helping to ensure that accounting standards are internally consistent;
4. Helping preparers and auditors to resolve financial reporting problems in the absence of an accounting standard;
5. And helping to limit the volume of accounting standards by providing an overarching theory of accounting that can be
applied to specific reporting problems.
The Conceptual Framework describes the objective of, and the concepts for, general purpose financial reporting. It is a
practical tool that:
a. assists the Board to develop IFRS Standards that are based on consistent concepts;
b. assists preparers to develop consistent accounting policies when no IFRS Standard applies to a particular
transaction or event, or when a Standard allows a choice of accounting policy; and
c. Assists others to understand and interpret the Standards.
The objective of the Conceptual Framework project is to improve financial reporting by providing a more complete, clear
and updated set of concepts. To achieve this, the Board is building on the existing Conceptual Frameworkupdating it,
improving it and filling in the gaps instead of fundamentally reconsidering all aspects of the Conceptual Framework.
Example
The first conceptual framework for financial reporting was developed in the 1970s by the Financial Accounting Standards
Board (FASB) in the US. Since then, most standard-setting bodies in developed economies have sought to develop their
own conceptual framework to help guide the standard-setting process. Accordingly, the International Accounting
Standards Board (IASB) developed its own conceptual framework that describes the basic concepts underlying financial
statements prepared in conformity with International Financial Reporting Standards (IFRS). Preparers and auditors cannot
ignore the IASBs framework when applying IFRS (see IAS 8 Revised).
In September 2010, after working closely with the FASB, the IASB issued a revised version of its conceptual framework
(Conceptual Framework for Financial Reporting 2010). According to this revised document, the two primary objectives of
financial statements prepared under IFRS are economic decision-making and stewardship. The main users of financial
statements are considered to be equity investors, lenders and other creditors, while the primary characteristics that make
financial reporting information useful to these groups are relevance and faithful representation.
Following are the main functions of Accounting:
1.Record Keeping: Accounting is to maintain systematic and chronological record of financial transactions and to post
them subsequently to the various Ledger Accounts and finally to prepare the Final Accounts to find out the profit or loss of
the business at the end of the Accounting Period.
2. Protecting of Properties: Accounting is to calculate the correct amount of Depreciation on Assets by choosing the
appropriate Method applicable to any particular assets. Any unauthorized dissipation of any asset will bring the business
to the threshold of insolvency. Accounting is to design a desirable system to protect the properties and assets of the
business from unauthorized and unwarranted use.
3.Communication of Results: Accounting is always to communicate the results of the recorded and transactions to the
different parties who are interested in the particular business, i.e., properties, investors, creditors, employees, Govt. official
and researchers etc.
4.Meeting Legal Requirements: Accounting is to devise and develop such a system of keeping record and reporting the
results as will always meet and legal requirements to enable the proprietor or the authority to file various statements like
Income-Tax Returns, Sales-Tax Returns etc.
Objectives of Accounting
The Financial Accounting Standards Boards Statements of Financial Accounting Concepts No. 1 states the objective of
business financial reporting, which is to provide information that is useful for making business and economic decisions.
Specifically, the information should be useful to investors and lenders, be helpful in determining a company's cash flows,
and report the company's assets, liabilities, and owner's equity and the changes in them.
With these objectives in mind, financial accountants produce financial statements based on the accounting standards in a
given jurisdiction. These standards may be the generally accepted accounting principles of a respective country, which are
typically issued by a national standard setter, or International Financial Reporting Standards, which are issued by the
International Accounting Standards Board.
The purpose of accounting is to provide the information that is needed for sound economic decision making. The
main purpose of financial accounting is to prepare financial reports that provide information about a firm's performance
to external parties such as investors, creditors, and tax authorities.