1. Financial Reporting Framework
Rangajewa Herath
B.Sc. Accountancy and Financial Management(Sp.)(USJ)
MBA-PIM(USJ)

2. Learning Outcomes Explain what a conceptual framework is;
At the end of this chapter, you should be able to:
Explain what a conceptual framework is;
Describe the evolution of the conceptual framework of financial reporting;
Outline the structure and components of the framework;
Explain the components of the framework;
Explain the benefits and criticisms of the framework.

3. What is Financial Reporting?

4. What is a Conceptual Framework?
A set of guiding principles that influence and direct decisions in a particular area.
In accounting - provides guidance and apply in relation to a range of issues relating to preparation of financial statements.
General purpose financial reporting, which meets the needs of external users of information.

5. Evolution of Conceptual Framework
Studies commenced in 1960s
FASB, USA Framework (1978), first conceptual framework to develop
IASB Framework (First time in 1989)
IASB Revised Framework (2010)

6. Conceptual Framework of Financial Reporting…

7. The Structure and Components of the IASB Conceptual Framework of Financial Reporting
The objective of general purpose financial reporting
The underlying assumption
The qualitative characteristics of useful financial information
The elements of the financial statements
The recognition and measurement of the elements of financial statements

8. The objective of general purpose financial reporting
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.

9. Qualitative characteristics
Fundamental
Relevance
Faithful representation
Enhancing
Comparability
Timeliness
Verifiability
Understandability

10. Elements of Financial Statements
Asset
Liability
Equity
Income
Expenses

11. Definition of Assets

12. Definition of Liabilities

13. Definition of Equity

14. Definition of Income

15. Definition of Expenses

16. Recognition of Elements in the Financial Statements
Recognition is the process of incorporating in the Statement of Financial Position or Statement of Comprehensive Income an item that meets:
The definition of an element of the financial statements and
The criteria for recognition;
It is probable that any future economic benefit associated with the item will flow to or from an entity. (The probability of future economic benefit)
The item has a cost or value that can be measured reliably. (Reliability of measurement)

17. Measurement
The measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the Statement of Financial Position and the Statement of Comprehensive Income.

18. Measurement Bases Historical Cost Current Cost
Realizable (Settlement) Value
Present Value

19. The Benefits of the Conceptual Framework
Accounting standards are more consistent and logical
Standard-setters become accountable for their decisions
Communication process is enhanced
The development of accounting standards become more economical
Emphasize the ‘decision usefulness’ role of financial reports

20. Perceived Disadvantages of the Conceptual Framework
Burden on small organizations.
Economic in focus of Conceptual framework.
Representation of a codification of existing practice rather than prescribing an ‘ideal’ or logically derived approach to accounting.