Developing a Conceptual Framework is an Impossible Possibility Essay

Developing a Conceptual Framework is an Impossible Possibility - Essay Example harmonise to the paper the monetary statements of different companies must be able to satisfy the needs of a physique of users who mostly want to comp are one company with another. When a standard is followed by all the companies, the fiscal statements become reliable for the users as they can safely compare all the companies and touch on important fiscal decisions. Accounting, therefore, entails a statement of accepted accounting rules. These rules form the structure of reference for the financial reporting. The conceptual material forms the foundation for expansion of new accounting criteria and the assessment of those standards that are already in place. Further, it forms the basis for establishing which events should be accounted for and how the same should be released to the accountants. Functions of conceptual framework Conceptual framework lays out the objectives of the financial statements. Fi nancial statements are meant to reflect the financial standing of institutions. Conceptual framework of accounting therefore offers the foundation and the guidelines that should be followed to make known the sparing situation of an institution at a given period of time. Financial statements include the relief sheet, the income statements, statement of cash flow and the statement of shares holders equity. Conceptual framework also identifies the qualitative characteristics which establish the greatness of the development in the financial statements. Financial statement reveals the financial situation of an institution they are really important for the stakeholders of the institution. Shareholders and other interested parties in an institution are guided by the financial information of that institution From this discussion it is clear that the conceptual framework offers guidelines to framing of financial statements. Conceptual framework requires the financial statements of a co mpany to provide a true and fair view. This means that all the information provided in the financial statements must be free from fraud or material misrepresentation. The framework requires the financial statements to curb four qualitative characteristics which ensure that they give a true and fair view of an entitys financial position. Firstly, the statements need to be understandable which means that they must be free from any ambiguity that tycoon mislead a user. Secondly, the financial statements need to be relevant. Information is relevant when it is able to influence the economic decisions of the users. It should be predictive in the sense that a user must be able to make reliable predictions about an entitys future by using the information. It must also be confirmative which is achieved when it confirms the previous predictions of users regarding an entity. Thirdly, the information needs to be reliable. Information that is free from material errors and bias is regarded as reliable. authorized information is faithfully represented, neutral, prudent, and complete and substance is given priority over legal forms of various elements.