Conceptual Framework for Financial Reporting

Conceptual Framework for Financial Reporting
Name	Conceptual Framework for Financial Reporting
Issued by	International Accounting Standards Board
First issued	1989
Latest revision	2018
Status	Active

Contents

Conceptual Framework for Financial Reporting The Conceptual Framework for Financial Reporting is the set of principles and concepts that underpins the preparation and presentation of financial statements issued by the International Accounting Standards Board and related standard-setters such as the Financial Accounting Standards Board, the International Federation of Accountants, and national bodies like the Financial Reporting Council (United Kingdom), the Securities and Exchange Commission, and the European Commission. It provides the foundation for developing standards such as International Financial Reporting Standards and pronouncements like Statement of Financial Accounting Standards No. 157 while informing preparers such as Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG and users including Morgan Stanley, Goldman Sachs, BlackRock, and regulatory authorities in jurisdictions like United States, United Kingdom, European Union, and Japan.

Introduction

The Framework articulates the objectives, qualitative characteristics, elements, recognition criteria, measurement bases, presentation and disclosure guidance that guide bodies such as the International Accounting Standards Board, the Financial Accounting Standards Board, and the International Organization of Securities Commissions when developing standards like IFRS 15, IFRS 16, IAS 1, and IAS 36. It influences standard-setting debates involving stakeholders such as International Monetary Fund, World Bank, Bank for International Settlements, and professional networks including the Institute of Chartered Accountants in England and Wales, the American Institute of Certified Public Accountants, and academia at institutions like London School of Economics, Harvard Business School, and University of Oxford.

The primary objective articulated by the Framework is to provide financial information useful to existing and potential investors, lenders and other creditors—stakeholders that include BlackRock, Vanguard, State Street Corporation, and national pension funds such as the Canada Pension Plan Investment Board and Norwegian Government Pension Fund Global—for making decisions about providing resources to reporting entities like Apple Inc., Toyota Motor Corporation, BP, and Siemens. The scope addresses preparers including General Electric and Samsung Electronics, auditors such as KPMG and Grant Thornton, and standard-setters like the International Accounting Standards Board and regional regulators such as the European Securities and Markets Authority.

The Framework defines fundamental qualitative characteristics—relevance and faithful representation—concepts also discussed in literature from John Maynard Keynes, Milton Friedman, and scholars at University of Chicago and Columbia Business School; enhancing characteristics include comparability, verifiability, timeliness and understandability, which inform analyses by Moody's Investors Service, S&P Global Ratings, and Fitch Ratings. It acknowledges constraints such as cost versus benefit and materiality, concepts debated in jurisprudence involving the Supreme Court of the United States, policy forums like the G20, and legislative bodies including the United States Congress and the European Parliament.

Elements defined include assets, liabilities, equity, income and expenses; these are applied in standards and cases involving corporations such as Microsoft, ExxonMobil, Volkswagen, and financial institutions like HSBC Holdings, JPMorgan Chase, and Credit Suisse. Recognition criteria—probability of future economic benefits and measurement reliability—have been central to contested accounting treatments in controversies involving Enron Corporation, WorldCom, Lehman Brothers, and regulatory responses by Securities and Exchange Commission, Financial Conduct Authority, and the Basel Committee on Banking Supervision.

The Framework describes measurement bases including historical cost, current cost, realizable (settlement) value and present value, which underpin standards such as IFRS 13 and guide valuations by firms like McKinsey & Company, BlackRock, and valuation specialists at Duff & Phelps. Measurement uncertainty and fair value measurement issues have been litigated and scrutinized in events such as the 2008 financial crisis, analyses by the International Monetary Fund, investigations by the United States Senate, and academic work at London Business School and Stanford Graduate School of Business.

Presentation and disclosure principles in the Framework inform format requirements like those in IAS 1 and narrative reporting initiatives involving organizations such as the International Integrated Reporting Council, Global Reporting Initiative, and regulators like the European Securities and Markets Authority. Users including asset managers Vanguard, analysts at Goldman Sachs, and rating agencies expect transparent reporting of related party transactions, segment reporting and events after the reporting period—issues highlighted in cases involving Royal Dutch Shell, GlaxoSmithKline, and Barclays.

The Framework is developed through public consultation processes run by the International Accounting Standards Board with input from national standard-setters like the Financial Accounting Standards Board, professional bodies such as the American Institute of Certified Public Accountants and Institute of Chartered Accountants of India, preparers including Siemens and Samsung, auditors like PricewaterhouseCoopers, users such as BlackRock and Bloomberg, and oversight by trustees linked to institutions like the International Federation of Accountants and the European Commission. Its persuasive authority affects legal interpretations by courts including the High Court of Justice (England and Wales), the United States Court of Appeals, and policy deliberations at forums such as the G20 and the Financial Stability Board.

Category:Accounting standards