Meaning and Purpose of the Conceptual Framework
The Conceptual Framework for Financial Reporting provides a basic framework of concepts that supports the development of accounting standards. It primarily serves as a tool for the International Accounting Standards Board (IASB) while developing International Financial Reporting Standards (IFRS).
The Framework helps the IASB maintain a consistent approach while formulating accounting standards. However, the Conceptual Framework itself is not an individual IFRS Accounting Standard and does not have the same authority as a specific IFRS requirement.
Relationship Between the Conceptual Framework and IFRS
The Conceptual Framework does not override the requirements of individual IFRS Standards. If a specific IFRS contains an accounting requirement for a particular transaction or event, the company must follow that specific IFRS requirement.
Therefore, where there is any difference between the Conceptual Framework and a specific IFRS Standard, the requirements of the individual IFRS Standard take priority.
View of the European Commission
In 2003, the European Commission examined whether the Conceptual Framework should be formally endorsed or adopted as a Regulation or Directive.
The European Commission concluded that formal adoption of the Conceptual Framework was not necessary. This was because IAS 1 – Presentation of Financial Statements already contained requirements to ensure the fair presentation of financial statements.
Use of the Conceptual Framework by Companies
Companies may use the Conceptual Framework as a reference while selecting accounting policies when no specific IFRS requirement applies to a particular transaction or accounting matter.
In such situations, the Framework provides conceptual guidance that can assist a company in determining an appropriate accounting policy. However, it cannot be used to ignore or replace the requirements of an existing IFRS Standard.
Key Points
The Conceptual Framework for Financial Reporting primarily assists the IASB in developing accounting standards. It does not override individual IFRS Standards, and specific IFRS requirements always take priority.
In 2003, the European Commission concluded that formal endorsement of the Conceptual Framework was unnecessary because IAS 1 – Presentation of Financial Statements already ensured fair presentation.
Companies may refer to the Conceptual Framework while selecting accounting policies when no specific IFRS requirement is available.