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• assist auditors in assessing whether financial statements conform to IFRS;

• assist users in interpreting the information contained in financial statements; and

• provide information to those who are interested in the work of the IASB regarding its approach to
the formulation of IFRSs.

The conceptual framework sets out the concepts that underlie the preparation and presentation of financial
statements for external users. It establishes an objective for financial reporting and not just for financial
statements. It is, however, not an IFRS and hence does not define standards for any particular
measurement or disclosure issue. Furthermore, nothing in the conceptual framework overrides any specific
IFRS but it does provide an overriding requirement for information that is useful in making economic
decisions. Limited instances are foreseen in which provisions in the conceptual framework may be in
conflict with those of an IFRS. In such a case, the requirements of the relevant IFRS prevail over those of
the conceptual framework. As future IFRSs will be based on the conceptual framework, differences
between IFRSs and the conceptual framework will diminish over time. The conceptual framework also
provides a basis for the use of judgement in resolving accounting issues.
The conceptual framework applies to the public and private sectors, and deals with general purpose
financial reports, including consolidated financial statements. However, general purpose financial reports
do not and cannot provide all of the information that users need. Where the required information is absent
from general purpose financial reports, users need to consider information from other sources, for
example, general economic conditions, political events and industry. General purpose financial reports are
not intended to indicate the value of an entity but rather provide information to assist users in estimating
the value of the entity. The conceptual framework does not apply to special purpose financial reports such
as prospectuses.

Financial statements usually include a statement of financial position (balance sheet), statement of
profit or loss and other comprehensive income (income statement), statement of changes in equity,
statement of cash flows, accounting policies and other explanatory notes.
The conceptual framework deals with—

• the objective of general purpose financial reporting;

• the reporting entity (still to be completed and not part of the September 2010 phase);

• the qualitative characteristics of useful financial information;

• the underlying assumption in the preparation of general purpose financial statements (retained from
1989 framework);

• the definition, recognition and measurement of the elements from which financial statements are
constructed (retained from 1989 framework); and

• the concepts of capital and capital maintenance (retained from 1989 framework).

Each of these topics is dealt with in the remainder of this chapter.

Accounting/GAAP Handbook 2013/Volume 1/Chapter 1 The conceptual framework/1.2 The

objective of general purpose financial reporting

1.2 The objective of general purpose financial reporting

The objective of general purpose financial reporting forms the foundation of the conceptual framework and
the other parts of the conceptual framework stem logically from this foundation.

1.2.1 Objective, usefulness and limitations of general purpose financial reporting

The conceptual framework (par. OB2) states that the objective of financial statements is 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. Those decisions involve

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