Financial

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

Learning Outcomes
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; and
Discuss the regulatory framework applicable to
financial reporting.

What is Financial
Reporting?

What is a Conceptual
Framework?

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)

Conceptual Framework of
Financial Reporting

The Structure and Components of the

IASB
Conceptual
Framework
of
Financial Reporting
The

objective of general purpose financial

reporting
The
The

underlying assumption
qualitative characteristics

of useful

financial information
The
The

elements of the financial statements

recognition and measurement of the

elements of financial statements

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.

Qualitative
characteristics

Elements
Statements
Asset
Liability
Equity
Income
Expenses

of

Financial

Definition of Assets

Definition of
Liabilities

Definition of Equity

Definition of
Income

Definition of
Expenses

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)

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.

Measurement Bases

Historical Cost

Current Cost

Realizable (Settlement) Value

Present Value

The Benefits of the

Conceptual Framework
Accounting

standards are more consistent and logical

Standard-setters

become accountable for their

decisions
Communication
The

process is enhanced

development of accounting standards become

more economical
Emphasize

reports

the decision usefulness role of financial

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.