Conceptual framework
from class:
Financial Accounting I
Definition
A conceptual framework in accounting is a system of interrelated objectives and fundamentals that provides the foundation for financial reporting and accounting standards. It ensures consistency, transparency, and comparability in financial statements.
5 Must Know Facts For Your Next Test
- The conceptual framework establishes the objectives of financial reporting, which include providing useful information to investors, creditors, and other stakeholders.
- It includes fundamental qualitative characteristics such as relevance and faithful representation.
- The framework outlines specific assumptions like the going concern assumption and economic entity assumption.
- It defines basic elements of financial statements such as assets, liabilities, equity, revenues, and expenses.
- The conceptual framework guides the development of new accounting standards and helps resolve accounting issues not directly addressed by existing standards.
Review Questions
- What are the primary objectives of a conceptual framework in accounting?
- Name two fundamental qualitative characteristics outlined in the conceptual framework.
- How does the conceptual framework assist in resolving accounting issues?
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