CONCEPTUAL FRAMEWORK

 A system of ideas and objectives that led to the creation of a consistent set of rules
and standards
 A statement of GAAP that for a framework for the evaluation of accounting practices

Purpose of conceptual framework

 Setting accounting standards
 Resolving accounting disputes
 Fundamental principles which do not need to be repeated in accounting standards
 Promote harmonization of accounting regulations
 Valuable to auditors and users

Assumptions of conceptual framework

 Economic entity
 Going concern
 Periodicity
 Monetary unit

Principles of conceptual framework

 Historical cost
 Matching
 Full disclosure
 Revenue recognition

Constraints of conceptual framework

 Cost benefits
 Materiality
 Industry practice
 Conservation

Qualitative characteristics
1. Primary qualities
(a) Relevance
 Predictive value
 Feedback
 Timeliness

(b) Reliability
 Verifiability
 Representational faithfulness
 Neutrality

2. Secondary qualities
(a) Comparability
(b) Consistency
Elements of the conceptual framework
 Assets
 Liabilities
 Equity
 Investment by owners
 Distribution to owners
 Comprehensive income
 Revenues
 Expenses
 Gains
 Losses

Objectives
 Useful in investment
 Useful is assessing future cash flows
 Useful to resources and changes in them
 Useful in decision-making

STANDARDS
 An accounting standard is a set of principle standards and procedures that define the
basis of financial accounting policies and practices.

Purpose of standards
 Attains uniformity  Reliability
 Improves reliability  Relevance
 Prevents fraud  Uniformity
 Comparability  Comparability
 Determining managerial accountability  Understandability
 Consistency
 Transparency

NO STANDARDS=CHAOS, CONFUSION

Why do countries not adopt international standards but their own?

 Every country is different- own culture, own economy, international standards may be
unsatisfactory

 Controlling government- government may not allow use of international standards

 Too expensive for country to adopt, will stick with local ones

Purpose of IAS
 Promote international harmonization
 Lessen differences in accounting practices
DUE PROCESS

 The due process comprises the requirements followed by the International Accounting
Standards Board when setting IFRS Standards and developing the IFRS.

3 dues
 Due process
 Due diligence
 Due care
INTERNAL CONTROLS

 Process of assuming achievement of an organization’s objectives in operational

effectiveness
 Involves everything that controls risks
 Role in detecting and preventing fraud

Purpose
 Safeguarding assets
 Enhance accuracy and reliability
 Safeguard the organization
 Minimize risks
 Encourages adherence to policies

Principles
 Establishing responsibilities
 Segregation of duties
 Physical, mechanical, and electronic controls
 Document procedures
 Independence

Internal VS External Auditors