Definition: The Accounting Conceptual Framework (ACF) is a set of accounting objectives and fundamentals, developed by the International Accounting Standards Board (IASB) to ensure uniformity in interpretation across various accounting methodologies.
What Does Conceptual Framework Mean?
What is the definition of conceptual framework? The accounting conceptual framework is a theory that details the basic reasoning underlying the financial statements and financial reporting in general.
The ACF clearly defines the objectives and users of the financial statements. It ensures consistency of comprehension and provides a base for discussion (and dispute resolution) amongst the practitioners by setting up principles of uniform interpretation of the line elements in financial statements. This helps auditors prepare legible reports that can be understood around the globe. It defines the basic characteristics that make the accounting information useful right from detailing the elements of financial statements (Income, assets, liabilities and provisions etc.) to reporting their purpose and standard comprehension.
Example
Different companies and countries follow different methods of financial accounting and reporting. This might not always be due to choice but also a requirement of the business model itself. For example, a company working with the distributorship model records its sale when the goods leave the factory against a purchase order from the distributor. On the other hand, a company working under the consignment sale model can record a sale only when goods are actually sold to customer (and not the sale channel intermediaries). As such, there arise differences in financial accounting and reporting, which magnify upon reaching the analysis and reporting stage.
Having a fixed set of definitions of each line item, hence, becomes useful and rather indispensable to ensure conceptual consistency amongst the audience of the report. It also helps the potential investor better gauge and compare the performances of target companies, regardless of their physical location and differences in business models.
Summary Definition
Define Conceptual Framework: Accounting and reporting conceptual framework means a set of rules and guidelines for recording financial transactions and reporting financial activities.
