IASB FRAMEWORK

IASB Framework

IASB Framework

Introduction

This is a conceptual framework paper mainly focusing on the qualitative characteristics of financial statements. The qualitative characteristics of the conceptual framework are the attributes which make the information useful to users according to the conceptual frameworks of the IASB (IASC, 1989) and FASB (FASB, 1980a, 1980b, 1984, 1985). (IASB 2010, 1)

Qualitative Characteristics of Financial Statement

These are quality characteristics of a financial statement which includes the information in the in framework that provide utility to the users. The four main qualitative characteristics of the financial statement are Understandability, Relevance, Reliability and Comparability. (Clarke 2009, 405)

Understandability

To meet the essential quality, users must possess a knowledge fair on the business, economic and accounting activities. Users must be willing to examine the financial information with reasonable diligence. However, because of the importance of the need for the decision making by economic means, users should not exclude information on the grounds of creating difficulty in understanding. (Pounder 2009, 221)

Relevance

To be useful, information must be relevant fulfilling the needs for correct and accurate decision making of the user. Information has the quality of relevance when it influences the economic decisions of those who use it helping them evaluate past, present or future or to confirm or correct past evaluations. (Loren 2009, 1203)

Reliability

Information has the quality of reliability when it is free from material errors, bias or prejudice and which users can rely on. The user can rely faithfully on is the information based on real images, figures and facts. Meaning the users can rely on is the image faithfully, what it purports to represent, or what can reasonably be expected to represent. Much of the financial information is subject to some risk of not accurately reflecting what it purports to represent. This is not due to bias but rather due to inherent difficulties either in identifying the transactional errors and/or other events. The financial information can also be inaccurate due to difficulties in devising and applying measurement techniques and presentation that can convey messages that are related to those transactions and events. (Thomas 2009, 331)

Comparability

Users should not be able to compare the financial information of a company over time in order to identify trends in its financial position and performance. Rather, users should be able to compare different companies' financial statement in order to access their financial position, performance and changes in financial position in relative terms. (Nandakumar 2009, 409)

The conceptual framework was to be used as a guide in the development of consistent accounting standards, hopefully leading to a more coherent set of accounting principles to aid practice. Components of the framework included objectives of financial reporting, qualitative characteristics of financial information and elements of financial statements, recognition criteria, measurement attributes, financial statements, earnings, cash flows and liquidity. (Follesdal 2008, 415)

This pioneering work was viewed favorably by international audiences and many of its basic concepts influenced the development of similar frameworks by other accounting standard setters. While there are many similarities between the respective FASB and IASB frameworks, there are differences ...