Limitations And Comparison Of Conceptual Framework In Financial Accounting

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Definision of Conceptual Framework
The first conceptual framework for financial reporting was developed in the 1970s by the Financial Accounting Standards Board (FASB) in the US. The conceptual framework is a series of Statements of Financial Accounting Concepts (SFACs), taken as a whole, set the objectives, characteristics and other concepts that determine how financial information is measured and displayed in financial statements. In financial reporting, a conceptual framework is a theory of accounting prepared by a standard-setting body against which practical problems can be tested objectively. A conceptual framework deals with fundamental financial reporting issues. Accordingly, the International Accounting Standards Board (IASB) developed …show more content…

It is important however to realize the limitations of accounting and financial reporting when forming those decisions. The first of limitiation of conceptual framework is timely and costly. Time is consuming and expensive to set up and operate. Smaller or less developed economies may not be able to afford it. Next, the second limitation of conceptual framework is Accounting estimates. When accountancy estimates the preparation of financial statements requires the use of accounting where the exact amount can not be determined. Estimates are subjective, so the lack of accuracy, as they relate to the financial statements included in determining the value of the use and management of prescient. Among them, the estimate is not based on objective and verifiable information, they can reduce the reliability of accounting information. Verifiability also is the limitaions of conceptual framework. Audit is to enable users to be able to trust the main mechanism of financial statements. However, the audit of the financial statements can only provide authenticity and fairness "reasonable" and not an absolute guarantee, which means that, although carried in accordance with acceptable standards of auditing, in certain material misstatement of the financial statements is likely to continue, due to the inherent limitations of the audit

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