Note the question does not ask for a definition of the concept this would be more for Paper F3 ; instead it asks why the concept is important and w hat features may indicate that the substance of a transaction may be different to its legal form. For the disadvantages, the conceptual model is non used for individual users ; possibly person thought model is non suited for him. Conceptual Framework besides direct to development of future fiscal accounting criterions and regulator of subjective judgement made by direction while fixing fiscal statements and another fiscal studies. The predictive value and confirmatory value of financial information are interrelated. The historical cost is the cost at day of the month of acquisition and when they incurred.
He is aware that financial statements are prepared historically ie after transactions have occurred and offers the view that the predictive value of financial statements would be enhanced if forward-looking information for example, forecasts were published rather than backward-looking historical statements. This section of the conceptual framework tells financial statement users that information should be relevant and faithfully represent the underlying economics of the company. Standards and Rules The conceptual framework plays an important role in setting and issuing accounting standards and rules, which should be built on an established body of concepts and objectives. Abstraction, Alcohol, Concept 431 Words 3 Pages Before conceptual framework is formed, companies prepared their financial report by their own methods. Accounting standards are also important as they help companies and the managers to justify the practices they used to make financial statements-in case a loss was realized.
When people listen, they do not only show interest but caring and respect as well. The Matching Principle The matching principle is a culmination of accrual accounting and the revenue recognition principle. Some accountants have questioned whether a conceptual framework is necessary in order to produce reliable financial statements. The fast development of conceptual model is non suited for them. Be sure to cite each appropriately. Part a is not much more than expected knowledge from F3, however Part b progresses this knowledge.
It also provides a frame of reference for understanding the resulting standards. Using the accounting criterion considers the costs for the company to follow with the criterion. See more about : ,. They suggest that current conceptual framework projects have sought to develop a constitution-based framework for accounting, instead of focusing on concepts underlying ordinary, everyday commerce. The general leger besides produces hard currency flow statements which is analysed by direction and used as a gage in doing of import determinations. Part b consisted of a numerical example related to a sale and re-purchase agreement to illustrate the difference that the application of substance has on financial statements compared to the legal form. A metal spring from a discarded wind-up clock may evoke the passage of time, a ball might represent a planet or the luck associated with playing a game.
These three fiscal studies are supposed to demo the true fiscal status of the company. This might not always be due to choice but also a requirement of the business model itself. The historical cost accounting construct necessitating sum of all fiscal points recorded based upon original cost, even the points has increased in value due to rising prices. A conceptual framework is defined as a set of fundamental principles that explicitly guide the formulation and presentation of the financial statements and application of accounting rules and standards consistently and appropriately. Standards can non be a aggregation of conventions but instead, must be rooted in the cardinal constructs. Conclusion Simply look out for more of this type of question — it is an important area and should not be neglected.
It would be hard to reach a consensus on the best conceptual framework that a whole nation should use. Highly of import determinations are made by direction from these fiscal statements and they must be accurate. The other ground for making a conceptual model is to supply prescriptions of future pattern, like how to decide unsettled inquiries. First, there is no accurate or unequivocal position of what constitutes a conceptual model, but there is no uncertainty that conceptual model assisting a development of academic theory, meanwhile, it is besides provide a great trade of prescription. The information is needed to help them to determine whether they should sell, buy or hold the shares.
The core of this question was about how historical information can be presented, such that it enhances the predictive value of financial statements. Law is a man-made therefore it is in you if you will follow it or not. The Revenue Recognition project is resolving inconsistencies between the earning process and definitions of elements 2. On the other hand, conceptual frameworks have more constraints in their applications. It does not qualify as a science to begin with. Because the fiscal points are recorded in fiscal coverage based on the original cost of the points, hence the users can compare the current cost and the original cost of the assets.