Shuvo

A conceptual framework underlying financial accounting is important because it can lead to consistent standards and it prescribes the nature, function, and limits of financial accounting and financial statements * The Framework was to be the foundation for building a set of coherent accounting standards and rules. * The Framework is to be a reference of basic accounting theory for solving emerging practical problems of reporting.

The Need for a Conceptual Framework :
1.To develop a coherent set of standards and rules
2.To solve new and emerging practical problems

Several types of conceptual frameworks have been identified, and line up with a research purpose in the following ways: 1. Working hypothesis -- Exploration or Exploratory research 2. Descriptive Categories -- Description or Descriptive research 3. Practical ideal type -- Gauging 4. Models of Operations research -- Decision making 5. Formal hypothesis -- Explanation and Prediction

Accounting needs a conceptual framework to (1) build on and relate to an established body of concepts and objectives,
(2) provide a framework for solving new and emerging practical problems,
(3) increase financial statement users understanding of and confidence in fiancial reporting, and
(4) enhance comparability among companies' financial statements.

The FASB has issued six Statements of Financial Accounting Concepts (SFAC) for business enterprises
SFAC No.1 - Objectives of Financial Reporting
SFAC No.2 - Qualitative Characteristics of Accounting Information
SFAC No.3 - Elements of Financial Statements (superceded by SFAC No. 6)
SFAC No.4 - Nonbusiness Organizations
SFAC No.5 - Recognition and Measurement in Financial Statements
SFAC No.6 - Elements of Financial Statements (replaces SFAC No. 3)
SFAC No.7 - Using Cash Flow Information and Present Value in Accounting Measurements

The Framework has three different levels, comprised of: 1. First Level = Basic Objectives 2. Second Level =