Relevance of the Conceptual Framework for Financial Reporting:

1) The Conceptual Framework is intended to assist the IASB in the development of future International Financial Reporting Standards (IFRS) and in its review of existing IFRS. The situation is avoided whereby standards are developed on patchwork basis, where a particular accounting problem is recognised as having emerged and resources are then channelled into standardising accounting practice in that area, without regard to whether that particular issue was necessarily the most important issue pertaining at that time without standardisation. Moreover, through the Conceptual Framework, those who are interested in the work of the IASB get more information about the IASB’s approach to the formulation of IFRSs.

2) Although, the Conceptual Framework assists national standard-setting bodies in developing national standards, it is primarily intended to assist the Board in promoting harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by IFRSs.

3) In the preparation and presentation of financial statements, the Conceptual Framework provides guidance to preparers of financial statements in applying IFRS. Some standards may concentrate on the income statement whereas some may concentrate on the valuation of net assets (statement of financial position) but a conceptual framework caters for every aspect of the financial statements. And for auditors who have to assert the true and fair view of those financial statements prepared and presented, the Conceptual Framework assists auditors in forming an opinion on whether the financial statements comply with IFRS.

4) It enables users of financial statements to interpret the information contained in financial statements prepared in compliance with IFRS. Where there is a conflict of interest between user groups on which policies to choose, policies deriving from a conceptual framework will be less open to criticism that the standard-setter gave in to external pressure.

Limitations of the Conceptual Framework for Financial Reporting:

1) Financial statements are intended for a variety of users and it is not certain that a single conceptual framework can be devised which will suit all users.

2) Given the diversity of user requirements, there may be a need for a variety of accounting standards, each produced for a different purpose (and with different concepts as a basis).
3) It is not clear that a conceptual framework makes the task of preparing and then implementing standards any easier than without a framework.