Conceptual Framework past question papers
ACCA Past question papers Dec 2021 (8 marks)
You are the financial controller of Omega, a listed entity with a number of subsidiaries. Your managing director has recently returned from a seminar which discussed a wide range of business issues. Some of these issues related to the preparation of the financial statements. The managing director has prepared a list of questions for you which have arisen as a result of her attendance at the seminar.
The following exhibits, available on the left-hand side of the screen, provide information relevant to the question:
One of the presenters at the seminar I attended was explaining the work of the International Accounting Standards Board (the Board). From time to time she referred to the Conceptual Framework for Financial Reporting. I thought the Board set individual international financial reporting standards (IFRS Standards) to deal with specific issues of financial reporting. What is this ‘Conceptual Framework’ and how does it relate to individual IFRS standards issued by the Board? I don’t want a detailed description of this Conceptual Framework but rather a very brief overview of its content and purpose and how it fits into the overall financial reporting process.
Provide answers to the query raised by the managing director. Your answers should refer to relevant provisions of International Financial Reporting Standards
- The Conceptual Framework (Framework) is a document which sets out the objectives and concepts for general purpose financial reporting. The Framework provides the foundations for the International Financial Reporting Standards (IFRS Standards) but it is not a standard itself.
- These concepts are set out in a number of distinct chapters in the document. These chapters address issues such as the overall objective of general purpose financial reporting which is to provide financial information which is useful to existing and potential investors, lenders and other creditors. A further chapter details the qualitative characteristics of useful financial information. (Other examples of chapter titles up to 1 mark would be acceptable – the question makes clear that only a general overview is needed)
- A key purpose of the Framework is to assist the International Accounting Standards Board (the Board) in developing and revising individual IFRS Standards which are based on consistent concepts. Therefore the concepts underpinning any specific IFRS Standard should generally be consistent with those outlined in the Framework.
- The Framework does not override the provisions of any specific IFRS Standards. In the rare circumstances that the Board decided to issue a new or revised standard which is in conflict with the Framework, the Board would highlight the fact and explain the reasons for the departure in the Basis for Conclusions to the standard.
- A further purpose of the Framework is to help preparers to develop consistent accounting policies for areas which are not covered by a IFRS Standard (e.g. cryptocurrency) or where there is choice of accounting policy, and to assist all parties to understand and interpret IFRS Standards.
Only a minority of candidates were able to give an adequate explanation of the role of the Conceptual Framework in the standard setting process. A significant number of candidates wasted time by producing a detailed description of the chapters of the framework. The question clearly stated that such explanations are not necessary. Other candidates clearly had little or no knowledge of the framework and produced unstructured references to the overall role of financial reporting in the decision making processes for the investor. Others made irrelevant references to one or more of:
The overall standard setting process and its constituent parts.
The ethical code.
The first time adoption of International Financial Reporting Standards.