Importance Of Accounting Conceptual Frameworks

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In this essay I will consider why Accounting Conceptual frameworks have been devised; what are the main principles to be considered when drawing up any accounting statements and who uses them. I will also consider what different financial statements can be produced and what the key elements are in these statements. Finally I will discuss some issues arising from the use of accounting conceptual frameworks.
Accounting Concepts and Principles are conventions that give a structure for financial reporting. Financial reporting uses the professional judgments of accountants to stop its users from being misled. In order to ensure the concepts and principles are applied consistently; major accounting standard-setting bodies have included them in reporting
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Monetary measurements are where items are not accounted for unless they can be measured in monetary terms. Separate entity tries to separate business dealings from private ones. Realisation is when transactions are not recognised when cash changes hands but instead at the point of a sale or a transfer in ownership. Materiality is where assessments are needed on the suitability of an accounting judgement.
There are many important accounting concepts that need to be considered when preparing accounts. Accountants firstly assume that a company is viable, unless there is evidence otherwise. Each year transactions and valuation methods are treated identically, this consistency enables financial performance to be compared. Profits are not acknowledged until the sale has gone through, this is known as prudence. Future costs and problems of the entity are also ‘provided for’ in the accounts if it’s likely they will be experienced in times to come. Income needs to be coordinated with expenses, this is known as
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However in instances where conceptual framework has not been used, there have often been serious defects in the accounting standards produced. They are often not consistent, mostly in the role of prudence versus accruals. The result of the transaction on the statement of financial position would regularly be seen as more important than its effect on income. Several standard setting bodies were biased and did not fairly represent all of their user groups, which affected the quality, and direction of

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