Financial Accounting · Qualitative characteristics of useful financial information

Purpose of the Conceptual Framework in Financial Reporting

Updated 11 October 2026 · Fact-checked

The IASB Conceptual Framework sets out the concepts behind general purpose financial reporting. It helps the IASB develop consistent IFRS Standards and helps preparers and others understand them. It is not a Standard and does not override one. Its objective is useful information for investors, lenders and other creditors.

Understand Purpose of the Conceptual Framework

Imagine writing rules for thousands of companies with no shared idea of what an asset is or what makes information useful. Each rule would drift in its own direction. The Conceptual Framework for Financial Reporting is the IASB's answer. It is a set of agreed concepts that sit behind all IFRS Standards.

The Framework has three main purposes. It assists the IASB to develop IFRS Standards that are based on consistent concepts. It assists preparers to develop an accounting policy when no Standard applies to a transaction, or when a Standard allows a choice. It assists everyone to understand and interpret the Standards.

The status is a favourite exam point. The Framework is not an IFRS Standard. It does not override any Standard or any requirement in a Standard. If a Standard conflicts with the Framework, the Standard wins. The IASB may sometimes issue a Standard that departs from the Framework, and it would explain why.

The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors when they make decisions about providing resources to the entity. These are the primary users. They cannot demand information tailored to themselves, so they rely on general purpose reports.

The decisions they make include buying, selling or holding equity and debt, and providing or settling loans. To make them, they need information about the entity's economic resources, claims against it, and how well management has used the resources (stewardship). Other users, such as regulators and the public, may find the reports useful, but the reports are not mainly directed at them.

Key formulas to remember

Purposes of the Framework: Help the IASB develop Standards + help preparers choose policies where no Standard applies + help all parties understand Standards; Learn these three as a list; objective tests often ask which one is NOT a purpose.
Status of the Framework: Framework is not a Standard; where it conflicts with an IFRS Standard, the Standard prevails; Never say the Framework overrides a Standard.
Objective of general purpose financial reporting: Useful information to existing and potential investors, lenders and other creditors for resource-allocation decisions; These are the primary users. Management is not a primary user of general purpose reports.
Information needed by primary users: Economic resources + claims against the entity + changes in them + management's stewardship; Stewardship means how efficiently and effectively management used the entity's resources.

How to solve Purpose of the Conceptual Framework questions

Use this method for any question on the purpose, status or objective of the Conceptual Framework.

1Read the question stem and decide which of three areas it tests: purpose, status or objective.
2If it is about purpose, check each option against the three purposes: develop Standards, guide policy choice, aid understanding.
3If it is about status, ask whether the option says the Framework overrides a Standard. If so, it is wrong.
4If it is about the objective, look for the primary users: investors, lenders and other creditors.
5Check the decision type: providing resources to the entity, such as buying equity or lending.
6Remove options that mention management, tax authorities or tailored reports as the main aim.
7For multiple response questions, count the required number of answers before you select.

Quickest way: Three-point check: purpose, status, users

When to use it: Use for any objective test question on why the Framework exists or who general purpose reports serve.

Ask: does this option describe helping the IASB, preparers or understanding? If yes, it is a likely purpose.
Ask: does it put the Framework above a Standard? Reject it.
Ask: are the users investors, lenders and creditors? Accept. Management only or tax authority only? Reject.

Common mistakes in Purpose of the Conceptual Framework

Saying the Framework overrides IFRS Standards when they conflict.
The word 'framework' sounds like a top-level authority.
Fix: Remember that the Framework is not a Standard. The Standard prevails in any conflict.
Naming management as a primary user of general purpose financial statements.
Management uses financial information every day.
Fix: Management can obtain tailored information. Primary users are investors, lenders and other creditors.
Listing only shareholders as the users in the objective.
Students link financial statements with owners.
Fix: Include existing and potential investors, lenders and other creditors.
Forgetting stewardship as part of the objective.
Students focus on profit and balance sheet figures only.
Fix: Remember that reports also show how well management used resources entrusted to it.
Treating the Framework as a source of detailed accounting rules.
Students confuse it with Standards such as IAS 16 or IAS 2.
Fix: The Framework gives concepts, not measurement or disclosure rules for specific transactions.

Worked examples

Example 1

Which ONE of the following statements about the IASB Conceptual Framework is correct?
A. It overrides an IFRS Standard if the two conflict.
B. It is an IFRS Standard that must be applied to all transactions.
C. It assists the IASB in developing Standards based on consistent concepts.
D. It sets detailed rules for measuring each class of asset.

Show the solution

Test A: the Framework does not override a Standard, so A is wrong.
Test B: it is not a Standard, so B is wrong.
Test C: developing Standards on consistent concepts is a stated purpose, so C fits.
Test D: detailed measurement rules are in Standards, not the Framework, so D is wrong.

Answer: C

Example 2

Which TWO of the following are primary users of general purpose financial reports under the Conceptual Framework?
1. Existing and potential lenders
2. The entity's finance director
3. Existing and potential investors
4. The tax authority

Show the solution

The objective names investors, lenders and other creditors as primary users.
Option 1, lenders, is a primary user.
Option 3, investors, is a primary user.
Option 2: management can obtain information tailored to its needs, so it is not a primary user.
Option 4: the tax authority can demand specific information and is not a primary user.

Answer: 1 and 3

Exam tips

Look for the words 'overrides', 'must' or 'always' in options about status. They are usually traps.
In multiple response questions, select exactly the stated number of options.
Learn the user list as: investors, lenders and other creditors, both existing and potential.
Expect these questions in Section A. Each is quick, so keep to about one minute per two-mark question.
Link this topic to qualitative characteristics, since usefulness is the aim those characteristics serve.

Practice questions from Qualitative characteristics of useful financial information

Purpose of the Conceptual Framework in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Purpose of the Conceptual Framework: frequently asked questions

Is the Conceptual Framework an IFRS Standard?

No. It is a separate document issued by the IASB. It does not override any IFRS Standard, and if there is a conflict the Standard prevails.

Who are the primary users of general purpose financial reports?

They are existing and potential investors, lenders and other creditors. They make decisions about providing resources to the entity and cannot demand tailored information.

What is the objective of general purpose financial reporting?

It is to give financial information about the reporting entity that is useful to primary users when they make resource decisions. This includes information on resources, claims and management's stewardship.

When would I use the Conceptual Framework in practice?

You use it when no IFRS Standard covers a transaction, or when a Standard permits a choice of policy. It guides you towards a policy that gives useful information.