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ACCA Applied Skills · Financial Reporting · The need for a conceptual framework and the characteristics of useful information

Before the IASB issued its Conceptual Framework, standard setters often developed accounting rules case by case. Which of the following is the main problem a conceptual framework is intended to reduce?

A conceptual framework mainly reduces inconsistency between standards. By providing common underlying principles, it helps standard setters develop coherent, logically consistent requirements instead of reacting to each issue separately, and helps preparers and users understand and apply them.

  1. AInconsistent standards developed without common underlying principlesCorrect
  2. BThe need for entities to prepare any financial statements
  3. CDifferences in tax rates between jurisdictions
  4. DThe cost of auditing financial statements

Explanation

A conceptual framework gives standard setters a consistent set of principles, so new standards are developed coherently and not on a piecemeal, fire-fighting basis. It does not remove tax differences, audit costs or the requirement to report.

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