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

Which of the following is a benefit of a principles-based conceptual framework compared with a purely rules-based approach to standard setting?

A principles-based framework makes it harder to avoid requirements by structuring transactions, because accounting follows the underlying substance and the broad concepts, not only narrow rules. It still requires professional judgement and disclosures, and it does not make all entities' statements identical.

  1. AIt removes the need for any professional judgement by preparers
  2. BIt makes it harder for entities to structure transactions to avoid specific rulesCorrect
  3. CIt guarantees identical financial statements for all entities
  4. DIt eliminates the need for disclosure in the notes

Explanation

Principles require transactions to be reported according to their substance, which makes avoiding specific rules through structuring harder. It does not remove judgement, produce identical statements or remove disclosures.

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