States the scope and objective of financial reporting

A structured theory of accounting

provide information that is
useful to present and potential
investors and creditors

Identifies and defines qualitative Role of a

characteristics of financial Objectives of
conceptual
information and the basic conceptual useful in making economic decisions
framework
elements of accounting framework

useful in assessing cash flow prospects

Deals with principles and rules of Information should be

recognition and measurement, and about enterprise resources, claims to those
report disclosures resources and changes in them IASB mostly produces
consistent, coherent
principles-based standards

principles versus rules-based Rule-based standards may increase

approaches to standard setting comparability and verifiability and may
reduce earnings management

Scientific approach: recourse to logic and empiricism or both

The standards of the FASB have
influenced by
traditionally been rule-based now
two key issues
being given to principles

- prescriptive Developing a
- unspecified rules and conventions Conceptual Framework conceptual information for decision making
Accounting data are required for decision making
- do not resolve contemporary disclosure issues framework and the decision-theory approach
- vague definitions
Decision-theory approach maps the process by which
- do not address measurement issues
the outputs of the accounting system provide inputs to
- risk of mechanical decision making
- framework may become an end in itself
Critique of conceptual the decision model of a user
- overreliance on definitions framework projects

Decision-theory process
Auditing is a discipline based in logic Overall theory of
accounting Individual
accounting
process
professional approach: prescribes the best course of action by Conceptual framework for
recourse to professional values auditing standards
Prediction model of user

Decision model of user

The traditional verification role has
evolved into business risk auditing