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Answered Same Day May 05, 2020 ACC301 Alphacrucis College


Pulkit answered on May 15 2020
144 Votes
Question 1
The conceptual framework provides the theoretical basis for measuring the transactions and recording thereof in order to provide useful data for the purpose of decision making. It can be said that because of the absence of a conceptual framework the accounting transactions will be treated differently by different institutions and hence would present inflexible and incomparable financial statements. Whereas the presence of conceptual framework would lead to the development of accounting standards to prepare the financial statements on the basis of principles laid down in the standards.
The main objective of this framework is to assist the development of IFRS, promote uniformity by setting up standards and thus reducing the alternative accounting treatment, and to help in the preparation of the financial statements by applying various reporting standards. The conceptual framework is of great value to not only investors and other stakeholders but also to the auditors also as the work of the auditors due to the defined framework becomes comparatively easy to understand and work out.
It should be noted that the Conceptual Framework should not in any way supersede any standard or interpretation thereof and create any conflicts. It should otherwise provide guidelines as to how the standards be implemented consistently.
The following are the problems or criticism in relation to the 2010 conceptual framework and the suggestions thereof:
· The general purpose of the 2010 conceptual framework is to provide information in relation to the financial status to the existing and to be investors and other stakeholders for the purpose of decision making process. But in reality the investors does not have to totally rely on the financial information presented for the investment decisions, they also gain information from the market and other non-accounting sources for gathering information for the purpose of decision making.
· The IASB have given a definite definition of profit and loss which does not corporates the information like changes in the net assets not involving cash flows which affect the investment decisions.
· The concept of prudence was removed from 2010 conceptual framework which plays a vital role in the making and presenting of the financial statements. The concept of prudence is not necessity but should be a part where uncertainty is involved in the preparation of financial statements.
· The statements are prepared on the basis of judgement about estimates which are very uncertain and the estimates obtained by unreliable sources should not be a part of the statements prepared. (Rice, P.M., 2015.)
Question 2
Part a
The general purpose financial reporting is established to provide the financial information needed by the investors and other stakeholders in order to make investment decisions. The future prospects of the business of the entity can be better understood by going through the financial statements prepared by the company. The investment decisions including buying, selling of securities, lending money or not are on many grounds dependent on the financial statements. The objectives in general terms include providing requisite information on the financial position, performance and the cash flow generated by the entity concerned.
The information regarding the financial position depicts the available resources of the entity and also the amount outstanding of the company. It also depicts the information on the changes in the financial position of the company over years so as to provide information on the strengths and weaknesses of the company.
The information regarding the financial performance includes the effect of the transactions undertaken by the company by reviewing the management’s performance, entity’s ability to generate cash and also the risk...

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