It be faithfully represented and as a result

It
is essential that businesses must follow the correct procedures when reporting
and displaying information in their financial statements. This information is
fundamental when critiquing different entities, to allow them to make
important, informed decisions in the management of the business. There are two
vital characteristics that the information presented on the financial
statements must be aligned with – relevance and faithful representation. The
information should be relevant to allow the entity to see if future cash flows
to them are affected by their current financial position, which will then
enable them to make decisions on how to allocate funds and resources throughout
the business accordingly. However, what one must take into consideration is
that for information to be relevant, it must have predictive value,
confirmatory value or both. This information also needs to be faithfully
represented and as a result should be complete, to allow stakeholders to see if
there is any financial uncertainty in the business, unbiased to give a clear,
honest view of the business and free from error to reduce the risk of
complications within the business that may affect future cash flow.

 

 

*Conceptual Framework*

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The
Conceptual Framework is a theory that defined by Atrill and Mclaney (2016)
states that it “consists of the main concepts or principles that underpin
accounting, which can help in identifying best practice and in developing
accounting rules”. The main purpose of the Conceptual Framework is to generate
different concepts and principles to help inform the standard setters when they
develop standards, to ensure that these concepts are kept consistent in various
standards.

 

The
Conceptual Framework has enabled different users the ability to understand the
financial information, and this given them confidence as they previously would
not have been able to do so.

 

They
order to improve the way financial accounting is run and the way that the
information is reported, to make it easier to compare financial information
through the consistency

Can
be used in circumstances where no accounting standards have been created and in
instances where there is a divorce between ownership and control (agency
problem) as stakeholders in the don’t get a say in the decision making process

 

Although
the Conceptual Framework has proved beneficial in many aspects, it also comes
with its drawbacks. There are various factors that must be taken into
consideration, for example complexity of setting it up and the cost. Many
developing countries may not to able to afford to create one, thus as a result
leaving these countries dwelling behind in terms of their approach to financial
accounting.