Conceptual Framework A conceptual framework is a statement of principles for financial reporting that set out the concepts that

t underlie the presentation and preparation of financial statements for external users. Its primary purpose is to provide a coherent frame of reference for standard setters to use in the development and review of accounting standards. In particular, the framework provides a basis for choosing between alternative accounting treatments. In particular, the conceptual framework has provided standard setters with a framework for developing standards rather than providing a frame of reference for practitioners in resolving questions in the absence of specific promulgated standard. Auditors are under pressure to accept practices that are commercially convenient to the client in the absence of a standard for selecting favorable revenue recognition criteria and adopting merger accounting where possible and messaging income in times of recession. Fair Presentation Financial statements should present fairly financial position, financial performance and cash flows of the entity concerned. This requires that the effects of transaction and other events should be faithfully represented in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the IASB framework. It is usually assumed that the application of international standards will achieve a fair presentation. A fair presentation also requires entities to select and apply appropriate accounting policies to provide information that is relevant, reliable, understable, comparable and to provide information if compliance with international standard is insufficient to enable users to understand the financial standard. Financial statements should be prepared on a going concern basis unless the entity intends to cease trading or has no realistic alternative but to do so. Financial statements apart from the statement of cash flows should be prepared on an accrual basis. In order to maintain comparability, the way in which items are presented and classified in the financial statements should be consistent from one accounting period to the next. The need for consistency is overridden only if it is apparent that a change in presentation or classification would be appropriate or if such a change is required by an international standard. An item is material if its size or nature is such that it could influence users economic decisions. Financial statements are prepared by analyzing transactions and other events into classes and then aggregating each class to produce line items. IAS-1 requires that each material class of similar items should normally be presented separately in the financial statement. However, a line item which is not material may be aggregated with other line items. Assets and liabilities should normally be reported separately in the balance sheet and not offset against one another. Similarly, income and expenses should normally be reported separately in the income statement. Comparative information should be disclosed in respect of the previous period for all amongst reported in the financial statement.