What is Conceptual Framework for Financial Reporting?
The Conceptual Framework for Financial Reporting is a foundational IASB document that defines the objective of financial reporting, qualitative characteristics of useful information, elements of financial statements, and recognition and measurement principles underlying every IFRS standard.
How It Works
- Objective: provide financial information useful to investors and creditors for decisions.
- Fundamental qualitative characteristics: relevance and faithful representation.
- Enhancing characteristics: comparability, verifiability, timeliness, understandability.
- Elements: assets, liabilities, equity, income, expenses.
Saudi Context
The Conceptual Framework underpins all SOCPA-endorsed IFRS standards applied by Saudi companies. When an IFRS standard does not address a specific transaction, Saudi preparers rely on the Framework to develop an accounting policy that produces relevant and faithfully represented information.
Example
A Saudi software company developing internal-use software with no specific guidance applies the Conceptual Framework: recognize as an asset only if it meets the definition (control + future economic benefit) and recognition criteria (cost can be measured reliably).