What is conceptual framework in accounting?

A conceptual framework in accounting refers to a set of principles, concepts, and guidelines that provide a foundation for the development of accounting standards and practices. It serves as a framework for understanding and applying accounting principles consistently across different financial reporting situations.

The conceptual framework helps in establishing the objectives and purposes of financial reporting, identifying the qualitative characteristics of useful financial information, defining the elements of financial statements (such as assets, liabilities, equity, income, and expenses), and determining the criteria for recognition, measurement, presentation, and disclosure of financial information.

It provides a systematic approach to address accounting issues and helps standard-setters, preparers, auditors, and users of financial statements to interpret and apply accounting standards effectively. The conceptual framework also assists in resolving conflicts and inconsistencies in accounting practices and enhances the comparability, reliability, and relevance of financial information.