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The conceptual framework provides guidance and direction to accountants when exercising judgment in the preparation of financial statements. It consists of several components that guide accountants when preparing financial statements.
The components include objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements, recognition, and measurement of financial statement items, and concepts of capital and capital maintenance.
1. Objectives of financial reporting
The objectives of financial reporting provide the purpose of financial reporting. The objectives of financial reporting are to provide information that is useful to investors, lenders, and other creditors in making investment and credit decisions. The objectives of financial reporting include providing information about an entity's financial position, financial performance, and cash flows.
2. Qualitative characteristics of accounting information
The qualitative characteristics of accounting information refer to the characteristics that make financial information useful to users. The qualitative characteristics include relevance, reliability, comparability, and consistency. Relevant information is important to users because it helps them make informed decisions. Reliable information is accurate, free from error, and unbiased.
the conceptual framework provides guidance and direction to accountants when exercising judgment in the preparation of financial statements. The components of the conceptual framework include objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements, recognition and measurement of financial statement items, and concepts of capital and capital maintenance. Accountants should consider these components when preparing financial statements to ensure that the financial statements are reliable and useful to users.
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