The following extract is from Conceptual Framework for Financial Accounting and Reporting: Elements of Financial Statements and Their Measurement, FASB 3, December 1976.

The benefits of achieving agreement on a conceptual framework for financial accounting and reporting manifest themselves in several ways. Among other things, a conceptual framework can

(1) guide the body responsible for establishing accounting standards, (2) provide a frame of reference for resolving accounting questions in the absence of a specific promulgated standard,

(3) determine bounds for judgement in preparing financial statements, (4) increase financial statement users’ understanding of and confidence in financial statements, and (5) enhance comparability.

Required:

(a) Define a conceptual framework.

(b) Critically examine why the benefits provided in the above statements are likely to flow from the development of a conceptual framework for accounting.