The IASB’s Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements that external users are likely to rely on when making economic decisions about an entity. Also contained within the Framework are the definitions of, and recognition criteria for, the five elements related to the financial position and performance of the entity, plus explanations of the qualitative characteristics which make the information provided in the financial statements useful to users.

Discuss the purpose and authoritative status of the Framework.

Using examples of items in an entity’s financial statements, critically evaluate why the definitions and recognition criteria of the five elements and the details of the qualitative characteristics are of particular importance to the users of an entity’s financial statements. LO9