Abstract

For many years the practice of financial accounting lacked a generally accepted theory that clearly stated the objectives of accounting reporting, the qualitative characteristics of financial information required, or provided clear guidelines as to when and how to recognize and measure the various elements of accounting. In the absence of an acceptable theory, accounting standards tend to be developed in a slightly ad hoc manner with various inconsistencies among the standards. For example, various accounting standards relate to different classes of assets using different recognition and measurement criteria. It has been argued that the development of a conceptual framework will lead to improved financial reporting, and this better reporting will benefit various financial statement readers as it will enable them to make better resource allocation decisions.