Conceptual Framework: The conceptual framework for financial reporting has two primary purposes. First, it serves as a foundation upon which the FASB/IASB constructs financial reporting standards that are internally sound and consistent. Second, the conceptual framework is intended to be used by the business community reporting or consuming financial information to help them better understand and apply financial reporting standards.

From the AICPA FRF for SMEs: "All financial statements are prepared in accordance with a financial reporting framework. The term financial reporting framework is defined as a set of criteria used to determine measurement, recognition, presentation, and disclosure of all material items appearing in the financial statements. Examples of financial reporting frameworks are generally accepted accounting principles (GAAP) in the United States of America, International Financial Reporting Standards (IFRSs), and special purpose frameworks (also known as other comprehensive bases of accounting [OCBOA])."

The conceptual framework does this by (per the FASB Special Report, The Framework of Financial Accounting Concepts and Standards (1998):

  • Providing a set of common premises as a basis for discussion
  • Provide precise terminology
  • Helping to ask the right questions
  • Limiting areas of judgment and discretion and excluding from consideration potential solutions that are in conflict with it
  • Imposing intellectual discipline on what traditionally has been a subjective and ad hoc reasoning process

The conceptual framework breaks financial reports into elements and financial statement components.

A project (currently paused) is being undertaken by the FASB and IASB to provide consistent conceptual frameworks for US GAAP and IFRS.