THE CONCEPTUAL AND REGULATORY FRAMEWORK FOR

FINANCIAL REPORTING
Conceptual Framework
Is a set of concepts and principles underlying the preparation and
presentation of financial statements.

Conceptual framework is not standalone instead is used together with

international accounting standard towards preparation and presentation of
financial statements.

Scope of conceptual framework

A conceptual framework deals with fundamental financial reporting issues

such as:-
 Objectives financial statements
 Underlying assumptions
 Qualitative characteristics of useful information
 Definition, recognition and measurement of element of financial
statements (e.g., assets, liabilities, equity, income, and expenses), and
 Concepts of capital and capital maintenance

Note: Conceptual framework is developed by IASB

The Need/Purposes for a Conceptual Framework

i) To assist the IASB in the development of new standards and review
of existing standards
ii) The Conceptual Framework may also assist preparers of financial
statements in developing accounting policies for transactions or
events not covered by existing standards
iii) To prevent Material Manipulations or Errors in Financial Statements
In order to avoid manipulation of figures in the financial accounts,
there needs to be a consistent way of deciding which elements are
recognized and measured, and how information is presented in the
financial statements.
iv) To ensure that items are treated in a consistent manner or an
explanation is given as to why not
v) To assist the user of financial statements in interpreting the
information contained in financial statements
vi) To help in Global Harmonization

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 Unless accounting activities are regulated across the globe,
different entities in different countries will apply their own rules,
which are unlikely to be harmonious

Advantages and Disadvantages of Conceptual Framework

Advantages
Some definite benefits associated with the financial framework of
financial reporting are:

i) It facilitates the discussion of accounting problems and guides

accounting standard makers.
ii) It provides a standard against which various core and dedicated
accounting practices can be tested in an objective manner.
iii) It offers all the basics of rationale and objectives.
iv) It also offers the opportunity for developing decisions with a
consistent approach.
v) Implementation of conceptual framework enhances the reliability
of financial reporting.
Disadvantages
Beyond doubt, the conceptual framework establishes the standards for
main core accounting practices and conventions. However, this useful
framework presents some limitations as well that are listed below:

i) It is extremely difficult to establish this framework. The rich and

developed countries can have set up their own conceptual
framework but the countries that are still developing find it
extremely time consuming and expensive.
ii) The next biggest limitation is the rigidity that creeps into the
standard accounting practices due to the implementation of the
framework. This makes it impossible to introduce new ideas into
the system.
iii) Conflict can arise due to the difference in the practices prescribed
by the preceding accounting standards and the latest conceptual
framework
iv) It is possible that the opportunity offered by the framework is not
acceptable to all the parties. The framework may be beneficial to
only some interested group of individuals who are recognized as
users.

Overview of IASB’s Framework for Preparation and Presentation of

Financial Statements

The International Accounting Standards Committee (IASC)

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The International Accounting Standards Board (IASB) was previously run as
the International Accounting Standards Committee (IASC)

The IASC was founded in June 1973 as a result of an agreement by

accountancy bodies in Australia, Canada, France, Germany, Japan, Mexico,
the Netherlands, the UK and Ireland and the US. These countries formed the
IASC initially. The purpose of the Board was to work towards the
improvement and harmonisation of accounting standards and
reporting. IASC operated from 1973 until 2001 and managed to develop
standards known as International Accounting Standard (IAS) IAS1 – IAS41.

In the year 2001 the IASB was established to replace the IASC. IASB agreed
to adopt the set of standards which were issued by IASC (IAS1-IAS41), but
any standards published after that would follow a series called IFRS.

Structure of IFRSF / IASB

Monitoring Board

IFRS Foundation

IASB

IFRS (ADVISORY COUNCIL) IFRIC

WORKING GROUP

Monitoring board

 This is responsible for reviewing and providing advice to trustees

 Participating in a process of appointing trustee
 To meet the trustee atleast annually

IFRS Foundation
On 1 July 2010, the IASC Foundation has formally changed its name to the
IFRS Foundation. The change represents the next step in a process to
simplify the names in use across the organization which was announced
following the conclusion of the Constitutional Review in 2010. The
International Financial Reporting Interpretations Committee and the
Standards Advisory Council are also renamed as the IFRS Interpretations
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Committee and the IFRS Advisory Council, respectively. The name of the
International Accounting Standards Board (IASB) remains unchanged.

The objectives of the IFRS Foundation

The objectives of the IFRS Foundation, as stated in its constitution, are:

i) To raise funds
ii) Appoints member of IASB, IFRS advisory council and interpretation
committee
iii) To publish annual report
iv) Establish operation procedures
The structure of the IFRS Foundation
The Foundation is governed by trustees.
There are 22 trustees, appointed as follows:

 6 from North America;

 6 from Europe;
 6 from the Asia / Oceania region; and
 1 from Africa
 1 from South America
 2 appointed from any area

The trustees should comprise individuals from different professional

backgrounds such as auditor’s preparers, users and academicians.
They should meet at least twice each year.

The function of IASB

 To develop accounting standard

 To promote the use and application of accounting standard globally.
 To bring about convergence of national accounting standards and
IFRSs to high quality solution

IRFS Advisory council

Its function is to advice the IASB and individuals on various matters relating
to accounting standards. This is like technical departments that facilitate the
operation of IASB

International Financial Reporting, Interpretation Committee (IFRIC)

Its role is to assist the IASB in establishing and improving standards ie by
providing guidance on issues not specifically addressed in IFRS.

Working group

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Experts task force for individual agenda projects.

NOTE: IASB is just an administration unit

DEVELOPMENT PROCESS OF IFRS

i) The IFRS Foundation identify a subject or issue requiring a financial
reporting standard and the IASB appoints an advisory committee to
investigate and advice on issue.
ii) The IASB develop and issue a discussion paper for public comments
iii) Following the receipt and review of comments the IASB develop and
publish Exposure Draft (ED) for public comments.
iv) After a review and consideration of comments IASB publish the final
text of the IFRS
v) The IASB publishes an exposure draft which explain how it reached its
conclusion.
Enforcement of IAS/IFRS
The IASB have no legal power to enforce the adoption or compliance with
IFRS. To achieve compliance IASB works in partnership with National
Accounting Standard Setting Bodies.
The use and application of IASs and IFRSs
IASs and IFRSs have helped to both improve and harmonise financial
reporting around the world. The standards are used in the following ways.

 As national requirements, often after a national process

 As the basis for all or some national requirements
 As an international benchmark for those countries which develop
their own requirements
 By regulatory authorities for domestic and foreign companies
 By companies themselves

ADVANTAGE OF USING IFRS (CONVERGENCE/HARMONIZATION)

i) It helps investor, individuals and corporates to compare the financial
results of different companies internationally or nationally in making
investment decisions.
ii) It benefits multinational companies in the following ways
 Preparation of consolidated financial statements
 Reduction in auditing costs
 Reduction in accounting costs
 Facilitation of compliance with regulatory bodies
iii) It saves time and cost to local governments and standard setter in
setting their own standard
iv) It helps tax authorities in calculating tax liabilities of investors

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 v) Large international accounting firms save time and money in planning
of accounting and auditing works. (They can use the same trained
staffs anywhere in the world)

Barriers to harmonization
 Different legal systems
 Nationalism is demonstrated in an unwilling to accept.
 Different purpose of financial reporting
 The lack of strong accounting bodies which would press for better
standards and greater harmonization.

Rule Based vs. Principle Based Accounting Standards

Rule Based Accounting Standards
Rules-based accounting systems provide specific dictates for reporting
financial information. Accountants must follow these rules or face penalties
for noncompliance.
US GAAP is often considered rules based, it is better to think about individual
standards within US GAAP as being more or less rules-based.
Advantages
a) clarity in application
b) reduction of risk (but only when the applicable rule is
followed)
c) comparability for companies in the same industry for the
same rule

Disadvantages
a) A regimented approach where a transaction must be
accounted for in accordance with the rule even if the applied
accounting is misleading,
b) Non-comparability between different industries when the
transactions are similar,
c) Increased risk when the applicable rule is not followed (its
hard to defend a position when the rule is broken).
Principle Based Accounting Standards
A principles-based accounting system — such as GAAP — provides basic
guidelines for accountants to follow. IFRSs are often thought of as principles
based
Advantages
a) Allowing preparers, the ability to consider the best way to
account for and report a transaction,
b) Increased comparability among companies with similar
transactions no matter the industry

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 c) The ability to defend positions based on the principles
followed.
Disadvantages
a) Increased ability to manipulate transactional accounting,
b) Increased variations in accounting approaches for similar
transactions
c) Fewer bright lines to consider in determining how to account
for a transaction.
The Regulatory Framework of Accounting in Tanzania.
A Regulatory Framework in Tanzania is based on:-
i) Company law
Company act 2002, requires every company to prepare its b/sheet,
profit and loss accounts and cash flow statements in according with
the requirement specified in regulations.
ii) IFRSs, IPSASs and ISAs
With effect from 1st July 2004 when Tanzania migrated to IFRSs, IPSASs
and ISAs. Every entity in the country whether small or large was
require to prepare its financial statements in accordance with IFRSs
and IPSASs.
iii) IFRSs for SMEs
IFRSs for SMEs was issued by IASB in July 2009, hence some entities in
Tanzania are permitted to use the IFRSs for SMEs.

Regulatory Role Played by NBAA

The National Board of Accountants and Auditors (NBAA) is an accounting
professional and regulatory body which operates under the Ministry of
Finance and Economic Affairs. It is the sole body to certify accountants
in Tanzania. Apart from certifying the accountants, NBAA is also
responsible for standard setting and also ensuring regulatory
compliance with these standards.

In accomplishing its mission and objectives, the NBAA has a Governing

Board and a management team of permanent staff. The Governing
Board is at the apex of the organisation, responsible for formulating policy
and laying down terms of reference to various committees of the Board. The
Governing Board functions through six committees, namely:

i) Executive Committee
ii) Member Ethics and Compliance Committee
iii) Technical Services Committee
iv) Education and Publications Committee

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 v) Public Sector Committee
vi) Audit Committee
The NBAA Management headed by the Executive Director
implements the Governing Board’s directives by ensuring that the
policies are carried out in an effective and efficient manner. The Executive
Director is assisted by the Head of Departments. The departments
are:

i) Corporate Services
ii) Education and Training Services
iii) Members Services
iv) Technical and Advisory Services

Scope of regulatory framework in Tanzania

The National Board of Accountants and Auditors of Tanzania (NBAA) issued a
technical pronouncement on 15 October 2009 to clarify the scope of
applicability of those standards in the country.
Type of Category of
S/N Standard entities

Publicly accountable entities or entities that

1. Full IFRSs represent public interest such as entities that
take deposits or loans from the public and offer
shares to the
Example public have
of entities thatessential public
should use full
IFRSs include, but are not limited to:
1. Listed Companies,
2. Banks and Financial Institutions,
3. Insurance Companies,
4. Pension Funds
5. Utility Companies,
6. Government Agencies,
7. Mutual Funds,
Savings and Credit Cooperative
8.
(SACCO)
9. Cooperative Societies,
10. Securities brokers/dealers,

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 All Entities which receive subvention
from the Government, except those
11. which are required to use IPSASs.

All entities including Government

12.
Business Entities (GBEs) with 100 or
more employees***
All entities including GBEs with capital
investment in non- current assets of
13. above Tshs.800 million***

Public sector entities including ministries,

regional governments, government departments,
2. IPSAS’s
agencies and local government provided that
IFRS for they are not Government
Entities Business
that are not Entities
publicly
3. 1.
SME’s accountable or representing public
interest,
Entities including GBEs with less than
2.
100 employees provided that they
are not in
Entities categories
including 1 and
GBEs with2capital
above,
3.
investment in non-current assets of
less than Tshs.800 million provided
NB: Entities in categories 2 and 3 are free to use full IFRSs provided that
they fully comply with it.
***A Government Business Entity (GBE) is defined as an entity that
has ALL of the following characteristics:

 Is an entity with the power to contract in its own name,

 Has been assigned the financial and operational authority to carry on a
business,
 Sells goods and services, in the normal course of its business, to other
entities at a profit or full cost recovery,
 Is not reliant on continuing government funding to be a going concern
(other than purchases of output at arm’s length), and
 Is controlled by a public sector entity

Importance of regulatory frameworks

 To prevent material manipulations and errors in the financial

statements
 To ensure that there is consistent in reporting. This can lead to
comparability among entity or for a single over several period of time.

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  Help in global harmonization. Regulatory framework leads to unique
style of preparation and presentation of financial statements worldwide
ie adaptation of IFRS and IAS in each country in the world.

AREAS WHERE ACCOUNTANT PLAY A ROLE

1. Auditing
2. Management accounting
3. Financial accounting
4. Taxation
5. Consultation
6. Public sector accounting

Role of accountant

Accountant play the following role

1) Protect public interest

Accountant employed in public sectors protects public interest by:-
 Ensuring that work is performed in accordance to professional
standard
 Ensuring that work is performed in accordance to code of ethics
2) Ensure that there is sound corporate governance
Accountant ensures that there is a fair financial reporting
transparency, integrity, accountability in private sectors as well as in
public sector.
3) Detect fraud
Accountant assists in detection of fraud ie those relating manipulation
of financial statements.

Challenges facing accountants in provision of profession services.

1. Disclosures to be adhered
There are many disclosures that an accountant is required to adhere in
accordance to IASB standard
2. Pressure to act unethically
Accountant is forced to act unethically/ to act contrary with acceptable
national and international standards
3. To consider public interest
Accountant is required to consider public interest in provision of
professional services. Some accountant fail to consider public interest

How to overcome the challenges

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 i. Professional behaviour
Accountant should avoid any action that can discredit the professional
ii. Should comply with IAS/IFRS
Accountant should perform in accordance to the requirement of
IAS/IFRS
iii. Should comply with code of ethics issued by the professional bodies
iv. Should consider public interest

ROLE OF IASB AND NBAA IN REGULATING ACCOUNTING PROFESSION

1. Issue profession standard and code of ethic

2. Set the minimum entry requirement and education for its member
3. Set out criteria to engage in public practice
4. Resolving ethic conflict
5. Deal with professional misconduct
6. Conduct CPE/CPD programs

REVIEW QUESTIONS

1. What is conceptual framework for financial reporting?

2. Why conceptual framework is needed in financial reporting?

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 3. Outline the contents of Conceptual Framework for Financial Reporting.

4. Briefly describe the process used by International Accounting

Standards Board (IASB) in setting out the International Financial
Reporting Standards (IFRSs).
5. Explain in brief the importance of the accounting regulatory
framework.

6. Among other things, the IFRS conceptual framework covers qualitative

characteristics of financial statements which are fundamental and
enhancing. Please outline fundamental and enhancing characteristics
of financial statements.
7. The word ‘faithful representation’ indicates truthfulness and fairness in
financial statement presentations. Financial information that faithfully
represents economic phenomena has three characteristics.

i. Explain in brief the three characteristics that make financial

statement presentation being faithfully presented
ii. What are things needed to be observed to ensure that the
above characteristics are achieved

APPENDIX
Current IASs/IFRSs

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 Standard Year
Number Name Issued

IFRS 1 First-time Adoption of International 2008*

IFRS 2 Financial Reporting
Share-based PaymentStandards 2004
IFRS 3 Business Combinations 2008*
IFRS 4 Insurance Contracts 2004
IFRS 5 Non-current Assets Held for Sale and 2004
IFRS 6 Discontinued Operations
Exploration for and Evaluation of Mineral 2004
IFRS 7 Assets
Financial Instruments: Disclosures 2005
IFRS 8 Operating Segments 2006
IFRS 9 Financial Instruments 2014*
IFRS 10 Consolidated Financial Statements 2011
IFRS 11 Joint Arrangements 2011
IFRS 12 Disclosure of Interests in Other Entities 2011
IFRS 13 Fair Value Measurement 2011
IFRS 14 Regulatory Deferral Accounts 2014
IFRS 15 Revenue from Contracts with Customers 2014
IFRS 16 Leases 2016
IFRS 17 Insurance Contracts 2017

Standar
d Year
Number Name Issued

IAS 1 Presentation of Financial Statements 2007*

IAS 2 Inventories 2005*

IAS 3 Consolidated Financial Statements - 1976

Superseded in 1989 by IAS 27 and IAS 28

IAS 4 Depreciation Accounting - Withdrawn in

IAS 5 1999
Information to Be Disclosed in Financial 1976
Statements - Superseded by IAS 1 effective
1 July 1998

IAS 6 Accounting Responses to Changing Prices -

Superseded by IAS 15, which was withdrawn
December 2003

IAS 7 Statement of Cash Flows 1992

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 Standar
d Year
Number Name Issued

IAS 8 Accounting Policies, Changes in Accounting 2003

IAS 9 Accounting for Research and Development
Activities - Superseded by IAS 38 effective 1
July 1999

IAS 10 Events After the Reporting Period 2003

IAS 11 Construction Contracts - Will be superseded 1993
by IFRS 15 as of 1 January 2018

IAS 12 Income Taxes 1996*

IAS 13 Presentation of Current Assets and Current
Liabilities - Superseded by IAS 1 effective 1
July 1998

IAS 14 Segment Reporting - Superseded by IFRS 8 1997

effective 1 January 2009

IAS 15 Information Reflecting the Effects of 2003

Changing Prices - Withdrawn December
2003

IAS 16 Property, Plant and Equipment 2003*

IAS 17 Leases - Will be superseded by IFRS 16 as of 2003*
IAS 18 1 January -2019
Revenue Will be superseded by IFRS 15 as 1993*
IAS 19 of 1 January
Employee 2018 (1998) - Superseded by
Benefits 1998
IAS 19 (2011) effective 1 January 2013

IAS 19 Employee Benefits (2011) 2011*

IAS 20 Accounting for Government Grants and 1983
IAS 21 Disclosure
The Effectsof
ofGovernment Assistance
Changes in Foreign Exchange 2003*
Rates

IAS 22 Business Combinations - Superseded by 1998*

IFRS 3 effective 31 March 2004

IAS 23 Borrowing Costs 2007*

IAS 24 Related Party Disclosures 2009*
IAS 25 Accounting for Investments - Superseded by

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 Standar
d Year
Number Name Issued

IAS 39 and IAS 40 effective 2001

IAS 26 Accounting and Reporting by Retirement 1987

IAS 27 Separate Financial Statements (2011) 2011
IAS 27 Consolidated and Separate Financial 2003
Statements - Superseded by IFRS 10, IFRS
12 and IAS 27 (2011) effective 1 January
2013

IAS 28 Investments in Associates and Joint Ventures 2011

IAS 28 Investments in Associates - Superseded by 2003
IAS 28 (2011) and IFRS 12 effective 1 January
2013

IAS 29 Financial Reporting in Hyperinflationary 1989

IAS 30 Economies
Disclosures in the Financial Statements of 1990
IAS 31 Banks and
Interests InSimilar Financial- Institutions
Joint Ventures Superseded- by 2003*
IAS 32 IFRS 11 and
Financial IFRS 12 effective
Instruments: 1 January 2013
Presentation 2003*
IAS 33 Earnings Per Share 2003*
IAS 34 Interim Financial Reporting 1998
IAS 35 Discontinuing Operations - Superseded by 1998
IFRS 5 effective 1 January 2005

IAS 36 Impairment of Assets 2004*

IAS 37 Provisions, Contingent Liabilities and 1998
Contingent Assets
IAS 38 Intangible Assets 2004*
IAS 39 Financial Instruments: Recognition and 2003*
Measurement - Superseded by IFRS 9
effective 1 January 2018 where IFRS 9 is
applied

IAS 40 Investment Property 2003*

IAS 41 Agriculture 2001

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