The purpose of financial reporting: the case for coherence in the Conceptual Framework and standards

David Sutton, Carolyn J. Cordery, Tony van Zijl

Research output: Contribution to journalArticlepeer-review


This paper proposes a basis for progress in the development of the conceptual framework (CF) as a foundation for developing accounting standards. This topic has gained increased prominence following the IASB's (2013) release of its Review of the Conceptual Framework for Financial Reporting (RCFFR) proposing changes to the CF. In this paper the broad socio-economic environment is seen as determining the primary purpose of General Purpose Financial Reporting (GPFR), which, in turn, establishes the high-level properties of a CF suitable to meet that primary purpose. This is to support market stability and efficiency through the provision of an account of the financial position and performance of an entity that accords with economic reality. The case is made that the primary purpose of a CF is to provide the principles for the development of accounting standards that will result in GPFR that is useful. This requires theoretical coherence. The CF should drive the standards and if standards depart from the CF principles, such departures should be justified. This proposal is consistent with the position adopted in the RCFFR. However, in contrast to the RCFFR, this paper accents the purposive approach and links the formation of standards directly to the CF. This approach implies that standards are subordinate to CF principles; therefore compliance with standards should not provide a basis for compromising the faithful representation of economic reality. From the purpose identified for GPFR, the paper argues for a default presumption in favour of Fair Value Accounting, a retreat from the asset/liability approach, and a re-casting of the income statement to focus on operational flows.
Original languageEnglish
Pages (from-to)116-141
Issue number1
Early online date19 Feb 2015
Publication statusPublished - 1 Mar 2015

Bibliographical note

This is the peer reviewed version of the following article: Sutton, D.B., Cordery, C.J. and van, Zijl, T. (2015), Standards and Conceptual Framework Coherence. Abacus, 51: 116-141, which has been published in final form at  This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.


  • Accounting conceptual frameworks
  • Financial accounting standards setting
  • Conceptual coherence


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