This video provides an overview of the conceptual framework created by the Financial Accounting Standards Board (FASB) to guide the development of Generally Accepted Accounting Principles (GAAP) in the United States. The conceptual framework includes the objective of financial reporting, the elements of financial reports (assets, liabilities, etc.), and the qualitative characteristics of accounting information. The conceptual framework also highlights assumptions that are made when preparing financial reports, as well as several principles and constraints that affect financial accounting.
Neither of the groups that preceded the FASB (the Committee on Accounting Procedures and the Accounting Principles Board) created a conceptual framework, and both those groups were terminated. Thus, the people at the FASB got wise and created a conceptual framework to guide the development of Generally Accepted Accounting Principles (GAAP) in the United States.
Strangely, the conceptual framework is technically not a part of GAAP, but it contains the main objectives of financial reporting. It explains what the purpose of financial accounting is and outlines the qualitative characteristics of high-quality financial accounting information. The conceptual framework also defines the elements of the financial statements (e.g., assets, liabilities), highlights the constraints of the financial reporting process (e.g., cost), and lists some important assumptions we make in preparing the financial statements (e.g., that the firm will continue its operations into the future).
The conceptual framework is usually organized into the form of a triangle which makes it look more authoritative. Sometimes the triangle is inverted to make the information appear even more authoritative.