Conceptual Framework vs Accounting Standards Explained

Conceptual Framework vs Accounting Standards: Why the Distinction Matters

In my DipIFR classrooms, one question comes up almost every batch: "If the Conceptual Framework tells us what to do, why do we need separate accounting standards?"

It is a fair question. Both documents come from the IASB. Both deal with financial reporting. But they serve very different purposes – and understanding that difference is essential for exams, interviews, and real-world application.

This article explains the difference between the conceptual framework and accounting standards in plain language, with examples from 25+ years of working with IFRS in audits, implementations, and ACCA Diploma in IFRS coaching.

About the Author – Vicky Sarin, CA

I am a Chartered Accountant with over 25 years of post-qualification experience in financial reporting, audit, and global accounting education. As Founder & CEO of Eduyush.com, I have trained thousands of professionals for ACCA DipIFR and other IFRS certifications.

In every batch, I spend time on the Conceptual Framework first – not because examiners test it heavily, but because it makes every other standard easier to understand. Once you know the "why," the "what" falls into place.

The One-Line Difference

If someone asks you in an interview:

Conceptual Framework = principles and concepts that guide standard-setting

Accounting Standards = specific rules that tell you how to account for particular transactions

Think of the Conceptual Framework as the constitution and accounting standards as the laws. The constitution sets out broad principles; the laws translate those principles into specific requirements for specific situations.

What Is the Conceptual Framework?

The IFRS Conceptual Framework is a document issued by the IASB that sets out:

• The objective of financial reporting
• The qualitative characteristics of useful financial information
• Definitions of assets, liabilities, equity, income and expenses
• Recognition and derecognition criteria
• Measurement bases
• Presentation and disclosure concepts

The current version was issued in 2018 and replaced earlier versions from 1989 and 2010.

What the Conceptual Framework Does

• Guides the IASB when developing new standards or revising existing ones
• Helps preparers develop accounting policies when no standard applies
• Assists users in understanding and interpreting financial statements

What the Conceptual Framework Does NOT Do

• It does not override any specific accounting standard
• It does not tell you exactly how to account for a lease, revenue contract or financial instrument
• It does not create enforceable requirements on its own

If you want to understand the broader purpose behind IFRS, my article on objectives of IFRS explains how these goals connect to everyday financial reporting.

What Are Accounting Standards?

Accounting standards (like IAS 16, IFRS 9, IFRS 15, IFRS 16) are specific rules that tell you:

• When to recognise an item in the financial statements
• How to measure it (cost, fair value, amortised cost, etc.)
• What disclosures to provide
• How to present information in the primary statements

Examples of Accounting Standards

Each standard addresses a specific type of transaction or balance. The IFRS standards list on Eduyush gives you a quick overview of all current IAS and IFRS standards.

 Key Differences Between Conceptual Framework and Accounting Standards

1. Purpose

2. Level of Detail

The Conceptual Framework is deliberately broad. It tells you, for example, that an asset is "a present economic resource controlled by the entity as a result of past events." It does not tell you how to depreciate a building or test goodwill for impairment.

Accounting standards fill that gap. IAS 16 tells you exactly how to depreciate property, plant and equipment. IAS 36 tells you how to test for impairment. IFRS 3 tells you how to account for goodwill in a business combination.

3. Authority

Here is a point many students miss:

Accounting standards override the Conceptual Framework in the event of a conflict.

If a specific standard says something different from the Framework, you follow the standard. The IASB acknowledges this and, when it happens, explains the reason in the Basis for Conclusions.

4. Flexibility

The Conceptual Framework is more flexible – it sets out principles that can be applied across different situations.

Accounting standards are more rigid – they prescribe specific treatments to promote consistency and comparability.

5. When Each Is Used

A Practical Example

Imagine a company develops a new type of digital asset that does not fit neatly into any existing standard. There is no IFRS specifically for this asset class.

Step 1: Check if any existing standard applies by analogy (IAS 38 for intangibles? IFRS 9 for financial instruments?).

Step 2: If no standard clearly applies, use the Conceptual Framework to develop an accounting policy:

• Does the item meet the definition of an asset?
• Does it meet the recognition criteria?
• What measurement basis best reflects its nature?
• What disclosures would be useful to users?

This is exactly how the Conceptual Framework is supposed to work – as a fallback when standards do not cover a situation.

Why This Distinction Matters for Your Career

In DipIFR and SBR Exams

Examiners often test your ability to apply the Conceptual Framework when:

• A transaction is unusual or novel
• A standard allows a choice of accounting policy
• You need to justify why a particular treatment is appropriate

Students who understand the Framework score higher because they can reason through problems rather than just recite rules.

My article on how to pass ACCA DipIFR first attempt includes tips on using the Conceptual Framework in exam answers.

In Job Interviews

Interviewers love to ask questions like:

• "What would you do if there is no standard for a transaction?"
• "How do you decide between cost and fair value?"
• "What makes financial information useful?"

All of these are Conceptual Framework questions. Candidates who can articulate the principles stand out from those who only know specific rules.

My IFRS interview questions article includes several questions that test Conceptual Framework knowledge.

In Real-World Practice

In practice, you will encounter transactions that do not fit neatly into a standard. You will need to:

• Develop accounting policies for new products or business models
• Advise clients on the most appropriate treatment
• Defend your position to auditors and regulators

The Conceptual Framework is your reference point in all of these situations.

The Conceptual Framework at a Glance

If you are preparing for DipIFR, focus especially on Chapters 1, 2, 4 and 5 – these are the most frequently tested areas.

Common Misconceptions

"The Conceptual Framework is just theory"

Not true. The Framework has direct practical application when no standard exists or when a standard allows a choice. It is also used to interpret ambiguous wording in standards.

"If I know the standards, I don't need the Framework"

Risky assumption. Standards change, new transactions emerge, and examiners specifically test your ability to apply principles, not just memorise rules.

"The Framework and standards always agree"

Not always. Sometimes the IASB issues a standard that departs from Framework principles for practical reasons. When this happens, the standard takes precedence, but the IASB explains the rationale.

How to Build Your Understanding

1. Read the Conceptual Framework directly. It is not long – the core content is under 100 pages. Focus on definitions, recognition criteria and qualitative characteristics.
2. Connect standards to Framework concepts. When you learn IFRS 15 (revenue), ask: "How does the recognition of revenue relate to the Framework's definition of income?"
3. Practise with past papers. DipIFR and SBR exams regularly include questions that require you to apply Framework principles.
4. Get certified. ACCA DipIFR specifically tests the Conceptual Framework in Section A of the exam. The certification process forces you to internalise these concepts.

How This Relates to Indian Accounting (Ind AS)

If you work with Indian companies, you should know that India's Ind AS framework is converged with IFRS. The Conceptual Framework underlying Ind AS is essentially the same as the IFRS Conceptual Framework, with minor local adaptations.

Understanding the IFRS Framework gives you a strong foundation for Ind AS as well. My article on difference between IFRS and Ind AS explains how the two frameworks relate.

Benefits and Limitations

Benefits of Having Both

• Consistency: The Framework ensures standards are developed on a consistent conceptual basis.
• Completeness: When standards do not cover a situation, the Framework fills the gap.
• Clarity: Understanding principles helps you apply rules more intelligently.

For a broader view of why IFRS matters, see my article on benefits of IFRS.

Limitations

• Complexity: Two layers of guidance can be confusing at first.
• Judgement required: Applying the Framework requires professional judgement, which can lead to inconsistency.
• Conflicts: Occasionally, standards and Framework do not align perfectly.

To provide a balanced view, my article on the disadvantages of IFRS discusses the challenges of working with a principles-based system.

Where to Get the Official Guidance

This article shares practical insights from my coaching and advisory experience. For the authoritative text of the Conceptual Framework, refer to the official IFRS Foundation website at ifrs.org.

Final Thoughts

The difference between conceptual framework and accounting standards is one of the most fundamental concepts in IFRS – and one of the most misunderstood.

Think of it this way:

• The Conceptual Framework tells you why financial reporting exists and what makes information useful.
• Accounting standards tell you how to report specific transactions and balances.

Master both, and you will be able to handle any accounting question – whether it comes from an examiner, an interviewer or a client with an unusual transaction.