Correction
The conceptual framework explains financial reporting objectives and concepts. It does not override applicable authoritative accounting requirements.
Identify the source's role
The Financial Accounting Standards Board (FASB) issues standards for nongovernmental entities using United States generally accepted accounting principles (US GAAP). Its Accounting Standards Codification (ASC) is the authoritative source for those standards. Securities and Exchange Commission requirements also apply to entities within that agency's reporting scope.
FASB's Concepts Statements help explain the reasoning behind standard setting. A useful conceptual explanation and an authoritative requirement do different jobs.
Apply the distinction
Suppose Harbor Design prefers a new valuation because management believes it would be more useful to investors. A conceptual argument about usefulness does not permit Harbor to ignore the measurement required by the applicable accounting guidance.
Harbor should first establish the governing requirement and apply it to the facts. The framework can help explain the result, but it cannot create an exception that the applicable guidance does not provide.
Check your answer
Identify the exact source supporting the accounting treatment. If your conclusion cites only a textbook or Concepts Statement, continue the research. Do not replace the governing rule with whichever conceptual quality supports the result you prefer.
See FASB's standards overview for the Codification's role.
When this mistake may appear
- A reporting concept appears to support management's preferred result.
- A preparer finds a textbook explanation before locating the governing guidance.
Your work may contain this mistake if:
- Treats a Concepts Statement as the governing accounting requirement.
- Stops after reading a textbook explanation.
- Uses a general claim about usefulness to ignore a specific rule.