Applicable financial reporting framework definition
/What is an Applicable Financial Reporting Framework?
An applicable financial reporting framework is the set of rules used as guidelines in the preparation of financial statements. The framework used is typically based on the type of business and where it is located, as well as the applicable laws. For example, the applicable financial reporting framework for a business located in the United States would be Generally Accepted Accounting Principles, while International Financial Reporting Standards would be the applicable reporting framework in most other countries.
Example of an Applicable Financial Reporting Framework
The applicable financial reporting framework depends on the circumstances of the reporting entity. Here are several examples:
Albatross Corporation is based in the United States, and its shares are traded on the NASDAQ. Being a public company in the United States, the applicable financial reporting framework for Albatross is required to be Generally Accepted Accounting Principles (GAAP).
Albuquerque is a city in New Mexico. Being a governmental entity, the applicable financial reporting framework for the city is Governmental Accounting and Financial Reporting Standards.
Agility Electric is based in Kuwait, and its shares are traded on the Abu Dhabi Securities Exchange. As a Kuwaiti company, it is required to use International Financial Reporting Standards (IFRS), because this standard is required within Kuwait.
Each of these organizations is required to have a different applicable financial reporting framework, because of the rules that apply where they do business.
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Applicable Financial Reporting Framework FAQs
Can the same transaction be reported differently under different frameworks?
Yes. The same transaction can be reported differently under different financial reporting frameworks because recognition, measurement, presentation, and disclosure rules vary. For example, revenue, leases, financial instruments, and income taxes may be accounted for differently under U.S. GAAP, IFRS, or a special purpose framework, producing different reported results.
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