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

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).

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 companies is required to have a different applicable financial reporting framework, because of the rules that apply where they do business.