Explain and show an example of how the FASB's conceptual framework is needed in formulating standards on controversial topics.

 

FASB's conceptual framework helps in providing consistency when it comes to formulating standards for controversial topics because it serves as a map or a guide that clearly defines the structure. It serves as the foundation for a system that is logical, fair and robust all at the same time

Step-by-step explanation

 A good example that can be provided here is with regards to the accounting issues related to stock-based compensation that many companies give to their employees. In this regard the FASB conceptual framework provides the rationale for treating the stock options as an expense. The FASB is able to remove all biases that are prone to come up in case of such controversial issues by relating the accounting for compensation to the very purpose of the financial statements and the applicable qualitative characteristics as well.