Converged Conceptual Framework

As the responsibilities of the global harmonization of accounting standards IFRS and GAAP transfer to IASB, FASB’s influence is waning. Advantages of the convergence include high quality financial reporting, which lowers cost of capital for investors and the cost of borrowing for companies. However, there are disadvantages to be noted, such as the costs of introducing IFRS to current and potential accountants and the risk of reducing the uniformity of financial reports due to the lax rulings of IFRS, which promotes earnings management amongst companies. Although arguments regarding the convergence remain prevalent, the completion of IFRS and GAAP is inevitable. Come year 2015, accountants, investors, and companies alike will discover whether or not the pros outweighed the cons; or vice versa.

The conceptual framework is an attempt to provide a metatheoretical structure for financial accounting. SFAC No.3 defines 10 elements of financial statements. It is obviously a resolution of the definitions presented in the discussion mem for the conceptual framework project. Elements are what accounting professionals measure and the attributes is about how to measure. Definitions can be helpful to the financial statements which have been formulated in order to help professionals to specify the qualification are. Also, the definitions must be expressed in the metatheoretical structure.

Conceptual Framework helps the International Accounting Standards Board to develop criterion that are depend on consistent concepts. It helps prepares to

The field of accounting is constantly evolving. This is true not only for the theory of accounting itself but also the entities that govern its theory and practice. Presently, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are faced with some of the biggest challenges to date. To understand the significance of these two boards, it is necessary to understand their histories, relations between the boards, and the standards that they set. Also how the knowledge of these boards and the field they lead, gained through the masters of science in accountancy

There have been proposals that have been working on with regard to the replacement of GAAP (Generally Accepted Accounting Principles) with IFRS (International Financial Reporting Standards) as used in the accounting and financial reporting aspects. Such convergence requires that the functions of the GAAP standards be added to the IFRS. The International Accounting Standards Board (IASB) developed the IFRS which is a less-detailed financial reporting system.

One such update was issued in June 2010 (IFRS.org, 2010). This statement covered a number of different topics. The organizations had set a target date of June 2011 to have resolved the major convergence issues that were identified in the 2006 Memorandum of Understanding. The June 2010 announcement retains this target date for most of the projects, but has set a new target date of June 2012 for some of the projects, in recognition of the challenges inherent in the convergence process. The announcement also mentioned that there would be a new prioritization process that the bodies expect will improve the convergence process. Also, a change to the process of consultation was made. The consultation process seeks stakeholder input that helps the bodies to set effective dates and transition methods, so that corporate accounting departments are in better position to implement convergence items

On February 24, the SEC unanimously agreed to publish a statement of continued support for a single set of high-quality global accounting standards. The SEC acknowledged that IFRS is best positioned to be the global standard. Even without a set conversion timeline from the SEC, IFRS has been affecting

There are general rules and concepts that preside over the field of accounting. These general rules, known as basic accounting principles and guidelines, shape the groundwork on which more thorough, complex, and legalistic accounting rules are based. The Financial Accounting Standards Board (FASB) uses the basic accounting principles and guidelines as a foundation for their own comprehensive and complete set of accounting rules and standards.

A Conceptual Framework can be defined as a system of concepts and purposes that guide to the creation of a constant set of regulations and standards. Especially in accounting, the rule and standards set by the nature, function and limit of financial accounting and financial statements. The purpose of the Conceptual framework is to enhance financial reporting and objective of accounting by offering a more accomplish, clear and updated set of concepts or guidelines. In Conceptual Framework, it will form a basis for define how transactions should be calculated (historical value or market value) and reported in financial report like how they are presented or communicated to internal or external users. To carry out this, the International Accounting Standards Board (IASB) is establishing on the currently existing Conceptual Framework updating it, enhancing it and padding it in the disparity instead of essentially reconsidering all respects of the Conceptual Framework. Conceptual Framework helps the International Accounting Standards

* Remove the discrepancies between the IFRSs and U.S. GAAP that will continue until January 5, 2005, which would happen with the harmonization of their future work programs.

(5) Financial reporting concepts and principles tell us when and how to measure, record and classify business transactions and aggregate them into financial reports. By following these concepts and principles, financial reporting systems provide information that is consistent over time and across different businesses, and accounting becomes a language that is widely understood.

A conceptual framework can also lead to better understanding among accountants, auditors and users because all parties would be using a common set of definitions and criteria when interpreting company financial reports. The AASB’s Policy Statement 5 The Nature and Purpose of Statements of Accounting Concepts explicitly states the potential benefits of the conceptual framework as follows (paragraph 7):

The IASB conceptual framework is a framework of theories prepared by a standard setting body aimed t dealing with practical problems faced by users of financial statements; the characteristics of accounting information; the elements of financial statements and concepts for measuring and reporting the elements such as assets and liabilities (Financial Times 2017). The benefit is that uniform accounting standards can be applied to deal with common accounting problems; have fewer standards to reduce the volume of standards; help accountants and auditors to resolve accounting issues. However one of the issues is the going concern assumption, which does not appear to take into account more serious risks that an enterprise may be associated with such as sustainability risks.

The framework for the preparation and presentation of financial statements, also known as the framework, was approved by the board of the IASB in April, 1989. The framework was then published by the IASB in July, 1989. In the year 2001, the framework was adopted fully by IASB. The framework for the preparation and presentation of financial statements has the obligation to describe all the basic concepts that are to be adhered to in the preparation of financial statements. The framework is used by the IASB board to develop the necessary standards that are to be implemented for accounting purposes. The framework is also a guide to help in creating

One way that the framework upholds the published accounting standards is that it allows financial statements to be prepared in a consistent manner. This therefore is an advantage because the framework increases the users understanding and assurance in financial reporting which also makes it easier to compare different companies’ financial statements. For example, the accounts shown by EasyJet (2013) whether it is the income statement, their financial position or changes in equity, it will always be included in a competitor’s account. This illustrates that the framework can enhance the quality of accounting information for users, such as shareholders when investing as they are able to easily compare the accounts since companies are obliged to follow the framework.