Accounting Theory Essay

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 is defined by FASB as follow (FASB, 1980, p. i): Conceptual framework is a coherent system of interrelated objectives and fundamentals that is expected to lead to consistent standards and that prescribes the nature, function, and limits of financial accounting and reporting.

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

Fast forward to 1970, where the APB’s main contribution “Basic Concepts and Accounting Principles Underlying Financial Statement of Business Enterprises was highly critized for achieving too little too late. Ultimately, resulting in the AICPA suggesting that the standard setting role be turned over to an autonomous body known as the Financial Accounting Standards Board

When talking about accounting, the first thing we should know is the history of its development. Traditionally, the development is from inductive to deductive. Inductive theory assume what is done by the majority is the most appropriate practice. However, It did not seek to evaluate the logic or merit of

Be that as it may, expanding the similarity of principles is difficult. It can't be refined by the FASB alone; it requires collaboration and assentation among standard setters around the globe. Distinctive beginning stages, diverse business societies, diverse administrative situations, diverse budgetary reporting targets, and diverse legitimate frameworks can make it troublesome for standard setters around the globe to concede to the same bookkeeping elective. Also, an option that is seen as a change in one nation may not be seen as a change by another nation. For instance:

This difference is also tied to the movement of globalization by way of the internal customs from around the world. Based on these practices the account standards around the world are created from a different basis. In the U.S, accounting standards are based on “bright lined rules.” Whereas, in most of the world accounting standards are based off of principles, with the emphasis on principles the international rules focus on the heart of the law. Rather than in the U.S these “bright lined rules” have been created as a result of the multitude of industries located here. The rules however, do not reflect the heart of the law; rather they create a line to be maintained.

On November 18, 2002 the FASB and IASB came together at a meeting in Norwalk, Connecticut to start the wheels in motion for the purpose of establishing a new set of financial standards. The FASB and IASB are committed to create financial standards that will be accepted both domestically and internationally that are of high quality and compatible for financial reporting. At present more than a 100 countries already use the International Financial Reporting Standards. The U.S. at present has not accepted a changed in accounting procedures; therefore, this is going to be a major task for both the FASB and IASB to complete successfully this union. I do believe that the partnership between the FASB and IASB will achieve the goals of creating a common financial reporting set of standards that will be accepted by all.

Does the framework present the relationships among the concepts? Is a map or model of the framework provided for clarity?

The globalization of markets over the past 50 years has led to the demand for increasingly comparable financial statements across countries. In response to this demand, the International Accounting Standards Board (IASB) was formed with the purpose of developing a set of high quality global accounting standards. Although a majority of developed markets have adopted the international standards, the United States has not. One reason for the delay in adoption is that many of the standards are very similar. However, there are also several key differences between the two. Presently, the United States Financial Accounting Standards Board (FASB) and the IASB have

However, it must not be ruled out that the basic financial statements are similar to those of the IFRS standard (Epstein & Jermakowicz, 2010). The FASB conceptual framework bears a marked similarity to the IASB framework which works to effect efficient preparation and presentation of financial statements. It is under this framework that convergence with the IFRS is promised. However, there exists a comprehensive guide in view of financial statements in terms of preparation and presentation in the IFRS standards. There is also a minimum point identified for the identification of all items in the financial statements. In the IFRS, both the FASB and IASB frameworks are essential in the preparation and presentation of financial statements. However in these IFRS standards, the IASB is less detailed. Convergence with the GAAP is also promised.

Conceptual framework is a theory of accounting prepared by a standard setting body against which practical problems can be tested objectively. In addition the business dictionary states that conceptual framework is a theoretical structure of assumptions, principles and rules that hold together the ideas compromising a broad concept. Other sources state that a conceptual framework can be viewed as a set of interrelated objectives and theoretical principles, which forms a reference for the underlying discipline. On the other hand, financial reporting is the process of producing statements that disclose an organization's financial status to management, investors and the government. Therefore, in financial reporting the framework provides information

Models and Frameworks. Models and frameworks provide the ability to analyze, “a structured set of essential

There are seven levels of the conceptual framework. However, they are devided into three main levels.

A conceptual framework can be defined as a logical system that interconnects objectives and fundamentals which lead to consistent standards (Deegan, 2012). The objectives of a general purpose financial reporting forms the foundation of the conceptual framework.