Financial Accounting Theory & the Reporting Environment

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.

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

Representations are faithful if there is a correspondence or agreement between the accounting measures or descriptions in the financial reports and the economic phenomena they purport to represent (FASB, 1980: 6; FASB, 2005: 3). The difference between reliability and a faithful representation is ambiguous. Since the attributes neutrality, completeness and substance of economic phenomena (substance over form) can be classified as qualities of faithful representation, reliability becomes redundant. Consequently, a point of attention is to discuss what exactly the notions reliability and faithful representation mean and what they do not mean (FASB, 2005: 2-3).In both frameworks neutrality is defined as free from bias. 'To that end, the common conceptual framework should not include conservatism or prudence among the desirable qualitative characteristics of accounting information. However the framework should note the continuing need to be careful in the face of uncertainty' (FASB, 2005: 3).

As the complexity of our financial economy develops it is important that our accounting standards progress in accordance. Accounting is very important to the development of the global and local economies. Accounting is basically the gathering, summarizing and presenting of financial information of an entity to interested internal, external and possible investors. This information should be presented in a non-bias way so that other people are able understand.

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

The economic interest theory of regulation assumes that regulation is created to benefit the private interests of particular groups but at the expense of the general public. The economic assumption is that people will seek to advance their own self-interest above any others and will do so rationally (Deegan 2006). For example, Levine (2006) states that airline regulation has often been used as a good example of economic interest theory. The airline industry was a competitive industry which was subjected to price and entry regulation

The four largest Australian Banks have faced considerable pressure from the community and the government in recent times. This pressure has arisen due to their interest rate increases in association with their high reported earnings. As accountants, we are responsible for preparing financial statements and “calculating” the profit figures.

It has been become an issue of great concern that the accounting profession must find a common theory in order to address and put the issue at rest. This therefore, has called for the study of this topic under review “the demand for and supply of accounting theories: the market for excuses. As a result of this several questions have been raised. For instance, the question of why accounting theories are predominantly normative has been put forward by this article? Secondly, why no single theory in accounting profession that is generally or widely accepted? It has been argued that the financial accounting theories have been found to be ineffective most especially in the area of impacting accounting practice and policy, though, this has been

It has been become an issue of great concern that the accounting profession must find a common theory in order to address and put the issue at rest. This therefore, has called for the study of this topic under review “the demand for and supply of accounting theories: the market for excuses. As a result of this several questions have been raised. For instance, the question of why accounting theories are predominantly normative has been put forward by this article? Secondly, why no single theory in accounting profession that is generally or widely accepted? It has been argued that the financial accounting theories have been found to be ineffective most especially in the area of impacting accounting practice and policy, though, this has been

Companies create and maintain accounting systems because the accounting systems is an important role in the financial management. They bring a lot of benefits in the business management for accessing the financial statements, reporting business transactions, accounting pay and fee, and minimizing the problems with tax authorities.

The main field of study is on financial accounting and reporting. Hence, for the phenomena being investigated, the researcher will employ one of the most commonly used frameworks for this purpose, namely the decision usefulness theory. Other lenses could have been used such as accountability theory, but these were not selected in the current study because they were not thought to be appropriate for the research questions being addressed. Ijiri (1983) argues that the choice of theoretical framework will critically affect the research process, the findings arrived at and the interpretation of the phenomena being studied. Specifically, Ijiri (1983) suggests that accountability theory emphasises the relation between the accountor, nordahl (2014) (the preparer of the financial statements) and the accountee (the user of financial statements), while decision usefulness theory focuses on the decision maker (i.e. users of financial

The 2003 paper by Schipper discusses the move in the accounting community to abandon the U.S. “rules based” accounting system in favor of a principles based system. Karen Schipper is an accounting professional that is a member of the FASB. The principles based system allows for the appropriate exercise of professional judgment. The current system is “rules based” and is based on the stringent guidelines that encourage decisions be made that follow a decision tree and place a “check mark” in a box.

There is no generally accepted theory of accounting. There are a number of accounting theories (though a systematic attempt has been made by Financial Accounting Board (FASB) of USA and IASC and other to formulate a comprehensive theory of accounting). The definition of Accounting Theory given by Hendriksen as “a set of broad principles that (i) provide a general frame of reference by which accounting practice can be evaluated, and (ii) guide the development of new practices and procedures” lead us to perceive accounting theory as a basis of explanation and prediction. The primary objective of accounting theory, as it follows from this definition, is to provide a coherent set of logically derived principles that serve as a frame of

These presumed languages borrowed from other fields of knowledge which give the accounting body more credibility which in turn spreads beyond the meaning for which they are applied without considering implication of such arrangement. Such rationales, become clear when preparing financial statements that include expenses, revenues and profits or losses, are usually associated with notions of accountability, transparency, responsibility and efficiency (Potter, 1999). These rationales aid financial statement seen as tool for accountability and measure of firm’s performance, (Miller, 1994 ).these rationales are rooted in almost all organization which makes it almost impossible to question, in my opinion the fact that this rationales are unchallengeable makes accounting two powerful which is a big problem to society. Scholars have divided the rationale of accounting under two main points: accounting as a legitimizing device, and accounting as a linguistic device. Accounting as a legitimizing Device several theorists have looked at the legitimizing abilities of accounting. The writers describes accounting as a skill that can control development of modernized societies, using accounting as an essential means by which organizations react to environmental pressures to improve their legitimacy through impression management. Impression management comes to play when organizations norms and values are not in line with

Accounting standards have up to 35 sections applicable to the UK and Ireland. These sections, each address a specific area of accounting. The consolidated financial statements of listed groups are required by the IAS regulation to be prepared under EU-adopted IFRSs. However, qualitative characteristic are also important in the context of the choice and change of accounting policies by firms, there are various qualitative characteristics of useful financial information and they are Relevance Materiality, Faithful representation, Comparability, Verifiability, Understandability, and Timeliness. Although they are all important for financial information they are a few that must be considered very important. There are different users of this framework and they have different reasons as to why they need information from the financial statement.