The Role of Conceptual Framework in Accounting

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

The IOSCO plan does not cover accounting standards.(66) These standards are important for providing financial statements in a scheme that are prepared in the similar manner as those by issuers from other countries. The development of international accounting standards is the subject of a distinct project by IOSCO, and many accounting professionals who are concomitant with that undertaking are hopeful that a satisfactory solution is within reach.(67) Supposing, however, that an agreement is possible on a core set of financial standards and that they too are embraced by securities regulators as compulsory for foreign issuers, the road to commonality has at least two other impediments.

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

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.

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.

A variety of parties are interested in and affected by the development of accounting standards. Various users of accounting information have discovered that the best way to impact the formulation of accounting standards is to attempt to influence the standard setters. The CAP, APB, and FASB have all come

Indubitably, the Financial Accounting Standards Board (FASB) and the International Financial Reporting Standards (IFRS) create and are sets of, respectively, governing bodies in today’s business world. FASB and IFRS both are constantly updating to meet and accommodate the ever changing world presently. Changes are not easy, but necessary to keep up with reform and accommodate a setting of efficiency and meet the demand of prosperity. Such reforms are prudent in order to better harmonize the accounting world and create less conflicts in reporting issues. FASB main focus is to help create generally accepted accounting

The conceptual framework was established by the Financial Accounting Standards Board (FASB) and is used to help define the boundaries of accounting. It gives definitions of key terms and establishes consistent standards by which fundamental issues are defined. This makes it easier to facilitate discussion and leads to greater efficiency in making accounting judgments.

The concepts in the conceptual framework are being created in an orderly manner which makes the financial reporting consistent and logical. There is also increased comparability of standards from company to company or from year to year. The conceptual framework also ensures that there is consistency internally in the accounting standards. In addition the framework also establishes precise definitions that facilitate discussion of accounting issues and it also helps preparers and auditors in resolving financial problems in the absence of an accounting standard. Since a theory of accounting that can be applied on specific problems is provided in the conceptual framework, the volume of accounting standards is

standard-setting and asked interested parties to comment FASB 2002 . Many who responded were supportive of a principles-based model, believing that such an approach would lead to higher quality financial reporting with less opportunity to “exploit the gaps in GAAP” CalPERS or use “financial accounting engineering” to get around detailed, rulesbased standards PricewaterhouseCoopers .3 Conversely, some argued that less specificity in accounting standards would result in an increase in manipulation of financial results e.g., Intel and former FASB member David Mosso . On the separate issue of inter-firm comparability, a number of letter-writers expressed concern that, with an increased reliance on judgment, implementation of principles-based standards could result in a decrease in comparability across firms e.g., IBM, Pfizer, Goldman Sachs, BDO Seidman . The ongoing debate over whether and when to move toward more principles-based accounting standards reflects the uncertainty of both the anticipated desirable and undesirable effects of such a paradigm shift. Although these are empirical questions that can be addressed experimentally to inform policy makers prior to making a move to principles-based standards, the academic literature is limited with respect to research regarding these uncertainties Maines et al. 2003 . As noted, the possible adoption of principles-based financial reporting standards is only one of

To address the increasing challenges of legislating those governs our society today, “countries all over the world have begun to outsource rulemaking to bodies consisting of people familiar with the subject. For that reason, policymakers rely on private entities to establish financial accounting and reporting standards” (Donald Kieso, 2003, Intermediate Accounting). The two most influential standard-setters are the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).

accounting standards should be more consistent and logical, because they are developed in the context of an orderly set of concepts;

For decades, countries have designed their individual accounting standards principle-based, rules-based, tax-oriented, or business-oriented. Globalization has led to the greater needs with regards to harmonizing the standards (Kimmel, 2013). By late 1990’s the dominant standards were the IFRS (International Financial Reporting Standards) and U.S. GAAP (Generally Accepted Accounting Principles). Thus, both the standard setters namely; FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) launched a convergence project prior to the IFRS being essentially adopted by several countries. Measures are being taken to reduce likely impacts the frameworks would have on financial statement and reduction of last minute changes (Kimmel, 2013).

Then, comparability of information needs an explanation. This leads into either one standard for accounting procedures or different standards with firms obliged to mention which standard they have chosen. In the past, business fought constantly against the uniformation of standards and the problem of the latter suggestion is that it needs skilled users to evaluate the impact of the different standards on the financial statement. As only a limited group will be able to do this, the number of possible financers is reduced. Capital could become more expensive since in free market systems a broader supply of capital should result into lower prices for capital and the reverse effect is true.

Basing on the background that Conceptual Framework (CF) has offered a mixed model of measurement but giving not enough instructions to help the users of financial statements applying this model into their daily business activities; thus, the Discussion Paper (DP) is taken in place under that need, doing a revised job of the CF and offering its readers