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.
It define the scope of judgment in planning financial statements by formulate the characteristic, activity and restrict of financial accounting and reporting. It also increases different of financial statements by reduce the number of other accounting methods. If standards were come from a reasonable style of concepts. Likewise, reporting requirement will be more constant and fair because they will record accounting base on former set of concepts. Moreover, the setting requirement will be more economical because problem should not be discuss from different position. In additional, it help to reduce accounting common error and political
Financial reports consist of a statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, notes, directors' declaration, directors' report and the auditor's report. The financial statements need to be prepared in accordance with applicable accounting standards, making the necessary disclosures in order to be transparent and fully inform readers about the activities and financial situation of the entity.
2. Which of the following is not an objective of financial reporting described in FASB Concepts Statement No. 1? a. To provide information about how management of an enterprise has discharged its stewardship responsibility to owners. B. To measure the current market value of the business enterprise. c. To provide information so potential investors or creditors can make their own predictions of future
According to Geoffrey Whittington (2008), the standard setters could not achieve a solution to the inflation accounting problem that users and preparers of accounts could be accepted. Whittington also argued that the frameworks of both the IASB and the FASB gave emphasis to the usefulness of decisions to investors when the focus was on general financial reports (Whittington, 2008). A recent report shows that the International Financial Reporting Standards (IFRS) has called to replace the Generally Accepted Accounting Principles (GAAP) in the United States by 2014. This change will have a big impact on the United States public companies through the way they represent financial reports (Hail, Leuz, & Wysocki, 2009). The controversy between the United States GAAP and the IFRS are the fair value and the market value (Hail, Leuz, & Wysocki, 2009). If things persist, the Securities and Exchange Commission (SEC) and the FASB may come against the IASB. The SEC stated briefly that there are to be improvements about how the IASB be funded and governed. The board was also criticized for being inadequate. Dr. Yvonne Hinson stated that the two boards had a meeting in 2002 and came to an agreement known as the “Norwalk Agreement” that was also called a memorandum of understanding. The memorandum stated that the IASB and the FASB would work toward a common goal (Hinson, 2009). Through a convergence, the United States could adopt the IFRS; however, arguments pro and con this
The IASB and the FASB have both established frameworks for the reporting of financial information, however, despite their apparent similarities several key differences exist between their structures. For example, U.S. GAAP has been traditionally defined as being a more rules-based standard, which has established strict guidelines and contingencies for reporting financial information. Given its history and the recent tumultuous financial environment, particularly the 2008 financial crisis, U.S. GAAP has become a very robust and strictly enforced set of standards. This has given rise to concerns that some preparers of financial statements may commit accounting fraud by circumventing or manipulating the rules of U.S. GAAP. Supporters of IFRS argue that “the more detailed the guidance, the greater the opportunity to find the loopholes in the guidance” (Hillman, Heaston, and Dodd 5). Despite these concerns, however, U.S. GAAP continues to be the preferred standard of most accounting professionals. Conversely, IFRS is a principles-based standard. The principles-based approach of IFRS grants management the discretion to use different accounting methods when preparing financial data. While this practice is praised for its focus on fair values and the freedoms it provides managers, it is often criticized for being far too subjective and inviting “a human element that could increase the risk of financial
It is important to be aware that financial accounting is an area in accounting where all financial transactions of the corporation are recorded in. It is a process that through time has become the systematic way for record keeping of all off a corporation’s transactions in order to be able to report the data in an efficient manner. It is because of this that is so highly regulated by the reporting authorities. The framework laid out by the IASB. It is within these standards that all the rules and regulations relevant to all aspects of accounting are laid out. These standards are prepared and explained in a very simplified, yet comprehensive manner, in order to allow financial accountants to perform their day to day operations. Moreover, it is to ensure that there is conformity and uniformity in all aspects of
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
Financial reporting is the communication of financial information n to relevant stakeholders. The reporting may include general purpose reports such the balance sheets, equity reports and balance sheets. Additionally, the items such as press releases meeting minutes, and auditors reports are included as part of the financial reports (Greuning, 2009). The reporting of financial information depends on the regulatory body under which the company operates. Questions have been raised on the different evaluation of financial records employed by the regulatory bodies. Both US GAAP and IFRS have weaknesses that affect the financial reporting by either complicating the reporting or being too general to accommodate special cases.
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 process itself was rigorous. Its aim was to assess whether the current governance arrangements promoted ‘the primary mission of the International Accounting Standards Board, (IASB), of developing high quality, understandable, enforceable and globally accepted accounting standards, and provide for both the accountability and independence of the IASB’. To achieve this, a series of proposals for governance improvements were published last year, a full consultation period ensued, responses were considered, and roundtables were held around the world.
First of all, regarding the financial report preparation, the supporters to the principle-based accounting point out that the rules-based accounting contains numerous bright-line tests, numerous exceptions, large volumes of implementation guidance, excessive detail, which leads to complexity and uncertainty about the application of standard (Securities and Exchange Commission, 2003). In addition, according to Maines et al (2003), the principle-based standards, if implemented properly, can increase the usefulness of financial statement “by focusing on the primary characteristics of relevance and reliability”, which cannot be found in the rules-based accounting standards. However, the rules-based accounting has many unambiguous benefits. The first one is that the rules-based accounting is clear and less confusing for accountants. The clear rules provide
Both the IASB and the FASB have a conceptual framework. The IASB’s conceptual framework is described in the document, “Framework for Preparation and Presentation of Financial Statements.” The FASB’s conceptual framework is developed in a series of concept statements, which is generally referred to as the Conceptual Framework. The IASB and the FASB are now working on a joint project to develop an improved common conceptual framework that provides a sound foundation for developing future accounting standards. 3 Such a framework is essential to fulfilling the