Through history and the many years of accounting practice, a lot of accounting theories have been developed. Interestingly, many of those theories are grounded on the basis of prescribing and proposing how accounting processes should be performed. These are known as normative theories of accounting as they are not built on observation, but rather upon the theoristâ€™s deductive judgement, and subjective opinion (Goble 2009). Accounting conceptual frameworks are good examples of normative theories as they provide guidelines of what accounting steps should be taken and suggest what ought to be done in relation to accounting principles and practice. The International Financial Reporting Standards (IFRS) are principles-based and is a conceptual framework that establishes broad rules, outlines standards, and dictates specific treatments (IFRS 2011). It is adopted by the International Accounting Standards Board (IASB). This paper aims to provide an in-depth understanding of the accounting conceptual framework and the reasons for its existence. This paper will also explore accounting methods and standards that are adopted differently across the globe by focusing on the arguments for and against different countries using different accounting methods. Lastly, this paper will also provide a brief history and overview of the Canadian accounting conceptual framework for further understanding.
INTERNATIONAL ACCOUNTING DIFFERENCES
Globalisation and its effect on accounting information needs In light of the trend for globalisation as well as intensive growth in size, reach, and number of foreign direct investments, multinational companies, foreign securities listings on the stock exchanges, as well as cross-border sales and purchases of securities, the necessity for more comparable, reliable, and transparent financial reporting standards has become fundamental and paramount in the global context (Diaconu 2007). However, as stressed by Posner (2008), due to the many conflicting accounting practices and codes, as well as the differences in cultural, social, legal, and economic backgrounds and perspectives that each country embodies, the accounting standards and practices also vary widely from nation to nation. As a result, it becomes harder to analyse information when similar accounting transactions are accounted differently from country to country. Furthermore, the credibility and integrity of financial reports also becomes debateable. One example of countries using different accounting methods would be in respect to recording value of inventory. The LIFO (last in, first out) accounting method is not allowed in Australia and the United Kingdom for reporting entities, but it is allowed in the United States (Langfield-Smith 2009). Such instances, would burden users of financial information in terms of comparing and analysing financial information for example. It also leaves multinational companies with no alternative but to reconcile their financial information so as to conform to multiple financial reporting standards across the globe (Leblond 2005). The proposal for harmonisation of accounting standards
Jo and Kang (2008) stated that to enrich the comparability of financial reports, a harmonisation of accounting standards should take place in order to enhance comparability between accounting principles in terms of setting limits on methods allowed for similar accounting transactions. It is important to note that harmonisation does not aim to standardise completely as standardisation would mean there would be no exceptions or alternatives even in cases where economic circumstances differ for example (Dawes 2005). Although harmonisation of accounting standards and methods has been proposed, the issue is still debateable as there many groups advocating for this to happen, but there are also many who do not approve of such harmonisation. The following discusses the arguments for and against countries maintaining their...