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Using a conceptual framework in setting accounting standards

Ian Dennis

Business School
Oxford Brookes University


The paper examines the nature and role of a conceptual framework for financial reporting. Although much has been written about such frameworks and their purported role and the FASB and IASB are currently revising and converging their frameworks there are still questions about the kind of thing it is and how it is used in setting accounting standards. Using insights from the philosophical literature this paper considers the nature of the statements that appear in the chapters of the conceptual framework on objectives and qualitative characteristics. It then considers how these statements are used by standard setters in reasoning towards accounting standards. The kind of reasoning involved and the type of statements that are used in such reasoning is examined. The idea that some of the statements in the conceptual framework express desires that are to be fulfilled by financial reporting regulated by accounting standards is explored. These should be conceived as expressing general desires that are used in practical or instrumental reasoning towards accounting standards rather than as universal desires that enable the deduction of such standards. The need for the exercise of judgement in such reasoning is explored. The nature of the other statements in the conceptual framework is ambiguous. They are sometimes taken to be empirical statements about how the desires are to be fulfilled and sometimes taken as statements about the meaning of expressions used to express these desires. The paper suggests that the development of the conceptual framework would be easier and the final product would have more credibility if its nature and role was more clearly understood.

Key words: Conceptual framework; instrumental reasoning; judgement; objectives; qualitative characteristics.

Contact address:

Dr Ian Dennis
Senior Lecturer in Accounting and Finance,
Oxford Brookes University Business School,
Wheatley Campus,
Wheatley ,
Oxford OX33 1HX.
Tel. (01865) 485957
Email: iddennis@brookes.ac.uk

1. Introduction
When the new conceptual framework (CF) project was begun in 2005 the two parties involved, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), stated that ‘each Board bases its accounting standards decisions in large part on the foundation of objectives, characteristics, definitions and criteria set forth in their existing conceptual frameworks’ (FASB/IASB, 2005, p. 1). The goal of the project is to converge the frameworks into ‘a common framework that both Boards can use in developing new and revised accounting standards’ (FASB/IASB, 2005, p. 1). As the revised CF states the purpose of the CF is ‘to assist the Board in the development of future IFRSs and in its review of existing IFRSs’ (IASB, 2010, A25). As the FASB acknowledge the framework will ‘guide the Board in developing accounting and reporting guidance by providing the Board with a common foundation and basic reasoning on which to consider merits of alternatives’ (FASB, 2010, SFAC 8). This purpose was indicated explicitly in Introduction to the UK’s Statement of principles for financial reporting (ASB, 1999) where it was said that ‘the primary purpose of articulating such principles is to provide a coherent frame of reference to be used by the Board in the development and review of accounting standards….As such it will play an important role in the development of accounting standards’ (ASB, 1999, §2-3). It goes on to say that ‘a set of high-level principles’ is ‘designed to help in setting standards’ (ASB, 1999, §13). The ASB’s ‘principles’ are the equivalent of FASB’s ‘concepts’. The fact that standards are developed using the CF is one of the meanings implied by the statement that such standards are ‘principles-based’ or ‘concepts-based’ (Schipper,...
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