The significance of conceptual-primacy to the process of developing a conceptual-framework for financial reporting
This short paper shall assess the significance of conceptual-primacy to the process of developing a conceptual-framework for financial reporting. Furthermore, we shall explore how conceptual-framework producers, such as the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), have treated conceptual-primacy, and seek to determine whether or not they have made the correct choice in their treatment.
‘Conceptual-primacy are concepts that are used to define other concepts, and in doing so provide unity and prevent the set of concepts from being internally inconsistent’ (Johnson, 2004).
With this definition we can affirm that conceptual-primacy is pivotal to the development of a conceptual-framework. This is because, if conceptual-frameworks are intended to ensure a consistent basis in setting standards; uniformity in reporting and reducing the need for fundamental debate each time a standard is issued; then this would not be possible if there are disputes regarding the interpretation of the framework itself. Thus conceptual-primacy narrows the scope for deviation in interpreting standards and such is absolutely fundamental to the development of a conceptual-framework.
With conceptual primacy, there is only one economic reality but it may be reflected in the accounts in one of two ways, from either the Balance Sheet (B/S) (Asset and Liability view) or Profit & Loss (P&L) (Revenue and Expense view). This creates a dilemma regarding which view we should bestow conceptual-primacy to. Conceptual-framework producers have chosen the B/S view. Our interest is to examine why this is the case, and scrutinise the arguments in regards to this choice.
According to senior project managers of both FASB and IASB, ‘The B/S view is grounded in a theory prevalent in economics: ‘that an entity’s income can be objectively determined from the change in its wealth plus what it consumed during a period’ (Hicks, 1946)’. This view is
‘Conceptual-primacy are concepts that are used to define other concepts, and in doing so provide unity and prevent the set of concepts from being internally inconsistent’ (Johnson, 2004).
With this definition we can affirm that conceptual-primacy is pivotal to the development of a conceptual-framework. This is because, if conceptual-frameworks are intended to ensure a consistent basis in setting standards; uniformity in reporting and reducing the need for fundamental debate each time a standard is issued; then this would not be possible if there are disputes regarding the interpretation of the framework itself. Thus conceptual-primacy narrows the scope for deviation in interpreting standards and such is absolutely fundamental to the development of a conceptual-framework.
With conceptual primacy, there is only one economic reality but it may be reflected in the accounts in one of two ways, from either the Balance Sheet (B/S) (Asset and Liability view) or Profit & Loss (P&L) (Revenue and Expense view). This creates a dilemma regarding which view we should bestow conceptual-primacy to. Conceptual-framework producers have chosen the B/S view. Our interest is to examine why this is the case, and scrutinise the arguments in regards to this choice.
According to senior project managers of both FASB and IASB, ‘The B/S view is grounded in a theory prevalent in economics: ‘that an entity’s income can be objectively determined from the change in its wealth plus what it consumed during a period’ (Hicks, 1946)’. This view is
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