Conceptual frameworks (theoretical frameworks) are a type of intermediate theory that attempt to connect to all aspects of inquiry (e.g., problem definition, purpose, literature review, methodology, data collection and analysis). Conceptual frameworks can act like maps that give coherence to empirical inquiry. Because conceptual frameworks are potentially so close to empirical inquiry, they take different forms depending upon the research question or problem. The Conceptual Framework of Accounting is like a constitution for financial reporting, providing the foundation for standards. The Conceptual Framework provides structure to the process of creating financial reporting standards and ensures that standards are based on fundamental principles. This helps prevent standards from becoming ad hoc and transitory. Without a framework, accounting standards might be based on the most expedient solution to a particular issue, rather than a solution that is consistent with a unified theory of accounting. The Conceptual Framework is an essential element in the development of principles-based accounting standards. The Conceptual Framework makes standards setting more efficient by providing a common set of terms and premises for analyzing accounting issues. Each time a debate on an accounting issue arises, it isn’t necessary to reinvent the wheel. FASB and the IASB expect a common Conceptual Framework to promote the convergence of U.S. GAAP and International Financial Reporting Standards (IFRS), ultimately leading to a single set of high-quality global accounting standards. Additional information regarding the joint conceptual framework project can be found at www.fasb.org and www.iasb.org. Auditors took the leading role in developing GAAP for business enterprises. 2008, the FASB issued the FASB Accounting Standards Codification, which reorganized the thousands of US GAAP pronouncements into roughly 90 accounting topics. In 2008, the Securities and Exchange Commission issued a preliminary "roadmap" that may lead the U.S. to abandon Generally Accepted Accounting Principles in the future (to be determined in 2011), and to join more than 100 countries around the world instead in using the London-based International Financial Reporting Standards.
Financial reporting should provide information that is:
* Financial reporting should provide information, useful to present to potential investors and creditors and other users in making rational investment, credit, and other financial decisions. * Financial reporting should provide information, helpful to present to potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts. * Financial reporting should provide information about economic resources, the claims to those resources, and the changes in them. The FASB spent considerable time and effort on this project. The board views its conceptual framework as “a constitution, a coherent system of interrelated objectives and fundamentals.” The FASB’s conceptual framework consists of four items: 1. Objectives of financial reporting
2. Qualitative characteristics of accounting information
3. Elements of financial statements
4. Operating guidelines (assumptions, principles, and constraints) 3.
To achieve basic objectives and implement fundamental qualities GAAP has four basic assumptions, four basic principles, and four basic constraints. 3.1
Academic writers on accountancy, and others, have identified many accounting concepts which could be regarded as forming part of the accounting conceptual framework. However, the fundamental accounting concepts are defined in SSAP 2 and are often referred to in later SSAPs. The four concepts are defined in the standard as follows: 3.1.1
Business Entity assumes that the business is separate from its owners or other businesses. Revenue and...
References: 1. Alfredson, K., K. Leo, R. Picker, P. Pacter and J. Radford (2005) Applying International Accounting Standards, John Wiley & Sons, Australia.
2. Australian Accounting Standards Board (AASB) (2003) ED 124 Released: The definition of reporting entity, the IASB framework and revenue and government grant standards, Media Release, 1 October. Available at http://aasb.com.au.
3. Australian Accounting Standards Board (AASB) (2004) Concepts and policies Available at http://aasb.com.au/pronouncement/policies.htm.
4. Bradbury, M. (2003) ‘Implications for the conceptual framework arising from accounting for financial instruments’, Abacus, 39(3): 388-397.
5. Financial Accounting Standards Board (FASB) (2004) ‘FASB response to SEC study on the adoption of a principles-based accounting system’, July 2004. Available at http:// www.fasb.org.
6. International Accounting Standards Board (IASB) (2004) ‘History’. Available at http://www.iasb.org/about/history.asp.
7. International Organization of Securities Commissions (IOSCO) (2000) IASC Standards’, Press release, 17 May 2000. Available at http://www.iosco.org/press/presscomm000517.html.
8. Jones, S. and P. Wolnizer (2003) ‘Harmonization and the conceptual framework: An international perspective’, Abacus, 39(3): 375-387.
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