Developing Conceptual Framework in Accounting

Developing abstract Framework in AccountingAccounting is contend an important role in nowadays society. It provides monetary breeding to the exploiter to have got stock decision. However, accountants have to follow write up standards when they atomic number 18 providing the information. We whitethorn question what the rationale of those standards is. pecuniary explanation theory was created as the principle in reservation standards, and abstract material for accounting built up. This slewvas is going to talk virtually whether develop a abstract mannikin is an impossible possibility. In order to talk ab step up this, I am going through some history of accounting, the definition and comp be the abstract example under different standards.Accounting was created for thousands years ago. It dates back to a greater extent than 7,000 years which is the time of ancient Babylon, Assyris and Sumeria. (Friedlob, G. Thomas Plewa, Franklin James, 1996) At that time, peop le did accounting for their private need. With the change of the times, accounting no longer work for personal need. People need common standards for stakeholders to use when reservation decisions. Countries built up Generally Accepted Accounting Principles (GAAP) to set up rules for accountants to do accounting. When the business is becoming bigger, people find come on that it is hard to understand other countries accounting report. People need internationalist standards, so some international standards vex out, Such as International Financial baseing Standards (Ifederal official) and Financial Reporting Standards (FRS). They atomic number 18 built by International Accounting Standards progress (IASB), Financial Accounting Standards Board (FASB) and Accounting Standards Board (ASB).When standard-setters were making standards, they considered about accounting theories. Geoffrey (2007) stated out that three main approaches which are apply to create current accounting theori esThe empirical inductive approach. This consists of di unflurriedation of conjectural principles from accounting practice.The deductive approach. This is the logical derivation of theoretical principles by import from assumptions.The new empiricism based on positivism, derived from the Chicago school of economics. This regards theories as worthwhile only if they are testable against empirical evidence. 2007Financial accounting theories were do in these three steps in present day. In 1976, FASB delimitate pecuniary accounting theories as A coherent system of interrelate objectives and fundamentals that throw out lead to consistent standards.According to Elliot (2004), accounting is a mean which used to recording, classifying and summarizing pecuniary activities which include cash flow, transactions and events. It means accounting is really important for users to analyse a company, such as shareholders, investors and employee. For example, investors want to invest a compan y. They need to know whether a company is good to invest, so they come to accountants and get the financial report. Without accounting standards, they may feel tight in information those reports. For this reason, accounting standards are necessary. To make accounting standards, the conceptual framework of accounting leave behind be need.Carsberg (1984) expound that conceptual framework of accounting is used to provide general project and improve the consistency of financial standards. It can reduce the cost of making the standards by helping the standard-setters on what information should be included and how the information should be displayed. It shows conceptual framework of accounting is necessary in making accounting standards. Conceptual framework set up the principle of accounting, so it improved the consistency of financial report and is beneficial to users in analysing the report. Furthermore, conceptual framework should be viewed as a kind of gyrocompass to help us in navigating our way through the self-interest and contending ideologies that always surrounded fence in about regulation. (Edwards, 1981, p. 439) Based on this, Conceptual framework should work as guidance in making accounting standards.In 1975, The Corporate Report was the one of the reports which is about conceptual framework in the early stage. Our depicted object is, in essence, the fundamental aims of published financial reports and the means by which these aims can be achieved. (ASSC, 1975) The report shows the way how financial report should display the financial information. It provided structure for the following standards.In 2004, IASB/FASB started a project in growth a common conceptual framework for financial report. (Murphy, 2012, p.1) In 2006, it comes out some information about the framework. For example, it listed some user groups, such as entity investors, creditors, suppliers. In 2008, more information came out. In 2010, a recent version- Conceptual Framework fo r Financial Reporting Chapter 1 The Objective of General map Financial Reporting (IASB/FASB, 2010) was released. In this chapter, the efficiency and effectiveness of the entitys management and government board in discharging their responsibilities to use the entitys resources is included. (IASB/FASB, 2010, para. OB4) In 2012, the IASB discussed how to restart the project on the conceptual framework. This time they believe the framework should focus on elements of financial statements, measurement, reporting entity, presentation and disclosure. (Peter Alan, 2012) The project of developing a common conceptual framework is so complicated that IASB/FASB took lots of time to do it. though it is still not complete, we know that it is becoming deeper from identify the users group to the elements of financial report.Statements of Standard Accounting Practice (SSAP) 2 (1971) gave out a conceptual framework of accounting before others. It was replaced by FRS 18 in year 2000. It showed that Accounting policies assist in this process by providing a framework within which elements of financial statements, such as assets and liabilities, are recognized, careful and presented. They enhance the comparability of financial statements by helping to ensure that standardised transactions are reflected in interchangeable way.(ASB, 2000)It provided a way for how the financial standards should be defined and get tos out a way for conceptual framework in how it should develop. From the recent standard in FRS, we see that the framework is completing. For example, FRS 30 is setting out the definition of Heritage Assets.A real(a) asset with historical, artistic, scientific, technological, geophysical or environmental qualities that is held and maintained principally for its region to knowledge and culture. (ASB, 2009)From above, IASB and FASB which are from United States focus more on the methods on how to disclose the financial information. On the other hand, FRS which is used i n United Kingdom put more time in edifice up the definition of building blocks of financial statements. The aspects they concern about are a part of the conceptual framework of accounting.To evaluate the statement, we need to tint into the statement. Developing a conceptual framework is an impossible possibility We can go through the process of induction which is Observations-Laws/theories-Prediction. This is similar to the work of Geoffrey (2007) which I have mentioned. From observed IFRS and FRS, we may say that developing a conceptual framework is possible. It is the theory we get from the work have done. Then we come to prediction. We need to find out a fact that against our theory. If there are no such of fact, we may say that it is possible to build up a conceptual framework.We can withal analyse it from the sources of knowledge. It includes perception, introspection, memory, intuition, testimony and so on. Through perception, the statement is not right. From above, we know that conceptual framework is make by IASB, FASB and other else. Although they are not perfect, they are rudiment and developing. When reading this statement with introspection, it cannot be an impossible job. Conceptual framework works as a guidance of accounting. It cannot be impossible to create guidance. In memory, since I learn about accounting standards, I consider the standards are do with invisible rules which I recently think it is the framework of accounting. From intuition, developing a conceptual framework may cost lots of time and difficult to complete, for it need to be agreed by different accounting facilities. formerly it complete, it allow benefit a lot in making accounting standards. Come to testimony, the people who agree with the statement may argue that some definitions of conceptual framework are still fuzzy, such as dependable and fair view. As I have said above, nowadays conceptual frameworks are rudiment. It is too early to assert that it is impossible t o develop a conceptual framework.However, there are some evidences for the statement. Some parts of conceptual framework are based on error. For example, Rayman (2007) has talked about IASB and FASB built their conceptual framework on the present value fallacy. In the IASB/FASB project, the income was showedThat definition of income is grounded in a theory prevalent in economics that an entitys income can be objectively determined from the change in its wealth plus what it consumed during a period.(Hicks, 1946, pp. 178-179) (Bullen and Crook, 2005, p. 7 cf. Joint Working Group of Standard Setters, 2000, p. 233)This is similar to the work of Sterling (1970) which was provided as fallacy.There is general agreement on the definition of income among the various schools of thought Income is the difference between wealth at two points in time plus consumption during the period. The problem centers well-nigh the method of determining the wealth or well-offness. (Sterling, 1970, p. 19)It l ooks like there are some mistakes in building the conceptual framework of accounting, but it is also one of the reasons for IASB/FASB to keep improving IFRS. Another evidence for the statement is consecutive and Fair view. It does not have a clear rule or law for this. It works more like an invisible rule. When accountants making financial report, they should make those report bases on true and fair view. There is postcode specific when we look into the view. It depends on accountants culture and faith.Back to the statement I talked about, I think it is still too early to say that developing a conceptual framework is an impossible job. Though it used fallacy in the process of building the framework, it still in the middle of completing. We should give hope to it, for it is so important in making financial standards.In conclusion, the conceptual framework of accounting is vital. From the definition, we can see that the framework will help a lot in building financial standards which will benefit the users in making financial decision. Comparing different standards which are used in present day, we find out that they are still not perfect. At the meantime, there are some problems in the standards. plane though, it is still not good to conclude that it is impossible to come out a conceptual framework of accounting. I believe the conceptual framework of accounting will finally come out in the future.