Accounting Theory: Conceptual Framework and Alternative Methods

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Current development in
accounting thought

Accounting theory
Answer to 1
The base or the foundation of accounting is commonly known as the conceptual framework.
In order to carry out an effective analysis, this framework helps to strengthen the accounting
levels which results in a deep analysis of both the practical and theoretical aspect of the
financial report. It helps to explain the information provided in a very logical way and in a
steady manner (Deggan, 2014).
The conceptual framework was introduced so that the users of the financial reports get a
proper assistance on reading the financial reports of the companies. We can also say that the
conceptual framework is one of the reflections of the IASB objectives. It has been observed
that since the introduction of the conceptual framework there has been a better control and
assistance of the accounting levels. It also helps them to understand the implication of the
new accounting standard that will be introduced (Deggan, 2014). The individuals or
companies have started recognizing the importance of understanding the financial reports.
The important matters that the users understand from these well prepared financial statements
related to the assets and liabilities along with the capital and also expenditure that has been
made.
It has been seen that stewardship accounting is being done for a long time. This accounting
started when the managers of the company started providing a report of how the resources
were used and managed. This kept the owners of the resources informed whether the
resources were used optimally or not.
It helps the company on the grounds of decision usefulness by making the management
realize that it is important to carry out the business professionally. It is very understandable
that if the management makes the maximum use of its resources then the financial reports
will automatically be favorable and also reliable (Deggan, 2014).
The concept of stewardship was introduced in the Joint-stock companies act in 1844 in post-
industrial revolution England. Stewardship has also encouraged the managers of the company
to conduct the audit by an independent auditor every year. The investors are more confident
in taking a decision when the reports of the company audit by an independent auditor
(Deggan, 2014).
Relevant information always carries a confirmatory value. This means that the users have
justifiable expectations of the company. For example, when a company issues its financial
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Accounting theory
reports at the end of a period it makes changes whether past or present based on past
evaluations. It also has a predictive value. Both of these values are interrelated to each other.
Relevant information is timely in nature and useful for the purpose of decision making.
However, it is necessary to recognize the needs of the users. Relevant information is future
cash flow. On the other hand, reliable information is useful for stewardship as it is based on
the transactions of the past. It includes completeness (Deggan, 2014). The CF objectives
stresses on user and information needs with decision making focusing on capital provider that
need financial information and stewardship relying on a wider stakeholder theory. Decision
making stress on relevant information while stewardship focus on reliability.
For example, the assets and liabilities held by the company today help the users to predict
that what will be the condition of the company if there arises any kind of adverse situation. In
short, we can also say that a reliable financial report helps the users to know about the ability
of the company (Deggan, 2014). The users to the report of GPFR includes parties such as
lenders, equity investors, creditors that enables smooth decision making as capital providers.
Information pertaining to capital providers might even be useful to other financial reporting
users who are not provider of capital. When it comes to the stewardship function the best
value is seen in terms of current value that is related to the decision making.
It helps them to predict the financial performance and growth of the coming years and also
about the stability and financial health of the company. Therefore, we can conclude that both
the predictive value and confirmatory value are interrelated to each other.
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