ACCOUNTING THEORY.

Running head: ACCOUNTING THEORY
Accounting Theory
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1ACCOUNTING THEORY
Table of Contents
Case Study 1: Revisiting the conceptual framework.................................................................2
Answer to Question 1:............................................................................................................2
Answer to Question 2:............................................................................................................3
Answer to Question 3:............................................................................................................4
Answer to Question 4:............................................................................................................5
Case Study 2: The trend toward fair value accounting..............................................................5
Answer to Question 1:............................................................................................................5
Answer to Question 2:............................................................................................................6
Answer to Question 3:............................................................................................................7
Answer to Question 4:............................................................................................................7
Case Study 3: Disclosure of environmental liability..................................................................8
Answer to Question 1:............................................................................................................8
Answer to Question 2:............................................................................................................9
Answer to Question 3:..........................................................................................................10
Part a:...............................................................................................................................10
Part b:...............................................................................................................................11
Answer to Question 4:..........................................................................................................11
References:...............................................................................................................................13

2ACCOUNTING THEORY
Case Study 1: Revisiting the conceptual framework
Answer to Question 1:
Conceptual framework could be defined as an effort to describe the purpose and
nature of accounting (Zhang and Andrew 2014). Thus, it includes the characteristics,
objectives of foundation and criteria related to financial analysis. Conceptual framework is
deemed to be essential for principle-based standards, as it lays out a primary structure for
such standards. The primary reasons that these standards require a conceptual framework
include the following:
 With the help of conceptual framework, the standards could be deep rooted in
fundamental concepts, instead of accumulation of conventions.
 The conceptual framework assists IASB and FASB in accomplishing coherent
accounting and reporting.
 The framework assists in assuring consistency in standards among IFRS, IAS and ISA
and between future and past decisions. As a result, it restricts reaching varying
inferences on identical events (Bauer, O'Brien and Saeed 2014).
 With the assistance of conceptual framework, it is possible to ensure that the
standards do not rely on individual concepts of the board members involved in setting
standards.
 The conceptual framework assists in bringing consistence among financial reporting,
preparation of financial statements and analysis of information included in the
financial statements.
 The conceptual framework functions in the form of a written constitution for financial
accounting and reporting and it is used for making all references.

3ACCOUNTING THEORY
Therefore, it could be stated that the conceptual framework provides the required
guidelines based on which IASB and FASB would execute the mandates. In the absence of a
conceptual framework, the development of financial standards is probable to be developed on
personal methodologies, which are held by every group associate. Hence, this would result in
difference of opinion (Gordon et al. 2015). Moreover, the conceptual framework provides
guidance on crosscutting issues, which reappear at various times and in various projects
represented by the business organisations.
Answer to Question 2:
When a common conceptual framework is shared, it assures the presence of a
strategic manner where financial reporting needs to be conducted. There are certain
definitions, criteria and objectives in order to carry out financial analysis, which is included
in the framework. At the time the individual framework is used, there is increased chance of
changes with the passage of time, since there would be addition of new members in the
standard-setting body (Van Mourik 2014). When individual frameworks differ from each
other, it results in different inferences being reached at on identical issues, which have been
made in the past.
It is necessary that both FASB and IASB share a similar conceptual framework in
order to ensure consistency in standards and therefore, similar decisions would be undertaken
that would be indicative in future results. Thus, sharing a common conceptual framework
would be the primary step of fulfilling the accounting standards related to IASB and FASB.
In a similar manner, it becomes possible for FASB to meet the objective of the board to
develop standards, which are principles-based, globally merged and inside steady. Along with
this, by using effective budgetary announcements providing financial data, the specialists are
required to settle on meaningful and sound choices. Due to all these reasons, it is imperative