Financial Accounting Theory - Benefits of Conceptual Framework, Measurement Bases, Historical Cost Accounting and Alternative Methods

Running head: FINANCIAL ACCOUNTING THEORY
Financial Accounting Theory
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Author’s Note

1FINANCIAL ACCOUNTING THEORY
Table of Contents
Answer to Question 1......................................................................................................................2
Requirement (a)...........................................................................................................................2
Requirement (b)...........................................................................................................................3
Answer to Question 2......................................................................................................................4
Answer to Question 3......................................................................................................................7
References......................................................................................................................................11

2FINANCIAL ACCOUNTING THEORY
Answer to Question 1
Requirement (a)
The standard setters have claimed certain benefits in support of the advancements of the
conceptual framework project; and there are certain specific groups that can be benefitted from
the development of the conceptual framework projects. These are mentioned below:
I. The accounting standards that have been developed by the standard setters through the
application of conceptual framework must be consistent and there should be a logical
flow in the whole accounting standards. This is helpful for the preparers of the financial
statements of the companies since it becomes possible to judge every aspect of financial
reporting from logical perspective (Cheng et at., 2014).
II. As a result of the adoption of the IASB Conceptual Framework by many countries all
over the globe, there should be the presence of superior international comparability
between the accounting practices of different countries; and this aspect is majorly helpful
in establishing greater comparability and consistency between the financial statements of
countries interracially. This is advantageous for the investors who want to invest in
foreign companies (Barth, 2013).
III. There will be increase in the accountability of the standard setters in their decision-
making process since conceptual framework provides the accounting system’s
fundamentals. They would be forced to provide necessary clear and concise explanations
in case they move away from the key issues addressed in conceptual framework. This is
beneficial for all the users of the financial statements of the companies.

3FINANCIAL ACCOUNTING THEORY
IV. Conceptual framework has been developed in such a manner so that it can be used as a
major mean for communicating key concepts to the preparers as well as users of the
financial statements. In addition, this will provide the necessary guidance to the reporting
entities when there is the absence of any specific standards in order to address certain
issues. Both the preparers and users of the financial statements would be beneficial from
this (Henderson et al., 2015).
V. At the time of the development of conceptual framework for financial reporting, certain
crucial issues such as financial reporting objectives, recognition criteria, valuation
methods and others have been determined. This aspects releases huge political pressure
from the standard-setters to large extent at the time of developing new standards. Thus,
this is majorly beneficial for the accounting standard-setters.
VI. Conceptual framework provide key consensus to the standard setters on the major
financial accounting related issues and this aspect makes the developed accounting
standards more economical. Moreover, this will eliminate the need for going back to the
drawing board on various fundamental financial reporting issues (Luke, 2016).
Requirement (b)
Hines considers the conceptual framework as a strategic manoeuvre to provide legitimacy
to the standard-setting bodies at the time of competition or threatened government intervention.
What Hines trying to say is that the concepts established by the standard-setting bodies such as
reliability, objectivity or neutrality work as a stage for legitimating the profession (Hines, 1989).
One of the major obstructions faced by the accountants continuously at the time to provide
professional services has been the absence of a formal accounting body having adequate
accounting knowledge which is a major part to create a good perception about the accounting