Development of Accounting Conceptual Framework and Changes Issued by AASB

This report explores the development of the Accounting Conceptual Framework, including its history and specific changes issued by AASB. It also discusses the future directions and insights in the development of the Conceptual Framework.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................3
1. Development of the Accounting Conceptual Framework.......................................................3
2. Specific changes and development between Conceptual framework issued by AASB..........3
3. Future directions and insights in development of Conceptual Framework.............................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7
INTRODUCTION
In his report a brief description of the history of the development of the Accounting
Conceptual Framework is provided. Also, specific changes and development of the conceptual

framework issued by the AASB is discussed. Further insights about the future direction and
development of conceptual framework is presented in this report.
MAIN BODY
1. Development of the Accounting Conceptual Framework
The Accounting framework is set by the Financial Accounting Standard Board (FASB).
The conceptual framework was presented in a sequence of 7 statements that consists of concepts
related to financial accounting in the late 1978. Later in 1989, the International Accounting
Standard Committee (IASC) developed a framework of the financial statements. The framework
provided by both the FASB and IASC were proved to be inconsistent and unclear (Huber, 2017).
In 2002, under the Norwalk agreement both the authorities jointly develops the accounting
standards and conceptual framework that was said to be more clear and consistent. This joint
project was then inserted in the both FASB and IASB agendas in 2004. It had been observed that
a general conceptual framework is needed as to tackle the accounting issues and would likely to
be help in development of standards which are based on accounting principles. Later in 2010, a
combined chapters were presented that deals with the financial reporting and to maintain quality
of the financial information. To provide integrity the fundamental characteristics to maintain
quality information is re-instated. However the ‘reliability’ is changed with ‘faithfulness’ and
‘relevance’ was unchanged. In the end of year 2010 the joint collaboration of FASB and IASB
got suspended. In 2012 IASB and in 2014, FASB restarted the accounting conceptual framework
project (Handley and et.al, 2020). The Board put focus on the presentation of the financial
reporting which would help the investors and stakeholders to determine the financial
performance. For this purpose the FASB presented a draft of the financial reporting framework
which was issued in 2016. Then in 2018 the IASB, with the revise International Financial
Reporting Standards (IRFS) issued Conceptual framework for accounting. The revise framework
consists of the objectives used for financial reporting, definition of asset, liability, income,
expenses and equity, concepts related to disclosure and maintenance of the capital. For the
companies that are uses conceptual framework for the purpose to create financial policies the
revised conceptual framework by IASB got effected on 2020.

2. Specific changes and development between Conceptual framework issued by AASB
AASB Conceptual framework for financial
reporting 2016
AASB Conceptual framework for financial
reporting 2019
Conceptual framework applies to the
companies that are registered under Australian
Securities and Investments Commission Act
2001.
Conceptual framework applies to private sector
companies that have public accountability and
other for-profit entities that use conceptual
framework to set standards for accounting.
Accrual basis assumption is deleted from the
accounting framework while going concern
accounting principle is used for financial
reporting.
The financial performance is reflected by the
accrual basis of accounting.
Qualitative characteristics of financial
statements are deleted from the accounting
framework.
Qualitative characteristics into two types i.e.
Fundamental and enhancing. The fundamental
characteristics contains relevance, materiality,
and Faithful representation (Herath and
Albarqi, 2017). While enhancing
characteristics contains comparability,
verifiability, timeliness, understandability.
Assets
It comprise of the future economic benefit
which contribute to the cash-flows of the
company. It also converted into cash or cash
equivalents and have the ability to reduce cash
outflow.
Assets
Are the current economic resources of the
company which is arise from the past events.
These resources has rights of the potential to
produce economic benefits.
Liabilities
The present obligation of the company. It
arises from normal business practices, generate
good business relations or to enter into an
agreement to acquire an asset. Settlement of
the company’s obligation is made through cash
payment, transfer of assets, provision of
Liabilities
The present obligation to transfer an economic
resource due to previous events. Three criteria
must be met to arise a liability i.e. the company
must have an obligation, economic resource
will be transferred and the obligation must be
current obligation arise as a past result.

services, replacing obligation with another
obligation or conversion into equity.
Equity
It is the funds contributed by the shareholders,
retained earnings and reserves.
Equity
It is the residual interest of the assets of the
company less all the liabilities.
Measurement Basis
It consists of various bases on which financial
statements are measured i.e. Historical cost,
Current Cost, Realisable value, Present value
(Flores, 2017).
Measurement Basis
It consists of the identified value for the
financial statements i.e. historical cost and fair
value.
No guidelines presented in for the presentation
and disclosure of the financial statements
Presentation and disclosure
Companies must communicate and present
information of the assets and liabilities, income
and expenses through disclosure in its financial
statements.
3. Future directions and insights in development of Conceptual Framework
To define the scope and nature of the accounting, conceptual framework is been developed
and implemented by the FSAB and ISAB. The accounting framework so prepared must consider
the issues of the reporting of the financial position and creation of accounting standards.
Conceptual framework generally be prepared on the basis of Generally Accepted Accounting
Principles (GAAP). AASB have incorporated the International Financial Reporting Standards
(IFRS) to develop accounting framework that regulate the financial reporting of the Australian
entities (Gornik-Tomaszewski and Choi, 2018). Research on the reporting entities, disclosure
and measurement with the characteristics of financial statements is conducted and independent
conceptual framework projects is been initiated to develop the standards that address the issues
arises in the financial reporting. A need for the quality financial standards is arising. IRFS has
worldwide acceptance and is being used by most of the countries around the world. The
conceptual framework lead to principles based accounting system which provide more
comparable and consistence financial information disclosed and presented in the financial
statements. The FASB and IASB both continuously work on the development of the conceptual

framework of accounting. The AASB uses conceptual framework for financial reporting that is
consists of IFRS content (Walton, 2018). This conceptual framework provide assistance to the
AASB to prepare Australian Accounting Standards and policies. Conceptual framework are not
standards and are revised from time to time. It provide the basis for preparation of the standards.
Due to globalisation and expansion of the entities worldwide the business operations of the
entities are growing rapidly. The financial transactions are made rapidly and with the emergence
of the new technologies collection and recording of the financial information becomes easy
(Tudor, 2019). But the preparation and disclosure of the financial statements are mandatory
requirement that the companies have to fulfil. For to ensure quality in the reporting of the
financial information, companies follow accounting standards provided by the legal authorities.
These accounting standards are prepared on the basis of the conceptual framework that helps in
providing transparency and enable stakeholders of the company to take financial decisions. Also
help in regulators to analysis of the financial information and to take corrective actions. With the
increase in the awareness the importance of the financial reporting is also growing. Conceptual
framework provide a base on which relevant and quality standards are prepared which provide
clarity and consistency in the presentation of the financial information of the companies.
CONCLUSION
From the above study it has been concluded that in order to create conceptual framework for
accounting FASB and IASB played an important role. On the basis of which the AASB prepares
its conceptual framework (Kieso and et.al, 2020). It help in the development of the standards that
will provide guidance for reporting of the financial information and measurement, presentation
and disclosure of financial statements.

REFERENCES
Books and Journals
Flores, N.E., 2017. Conceptual framework for nonmarket valuation. In A primer on nonmarket
valuation (pp. 27-54). Springer, Dordrecht.
Gornik-Tomaszewski, S. and Choi, Y.C., 2018. The conceptual framework: past, present, and
future. Review of Business, 38(1), pp.47-58.
Handley and et.al, 2020. Understanding participation in accounting standard‐setting: the case of
AASB ED 192 Revised Differential Reporting Framework. Accounting & Finance, 60(4),
pp.3621-3645.
Herath, S.K. and Albarqi, N., 2017. Financial reporting quality: A literature review. International
Journal of Business Management and Commerce, 2(2), pp.1-14.
Huber, W.D., 2017. Irreconcilable differences? The FASB's conceptual framework and the
public interest. International Journal of Critical Accounting, 9(5-6), pp.514-523.
Kieso and et.al, 2020. Intermediate accounting IFRS. John Wiley & Sons.
Tudor, L.A., 2019, September. The Effects of Globalization on Financial Reporting. In 12th
Annual Conference of the EuroMed Academy of Business.
Walton, P., 2018. Discussion of barker and Teixeira ([2018]. Gaps in the IFRS conceptual
framework. Accounting in Europe, 15) and Van Mourik and Katsuo ([2018]. Profit or loss in the
IASB conceptual framework. Accounting in Europe, 15). Accounting in Europe, 15(2), pp.193-
199.
Online
Conceptual Framework for Financial Reporting, 2021. [Online]. Available through <
https://www.ifrs.org/issued-standards/list-of-standards/conceptual-framework/ >
MANAGEMENT ACCOUNTING, 2021. [Online]. Available through <
https://www.cpaaustralia.com.au/cpa-program/foundation-exams/structure/management-
accounting>