ACC80019 Financial Accounting Theory: Conceptual Framework Essay

This essay delves into the conceptual framework within financial accounting theory, focusing on Hines' argument that these frameworks serve as strategic maneuvers for standard-setting boards, particularly during periods of competition or potential government intervention. The essay examines the historical development of conceptual frameworks for financial reporting to assess the validity of Hines' position. It further explores the IASB's reasons for developing a conceptual framework, emphasizing the importance of reliability, transparency, and dispute resolution in financial reporting. Relevant accounting theories, such as relevance, reliability, and comparability, are discussed in relation to the framework's objectives. The essay references key academic sources and analyzes the roles of various regulatory bodies in shaping accounting standards and practices. It also considers the implications of the revised Conceptual Framework for Financial Reporting, highlighting its impact on fair value measurement, financial performance reporting, and the clarification of key concepts.

ACC80019 FINANCIAL ACCOUNTING THEORY
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Table of Contents
Introduction................................................................................................................................3
1)The argument in support of the Hines....................................................................................3
2) IASB reason for developing a conceptual framework...........................................................5
Reports issued by professional accounting bodies.....................................................................9
Conclusion..................................................................................................................................9
Reference list............................................................................................................................11
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Introduction
The conceptual framework has been recognised since 1973. It has been set up by FASB to
develop a coherent theoretical basis for the development and recognition of the accounting
standards in America (US). This provides the guidelines to the board in terms of preparing
the accounting standards. In this context, the major role is played by the IASB, AASB, IFRS
and other standard-setting bodies. There could be a greater role played by these accounting
firms in providing the constituents of the accounting reporting. This could help to manage the
consequences of the several accounting misconducts that could be done by the accounting
firms. The components of the conceptual framework like the qualitative features of the
accounting principles, the general purpose of financial reporting and many more other
activities. There could be a greater approach to analysing the conceptual framework. This
could provide information about the changes that have been occurred in the financial
reporting outcomes.
This paper has been designed to support the argument of the Hines that conceptual
framework ae the strategic manoeuvre that provides legitimacy to the boards during
government intervention ad competition. It protects the rights of the people during these
certainties. There will be an insight into the reason for developing the conceptual framework
for financial reporting. Use of the theories will provide better insight for the same. Four
regulatory bodies will be analysed and their requirement in the accounting field.
1)The argument in support of the Hines
A conceptual framework has always provided the way to provide better assistance in the
financial reporting for the firms. There could be greater use of the principles and concepts
issued by the framework. As opined by Toudas (2018) it helps the hoard to decide the best
outcome for the occurred financial events. The major ones are the accounting standards
which has played a significant role in assisting the companies for the monetary transactions
(Hines, 1989). There have been changes in order to support the transaction and provide
validity in the eyes of the users. IFRS is for those who have adopted it for the first time.
There is a set of guidelines and process to follow the IRS for the reporting entities. It is
required to have proper skill in using the accounting standards and have the knowledge and
updated with the changes (Trăistaru, 2016). This is required for the magnificent reporting and
get a competitive advantage.
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Figure 1: revised IFRS
(Source: Ifrs, 2019)
Hines argument is true, and it could be seen from the disbursement of the rules and
regulations accounting standards for the general-purpose accounting. It provides support in
terms of competition and government intervention. In the case of the competition, it protects
the interest of the entities by getting violated by the competitive firms. It provides support in
terms of maintaining healthy competition and disclosures in terms of true and fair earning.
There is a great support to the firs by the help of this activity (Novak, 2016). This is because
it creates pressure on the dominating firm for the compliance with rules and regulations
provided by the board. For example, the use of IFRS 3 requires the information of the
business combination. It provides the linkages of the firms with the other firms. There could
be a clear idea about the sources of the revenue of the company. On the other hand, there
IFRS 8, which requires the knowledge of the operating segments of the firms (Tsai et al
2018). It also has the potential to imposes pressure on the firms for comprehensive reporting
about income and other regulations. There is also IFRS 12, which imposes pressure on the
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firms for the disclosure of interest in other entities. Thus, with the help of this, the companies
who are facing the pressure in the market due to the dominating firms could gain knowledge
about the strategies or any other relevant information for that situation (Hines, 1989).
Again, in the case of government intervention, there is a strategic approach to helping firms
with better reporting. This could help to be free from any legal matters that could affect the
life and property of the entities. The reporting entities have the pressure to discover all the
relevant areas which could help the stakeholders to get the information. The Comprehensive
income statement records the changes in the financial resources of the company and the
claims (Nieman and Fouché, 2016). There is IFS 13, which holds the disclosure about the fair
value easement. It has the requirement for the fair value in the financial statement of the
reporting entity. Thus, it has the potential to help the entities from the government
intervention if there is transparency in the financial reports served by the companies. They
employ the strategic ways to help the companies to deal with the requirements of the true and
far reporting (Danrimi et al, 2018).
Revised Conceptual Framework for Financial Reporting
The revised conceptual has put its light on several areas which were the need of the times.
This is because there was confusion along with the necessary compliance. Thus, in this
condition, it is not possible to follow the requirements of the board (Ong, 2018). The
conceptual framework has acted for the benefit of the entities from the day it has been
established. There have been periodical reforms among which the recent one was done in
2018. It has concentrated on the many requirements which are useful for the development of
several areas. (Ifrs, 2019)
The first change which has been made in the conceptual framework is when to use the fair
value and the historical cost concept in the financial statement. This is related to the
measurement technique of the transaction. It is required to have proper knowledge about the
changes by which the IFRS could be met. This is being done to maintain the consisted and to
make sure the similar transactions are treated in the same way (Cordery and Sinclair, 2016).
There have also been changed in the guidance for financial performance reporting.
There are also improved guidelines and definitions in terms of liability. There has bee
clarification made for the important areas. These include the steward's roles, measurement of
uncertainty in the financial reporting and prudence. There is required for the key audit
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matters in order to reflect all the risks that are related to each accounting period of the
companies. The revised framework has a great role in assisting the board for the formulation
of the IFRS standards (Mbobo and Ekpo, 2016). It is going to help the other stakeholders in
understanding the concepts which are being employed by while formulating the standard.
Thus, it could be seen that there is a requirement for the greater changes as it has provided the
area of the confusion for the users. The measurement techniques are reliable and could
provide greater assistance in the reporting. There could be less intervention from the
government is irrelevant reporting (Fisher and Nehmer, 2016).
2) IASB reason for developing a conceptual framework
There are several reasons for developing the conceptual framework by IASB. The major
reason for developing the conceptual framework is protecting the interest of the stakeholders
to retrieve the revenant data for the purpose of investment. There is a greater requirement for
the development in the required field. The major reasons for the same are:
Figure 2: IASB reason for developing a conceptual framework
(Source: self-created)
Reliability- there could be the reliability of the financial statements. There are many
stakeholders who require the financial statement of the company. There could be the use of
the concepts which helps the companies to use the standards more accurately. There could be
the use of the several principles that help the entities to report accurately (Gordon et al,
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Reliability
Transpa
rency
Accounti
ng
disputes

2015). Based on the standards, it is required to have proper knowledge about the recording of
the transaction. There is a requirement for the stakeholders to understand the several
disclosers made by the entities. On the basis of the analysis they use to take a relevant
decision. For example, the investors are in using financial statement so that they could
retrieve the information about the dividend policy and the profit made by the entity.
Transparency- after the use of the accounting standards issued by IFRS, there could be use
of the true and fair reporting required by the board. Thus, on the basis of this, the firms used
to make their financial reports according to the requirement of the accounting standards. The
major requirement in the accounting standard is to maintain transparency in the financial
reports (Zeff, 2015). Thus, with the help of this, transparency is being made in the financial
reports by the help if the IFRS standards. It is a necessary compliance for those who follow
the IFRS principle and has adopted it to prepare the financial reports of the company.
Accounting disputes- again in case of any accounting dispute, this is significantly handled
by the boards. They used to imply the common set of rules which are imposed on both the
entities. Thus, with the help of a clear understanding of the rulers, the disputes used to get
solved. The firms have to take responsibility for any kind of misstatement in the financial
statement. Thus, with the help of accounting standards, any kind of query related to the
reporting could be solved (Kusano and Sanada, 2019). The government could also use this to
check whether a particular entity has performed according to the requirements of the
standards. In case the fail does so the government could nerve for the necessary compliance,
and it could prevent to get in the situation of a dispute with the government. The relevant
accounting theories that could help in this condition are:
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Figure 3: IASB reason for developing a conceptual framework
(Source: self-created)
Relevant
The relevancy of the accounting reports is majorly required for the stakeholders. This is
because it provides the relevant data upon which they could rely. This is the basis of taking
the decisions for the investors in order to invest in the entity. Other stakeholders’ area also
presents who use the financial reports of the company. It is necessary in order to disburse the
information relevant (Hines, 1989). Otherwise, it could have a negative impact n the
company. There could be disputes, or the investors may lose interest in the company. The
conceptual framework helps the companies to present their financial reports in the best
possible way.
Reliable
It is the most important theory that is required for financial reporting. It needs to be reliable
for the users. The transparency in the report needs to be maintained. There are several
requirements under the conceptual framework, which helps the accounting reports to be
reliable. This could help to deal with the requirement of the users. This is why the entities are
also largely in use of this framework. IFRS has provided the uniformity, which helps to
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Relevance
ReliableComparability

compare the data of one entity from their competitors (Kabir and Rahman, 2018). The same
company report could be compared over the period of time.
Comparable
It is also maintained by the conceptual framework. It requires the entities to use the
accounting standards and keep updated with the revisions made in the conceptual framework.
It helps the entities to compare their own financial reports over the period of time. There
could be consistency in financial reporting. Users could easily make a comparison of the
financial reports by using the financial reports of different years (Palea and Scagnelli, 2017).
This is because there are some concepts and principle applied in the financial reports. It
makes the uses to have significant knowledge. There are simple words used in the financial
reports, which makes the financial statement more comparable without much effort.
Consistent
There is consistency in the financial reports because the same principles are being used in the
accounting periods. There could be the use of several principles and report at a constant rate
until there are amendments in the changes. It has the potential to bring consistency with the
reporting years as there is a requirement to follow a particular reporting period for financial
reporting. It could be half-yearly, yearly and quarterly. It is based on the suitability of the
entities that which period they are using to report. It also has the best way to provide help to
the reporting entities. There could be greater use of the standards and helping the companies
in decorating the financial reports.
Reports issued by professional accounting bodies
IFRS- international financial reporting standards used to issue the set of accounting
standards. IASB has developed this regulatory body in order to provide the guidelines for the
recording of the financial transaction. There could be greater use of this principle in order to
maintain the reliability and the relevance of the financial reports. It has the potential to solve
the disputes and maintain the uniformity in the accounting standards. It is a non-profit
organisation and independent body for the issuance of the accounting standards. (IFRS,
2019)
AIA- associations of international accountants were set up in 1928 to promote the concept of
international accounting. It helps to create the global network of the accountants in 85
countries across the world. It is the recognised body for the legal auditors which was verified
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by the government of the UK under the companies act 2006. It helps the entities to get the
help of the professional in taking providing the best insight into the reporting activities. (aia,
2019)
IASB- it is the international accounting standard board which is an independent body. It is a
private-sector body that approves ad develops IFRS international financing reporting
standards. It operates in the regulation of the IFRS foundation. It helps to monitor the
changes that are required for the development of the accounting standards. There could be the
use of several insights in order to provide better knowledge about the accounting standards. It
has the potential to help the firms in better reporting. There could be the use of the accounting
standards by the firms, which could help to determine the best outcome for every transaction.
(Ifrs, 2019)
AASB- Australian accounting standard board has the responsibility to maintain, develop and
issue the Australian accounting standards. It operates under the Australian Securities and
investment commissions Act 2001. It has the responsibility to regulate and enforce company
laws of financial services. It is being done by the Act in order to protect the interest of the
Australian investors, consumers and creditors. (aasb, 2019)
Conclusion
Thus, it could be concluded that there is a requirement of the conceptual framework in order
to provide support to financial reporting. It helps the entities to rely on the standards to
prepare the financial reports. After this, the users of the financial report also find it easy to
compare the financial performance of the entity. The Comprehensive income statement
records the changes in the financial resources of the company and the claims. There is IFS 13,
which holds the disclosure about the fair value easement. It has the requirement for the fair
value in the financial statement of the reporting entity. Thus, it has the potential to help the
entities from the government intervention if there is transparency in the financial reports
served by the companies. They employ strategic ways to help the companies to deal with the
requirements of the true and far reporting. There could be the use of several principles and
report at a constant rate until there are amendments in the changes. It has the potential to
bring consistency with the reporting years as there is a requirement to follow a particular
reporting period for financial reporting. It could be half-yearly, yearly and quarterly. Thus,
with the help of accounting standards, any kind of query related to the reporting could be
solved.
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Reference list
Journals
Cordery, C.J. and Sinclair, R., 2016. Decision-Usefulness and Stewardship As Conceptual
Framework Objectives: Continuing Challenges. Available at SSRN 2918784.
Danrimi, M.L., Abdullah, M. and Alfan, E., 2018. IFRS and Investors’ Trading Pattern: A
Conceptual Framework. Asian Journal of Accounting Perspectives, 11(1), pp.72-107.
Fisher, I.E. and Nehmer, R.A., 2016. Using language processing to evaluate the equivalency
of the FASB and IASB standards. Journal of Emerging Technologies in Accounting, 13(2),
pp.129-144.
Gordon, E.A., Bischof, J., Daske, H., Munter, P., Saka, C., Smith, K.J. and Venter, E.R.,
2015. The IASB's discussion paper on the Conceptual framework for financial reporting: a
commentary and research review. Journal of International Financial Management &
Accounting, 26(1), pp.72-110.
Hines, R 1989, ‘Financial Accounting Knowledge, Conceptual Framework Projects and the
Social Construction of the Accounting Profession’, Accounting, Auditing & Accountability
Journal, vol. 2, no. 2.
Kusano, M and Sanada, M 2019, ‘Crisis and organizational change: IASB’s response to the
financial crisis’, Journal of Accounting & Organizational Change, vol. 15, no. 2, 278-301.
Mbobo, M.E. and Ekpo, N.B., 2016. Operationalising the qualitative characteristics of
financial reporting. International Journal of Finance and Accounting, 5(4), pp.184-192, 7(1),
pp.3-10.
Nieman, G. and Fouché, K., 2016. Developing a regulatory framework for the financial,
management performance and social reporting systems for co-operatives in developing
countries: A case study of South Africa. Acta Commercii, 16(1), pp.1-7.
Novak, A., 2016. Issues in the Recognition versus Disclosure of Financial Information
Debate. Naše gospodarstvo/Our economy, 62(4), pp.52-61.
Ong, A., 2018. The Failure of International Accounting Standards Convergence: A Brief
History. Review of Integrative Business and Economics Research, 7(3), pp.93-105.
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