Accounting Frameworks: Advantages, Legitimacy and Measurement Systems

This essay delves into the current developments in accounting, focusing on the advantages of conceptual frameworks and their role in providing legitimacy to standard-setting bodies. It examines the benefits of these frameworks, as claimed by standard-setters, and identifies the groups that stand to gain from their development. The essay then contrasts the arguments of Hines regarding conceptual frameworks as strategic maneuvers with the identified advantages. Furthermore, the paper explores the relevance of fair value versus historical cost accounting for users of financial statements, analyzing the arguments for and against each method. Finally, it discusses the reasons why historical cost remains a widely accepted method of measurement and explores alternative measurement systems such as CCA, CPAA, and CoCoA, providing a comprehensive overview of the key debates and developments in contemporary accounting.

Running Head: CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHTS
Name of the Student
Name of the University
Author Note

1CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
Table of Contents
Answer to Question 1.................................................................................................................2
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Advantages of Conceptual Framework Advancement...........................................................2
Conceptual Framework and Legitimacy to Standard Setting Bodies....................................3
Conclusion..................................................................................................................................4
Answer to Question 2.................................................................................................................5
Introduction................................................................................................................................5
Discussion..................................................................................................................................5
Identification of Relevancy of the Fair Values or Historical Values.....................................5
Conclusion..................................................................................................................................6
Answer to Question 3.................................................................................................................8
Introduction................................................................................................................................8
Discussion..................................................................................................................................8
Reasons for Historical Cost remain as Accepted Method of Measurement...........................8
Alternative Measurement System..........................................................................................9
Conclusion................................................................................................................................10
Reference..................................................................................................................................11

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3CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
Answer to Question 1
Introduction
The conventional accounting such as historical cost accounting helps in recording the
transactions that appears in the balance sheet as well as income statement in terms of
monetary amounts that reflects their historical cost. The historical cost has the principle,
which requires maintaining the records of the accounting at the original prices of transactions
and their values are retained in the processes of the accounting for serving as the basis of the
financial statements values. Hence, this assignment will discuss regarding the advancement
and the development of conceptual framework and legitimacy of standard setter.
Discussion
a)
Advantages of Conceptual Framework Advancement
Conceptual framework is known as the body of the fundamental approaches as well as
financial reporting. A conceptual framework fundamental is the underlying concepts, which
are used as the basis for achieving desired financial reporting objectives. It is the system of
the objectives as well as ideas, which leads towards creation of the consistent set of the
standards as well as rules. The accounting’s rules as well as the standards, sets the natures,
limits and functions of the financial accounting as well as financial statements. Therefore,
conceptual framework is developed because it helps to provide the framework to set the
standards of accounting, provides the basis for resolving the disputes of the accounting and
lastly, it helps in providing the fundamental principles that does not have to be repeated in the
standards of accounting. It is necessary for having conceptual framework because if the
existing set of the standards are absent then it will become impossible for resolving any type
of emerging new problem. It also helps for increasing the users’ understanding of financial

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statements as well as confidence in the financial reporting and making it easier for comparing
the various companies’ financial statements. Financial reporting provides the information,
with the help of which economic decisions can be taken. It takes form of theoretical basis for
determining the transactions reporting and its measurement that helps in providing the way
communicating it to the users (Macve, 2015).
The conceptual framework helps in dealing with the fundamental issues concerning
financial reporting, which comprises of concepts of recognition, measurement of the elements
of financial reporting. It is having the feature that helps in enhancing the usefulness of the
financial statements elements as well as financial information. It also contributes towards the
confidence from pubic as well as credibility of the financial reporting with the relevancy,
consistency and reliability that helps in employing uniformed as well as clear defined
principles (Zhang & Andrew, 2014). The benefits of the conceptual framework are availed by
the financial statements users because of the different reasons. They requires the information
related to the profits concepts, gains clarification, measurements of assets, liquidity position
of company and other information that are relevant for them. However, in absence of the
conceptual framework, the setters of standard are acceded with the interested external groups’
pressure that leads towards the ambiguous as well as haphazard guidelines (Libby, 2017).
b)
Conceptual Framework and Legitimacy to Standard Setting Bodies
Conceptual frameworks, as per Hines, are that strategic action, which helps in
providing legitimacy to the bodies of the standard setter in period of the competition as well
as threatened intervention of government. Over ages, accounting standards development are
subjected to the considerable political interferences from the parties, who are interested. The
activities of lobbying helps in reflecting that the preparers of standard are the groups that are

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most active in respect of the projects that are started by the standard setter (Ramanna, 2015).
Generally, it is found that in the stronger enforcement mechanism, greater impact is exerted
by lobbying. Political actor’s increasing influence has led towards the power as well as the
efforts struggles for coping up with the changes that are ongoing in the institutional
environment. Conceptual framework assists the financial statements preparers for developing
the accounting policies for the transactions that are not being covered by the current standards
of accounting (Bamber & McMeeking, 2016).
The development as well as creation of the conceptual framework is done in relation
to the accounting legitimacy professionalism as well as their authority. It becomes important
to rely on the standards of accounting when professionals of the accounting are in charged
with the processes of the standard setting. The concept of the conceptual framework allows
the board to operate efficiently in case of identification of any issues. These frameworks are
less important in legitimacy perspective. Hence, in the justification of the regulatory
proposal, rationale of publically exposure as well as logical creation are used, which likely
increases the perceived acceptability as well as the legitimacy of the regulatory body to issue
the proposals (Crawford et al. 2014).
Conclusion
Therefore, it is concluded that the advancement as well as development of conceptual
framework helps to identify the goals and purposes of the financial reporting as well as
fundamentals for achieving the objectives. Development of the agreed conceptual framework
helps to provide the framework for setting the standards of accounting and the basis for
resolving the disputes of accounting.

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Answer to Question 2
Introduction
Fair value accounting and the historical cost accounting are the two important
methods that are being used for recording the value or the prices of the assets. Historical cost
accounting helps in measuring the original cost value of the assets, whereas fair value
accounting helps in measuring the assets current market value of the assets. Hence, under this
report, discussion will be done on the identification that whether the fair value accounting or
the historical cost accounting would be more relevant for the users.
Discussion
Identification of Relevancy of the Fair Values or Historical Values
The measurement done by the company is that monetary value assignment at which
the elements of financial statements is being recognized and then reported. Wherever, the
particular user groups are being identified, and then there are some implications of
measurement basis, which are adopted by the AASB. The principles and concepts are
provided by the conceptual framework for selecting basis of measurement of financial
statements elements. AASB provides generally two-measurement basis that is fair value
measurement and historical cost measurement. These two measurements basis are used by the
business organizations but is used in combination to each other (Hodder, Hopkins &
Schipper, 2014).
The choices between the historical cost accounting as well as the fair value
accounting are always subjected to the long-standing controversy that exists between the
accounting academics and the regulators. Fair value accounting is used when there is
availability of the reliable estimates of fair value, which are available at the lower costs as
well as when it conveys the information about the operating performances. The measurement

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basis of the historical cost is used to measure accounting system values under which the
prices of the assets on financial statements are based on its original prices after acquired by
the company (Kanodia & Sapra, 2016). These two basis of the measurement are used to
record value of the assets of company. Historical cost principle relevancy follows accounting
policy reliability. It is based on the concept that everyone should know the original assets
prices. Although, the measurement of the historical cost based accounting would not be able
for providing the information that are relevant for the users (Gálvez, 2016).
Financial statements that are based on the fair value accounting provide assets current
market values in order to report financial information to the users. Fair value accounting does
not provides reliable information but it helps in providing information that is more relevant.
Most of the organizations use this method to report their assets as well as the liabilities at the
values estimated, would be received after paying off the liabilities and selling the assets.
There might be occurrences of differences that are due to differences in the professional
judgements as well as their opinions, assets future uses and assumptions of the useful life of
assets (Ellul et al. 2015). These differences result in having the different values of the assets,
which might be misleading for the users. Hence, there is the requirement of more relevant
information. This relevancy is required because it helps the business organizations to limit
their ability for manipulating the income reported. In fair value measurement, the financial
reporting is done on the occurrence of the profit or loss due to changes in the price of assets
for the particular period. In certain circumstances, purposely, company’s management make
arrangement for selling certain assets such as sometimes, profit and losses from the selling is
done for increasing or decreasing the income at particular period (Basu & Waymire, 2017).
Conclusion
Hence, it is concluded from the analysis that historical cost measurement system is
most widely used measurement system because the changes in market is so often that it

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requires for reporting the liabilities as well as assets at the current market values. This distorts
whole theme of accounting by impairing the comparability as well as making the unreliable
assumptions of the accounting information.

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Answer to Question 3
Introduction
The alternatives of the historical costing model are used mostly based on uses of
current market values as the accounting measurement basis. Under the system of market
value of the accounting, the managers have the considerable opportunities as well as
discretion for influencing the reported assets value on balance sheet of the company. Hence,
under this assignment, discussion will be done on the reasons for the historical cost for
remaining the majorly accepted method of measurement and the alternatives of the
measurement system suggested by the authors CCA, CPAA, CoCoA and other authors.
Discussion
Reasons for Historical Cost remain as Accepted Method of Measurement
There are several flaws as well as limitations associated with the traditional method of
historical costs that has been picked and highlighted from time to time. Still, it can be said
that historical costs are considered as the standard form of the accounting because of its
feature that are unique as well as conventions, which makes it better than the alternatives that
are available (Clor‐Proell, Proell & Warfield, 2014). One of the main reasons of it forming
the basis of the model of the traditional accounting, even though flawed forms of it because
the accountant are generally reluctant for pricing their assets at the current value. It is
observed that over the years there are number of the cases that relates to the exposing of the
accounting malpractices as well as creative accounting, which have made the accounting
bodies reluctant towards using the current values that directly affects the prices of share
(Smith & Smith, 2014).
The accountant is responsible to guard the integrity of the data against any type of
internal modifications. If they intends for using exit prices or current cost then they open up

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the door for manipulations of these particular numbers. The alternatives measures for the
measurement as well as reporting of the assets help the management with the considerable
any type of discretion or the available opportunities that can be helping for influencing the
reported assets value. There exists the possibility for the manipulations but rules are
formulated by the professions for ascertaining the current values (Barker & Schulte, 2017).
Although, in case of historical cost accounting, there exist no scope of manipulations as well
as the data are supported by the evidences such as receipts, invoices and so on. The system
of historical cost helps to provide the managers with the significant ranges of the alternatives
in the recognition, reporting as well as measurement of the economic information. The
historical cost is having the major advantages that it helps managers for doing forecasting the
operational costs of future that are based on the past data. Historical accounting has the
played the important role in providing the necessary information (Flake et al 2015).
Alternative Measurement System
Accounting bodies, over the years, have introduced the number of the alternative
systems of accounting methods to the historical cost accounting. The opportunity costs are
used in the economic and it does not have much of the relevance. However, academic
commentator as well as accounting bodies that has forwarded the new accounting methods by
using the value current assets in opposition to the costs of the conventional acquisition
(Barker & Schulte, 2017).
The method of replacement costs can be used as the alternatives to the historical cost
method. The replacement cost is referred as estimated amount, which would be paid for
replacing the assets as the valuation date. The replacement costs advantage is that it focuses
on the services that assets will be providing rather than precise physical assets. Although,
there is noted immediate flaw in the definition in which the costs has to be estimated. After
reviewing the asset, estimation is being carried out. However, there are the problems in

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achieving the precise cost of replacement. This method of measurement helps in providing
the different choices as well as features, which the historical cost is offering (Magnan, Menini
& Parbonetti, 2015).
There are others accounting systems for example exit price method, current costs
accounting and so on. These are the possible alternatives to the historical costs accounting,
which are subject to the manipulations to the set of the norm for the measurement of the
corporate performances (Palea, 2014).
Conclusion
Therefore, with the help of analysis, it is concluded that historical cost measurement
system has so many drawbacks but still it has been recognized as most reliable method of
valuing the assets. However, apart from this traditional method of measuring assets and
liabilities, market value measurement system is the better alternative towards current business
environment.