Analysis of IASB Conceptual Framework: A Literature Review

This literature review examines the IASB Conceptual Framework developed by the IASB, focusing on its role in standardizing accounting principles and procedures globally, with a specific emphasis on its application by ASX-listed entities. The review synthesizes findings from four articles, highlighting the importance of the framework in improving financial reporting quality and promoting consistency. Key themes include the framework's qualitative characteristics (reliability, relevance, etc.) and its influence on managerial decision-making. The analysis also explores differing perspectives, such as the debate over the inclusion of prudence, and identifies study limitations and potential areas for future research, including the theoretical underpinnings of the framework and the need for clearer guidance on certain aspects. The reviewed articles emphasize the benefits of adopting the framework for enhancing global competitiveness and meeting stakeholder expectations through increased disclosure and improved financial reporting quality.

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Contents
Introduction.................................................................................................................................................3
Summary of Theory and Progression in the Field........................................................................................3
Common Themes/Findings across the Four Articles....................................................................................4
Different Themes/Findings across the Four Articles....................................................................................5
Managerial implication of the four articles.................................................................................................6
Study limitations and future research direction proposed in the four articles............................................6
References...................................................................................................................................................8
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Introduction
The present literature review is undertaken to develop an in-depth understanding of the
conceptual accounting framework developed by IASB. IASB has developed and implemented
the conceptual accounting framework determining the standard accounting principles and
procedures to be followed by business entities across the world during their financial reporting
process. The conceptual accounting framework is developed to improve the quality of financial
reporting and to promote standardization of accounting principles and procedures. Australian
Accounting Standard Board (AASB) is also complying with the IASB standards and therefore
also need to comply with the standard framework of accounting proposed by the Board (Macve,
2015). In this context, the literature review examines and analyses the effectiveness of ASX
listed entities in complying with the conceptual accounting framework.
Summary of Theory and Progression in the Field
IASB purpose is to develop the conceptual accounting framework is to provide assistance
to the business entities to implement consistent accounting policies relating to the areas that are
not yet covered by IFRS standards of IASB. The qualitative characteristics of the conceptual
accounting framework proposed by IASB help preparers to improve reliability and relevancy in
financial reporting. The framework has defined the main purpose of financial reporting to meet
the interests of end-users by disclosing them all the relevant information. The conceptual
accounting framework has also stated the qualitative characteristics of financial reporting are
reliability, faithful presentation, verifiability, comparability, understandability and timeliness.
The accounting professionals need to place emphasis on all these qualitative characteristics
during preparation and development of their general purpose financial statements Conceptual
Framework for Financial Reporting 2010, 2017).
The qualitative characteristics of the conceptual accounting framework are based on the
normative theory of accounting. The normative accounting theory provided a subjective
explanation of the accounting practices and therefore leads to introduction of morality into
accounting. The theory provided an explanation of the ways of carrying out accounting processes
that leads to development of qualitative characteristic of accounting framework (Jones, 2015).
IASB is issuing exposure draft to gain the views and opinion of different stakeholders in relation
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to proposing changes in the conceptual framework for meeting the changing needs and
requirements of the end-users. This includes introduction of prudence, definition of general
purpose financial statements and including the rebuttable presumption for recycling of
asset/liabilities into the statement of profit or loss. This is undertaken in order to meet the
stakeholder expectations as per the agency and stakeholder theory (Hoffman, 2016). The theories
have emphasized that there is business corporations should provide all the necessary information
to the shareholders to promote their trust and confidence in the business operations. As such, the
adoption of the conceptual framework that requires businesses for increased disclosure of
information would enable in meeting the divers needs and expectations of the stakeholders
adequately (Mills, 2017).
In this context, there is increasing debate over prudence to be included in the conceptual
framework of accounting. Prudence in the accounting means that a business entity need to state
income only when it is actually realized and should also not underestimate the amount of
expenses. The arguments in the favor of inclusion of prudence states that it is necessary so that
profits and assets are not overstated in the general purpose financial statements (Prudence and
IFRS, 2014). However, there are also arguments against its inclusion as it might restrict the
business companies to create reserves to be used in future (A tale of ‘prudence’, 2015). It can
also cause understating the profits that when realized in subsequent period can lead to
development of exaggerated results. However, IASB is emphasizing on including prudence in
the conceptual framework to improve stewardship in financial reporting process. The inclusion
or prudence refers to undertaking caution when making accounting estimates and thus protecting
the interests of the shareholders. IASB has also pointed that in the condition when there is
disagreement between the conceptual framework and the accounting standard, the standard takes
precedence (Mazhambe, 2014).
Common Themes/Findings across the Four Articles
The four articles selected for carrying out the literature review in the present report has
commonly discussed the importance of conceptual framework of accounting to improve quality
of financial reporting process. The essential characteristics of the conceptual accounting
framework are also discussed in the four articles selected. The articles have emphasized on the
introduction of a single international set of accounting practices and procedures to be used by
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business organizations to improve homogeneity in their financial reporting process. IASB is
emphasizing on converging the financial reporting across the business organizations through the
implementation of a conceptual accounting framework (Conceptual Framework for Financial
Reporting 2010, 2017). AASB has also directed the business entities listed on ASX to adopt the
conceptual accounting framework for improving their global competitiveness. As per the
conceptual accounting framework, the business entities in Australia are developing their
financial statements and also disclosing the accounting practices adopted for their preparation in
the notes to financial statements section (Mills, 2017).
The use of conceptual accounting framework to accounting managers in development of
accounting policies that produces reliable and relevant information is discussed as a major point
in all the four articles. Also, it has been specified that framework is not a standard and only
presents the qualitative characteristics that must be present in financial information to make it
helpful in facilitating the decision-making of end users (Prudence and IFRS, 2014). The
accounting framework is developed as per the IFRS and does not extend beyond the scope of
IFRS. Thus, an in-depth review of all the four articles has widened the knowledge and
information related to conceptual accounting framework (Hoffman, 2016). The enhanced
knowledge of the conceptual accounting framework will be helpful in examining the compliance
of Australian business entities as per the qualitative characteristics stated in the standard
framework of accounting of IASB (Mazhambe, 2014).
Different Themes/Findings across the Four Articles
The four articles analyzed in the present literature review also has depicted some varying
themes and concepts related to the research topic. The discussion of fundamental and enhancing
qualitative characteristics of conceptual accounting framework is not common in all the articles.
This has been taken into account in only one of the article selected and other article has not
presented a discussion relating to different qualitative characteristics of framework (Conceptual
Framework for Financial Reporting 2010, 2017). One of the articles has adopted the use of
survey method to obtain the views and opinions of the respondents regarding the change
proposed to be implemented in the accounting framework (Hoffman, 2016). The arguments for
and against regarding the inclusion of prudence in the conceptual accounting framework has also
not been uniformly discussed in all the articles (Prudence and IFRS, 2014).
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The concept of prudence in the conceptual framework has been discussed in detail in only
one of the article selected. The weakness of the conceptual accounting framework is also
highlighted in only one article selected. The article has presented some general weaknesses in the
framework that needs to be overcome by the IASB for improving the usefulness of the
framework. This includes discussion about the unclear guidance in relation to some areas,
important areas that are not yet covered and some aspects of the framework that are out of date
(Mazhambe, 2014).
Managerial implication of the four articles
The articles reviewed will prove to be highly useful for the business managers of
Australian firm to widen their knowledge about the importance and significance of standard
accounting framework of IASB. They will understand the need for its adoption in the Australian
business entities to meet the needs and expectations of the end-users (Christian and Lüdenbach ,
2013). The articles have discussed the necessity for business entities worldwide to adopt
conceptual accounting framework to uniform the quality of the financial reports. The application
of uniform principles provided by the framework of reliability, faithful presentation, verifiability,
comparability, understandability and timeliness will help the Australian business corporations to
improve their global competitiveness. This is because increased disclosure and quality in
financial reports will help them to achieve the interest and trust of international investors. This
will promote the sustainable growth and development of Australian firms and make them more
competitive at international level. As such, the benefits to be achieved by Australian firm with
complying with conceptual framework can be understood by the business managers through the
review of the four articles selected in detail (Macve, 2015).
Study limitations and future research direction proposed in the four
articles
The main limitations of the research articles are that they have not provided an adequate
knowledge regarding the theoretical framework that forms the basis of accounting framework.
Also, the deficiencies in the accounting framework are not discussed in detail in the article
selected. As such, future researchers can emphases about discussing the theoretical framework of
conceptual accounting framework and its present weakness to be overcome by IASB.
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References
A tale of ‘prudence’. 2015. [Online]. Available at: http://www.ifrs.org/-/media/feature/resources-
for/investors/investor-perspectives/investor-perspective-jun-2015.pdf [Accessed on: 27 April
2018].
Christian , D. and Lüdenbach , N. 2013. IFRS Essentials. John Wiley & Sons .
Conceptual Framework for Financial Reporting 2010. 2017. [Online]. Available at:
https://www.iasplus.com/en/standards/other/framework [Accessed on: 27 April 2018].
Hoffman, C.W. 2016.Revising the Conceptual Framework of the International Standards: IASB
Proposals Met with Support and Skepticism.World Journal of Business and Management 2 (1),
pp. 1-32.
Jones, S. 2015. The Routledge Companion to Financial Accounting Theory. Routledge.
Macve, R. 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, or Threat. Routledge.
Mazhambe, Z. 2014. Review of International Accounting Standards Board (IASB) Proposed
New Conceptual Framework. Journal of Modern Accounting and Auditing 10 (8), pp. 835-845.
Mills, A. 2017. Company Accounting - Prepare Financial Reports for Corporate Entities.
Cengage AU.
Prudence and IFRS. 2014. [Online]. Available at:
http://www.accaglobal.com/content/dam/acca/global/PDF-technical/financial-reporting/tech-tp-
prudence.pdf [Accessed on: 27 April 2018].
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