Financial Accounting Essay

This essay delves into the International Accounting Standards Board (IASB), its history, goals, and the crucial role of its conceptual framework in developing International Financial Reporting Standards (IFRSs) and International Accounting Standards (IASs). It explains the framework's purpose in providing guidance for financial reporting, addressing issues in creating financial statements, and ensuring consistency in accounting standards. The essay examines the framework's components, including definitions of essential financial statement elements, recognition and derecognition criteria, measurement principles, and disclosure requirements. It also discusses the IASB's Exposure Draft and its proposed solutions for improving the framework. The essay concludes by highlighting the framework's significance in resolving accounting issues and its ongoing need for revision to adapt to evolving financial reporting needs. The provided solution includes references to relevant academic articles and websites, demonstrating a comprehensive understanding of the subject matter.

FINANCIAL ACCOUNTING
Financial Accounting
Student’s Name
Course Code

1
FINANCIAL ACCOUNTING
Introduction
International Accounting Standard Board was previously known as International
Accounting Standard Committee before April 2001 (Iasplus.com, 2017). It was established in
1973 and was the complete authority to issue international accounting standards. In 2001
international financial reporting also came into its ambit (Ifrs.org, 2017). It has amended many of
the old standards and started making new ones by itself which came to be known as International
Financial Reporting Standards (IFRS). IASB is set up as Monitoring Board at the top to approve
and oversee trustees followed by IFRS Foundation containing 22 trustees (Ifrs.org, 2017). The
next layer contains IFRS Advisory Council, IASB and IFRS Interpretations Committee. And at
last it has its Working Groups.
Discussion about IASB and Its Goal
IASB Framework is deployed for making financial statements and standards
(Iasplus.com, 2017). The main goal of IASB Framework is to provide guidance and support to
the IASB in the development of revised and renewed standards of financing and mitigating the
issues which crop up in making financial statements which cannot be addressed by the
accounting standards. IASB has full discretion in developing and pursing the technical aspects of
Standards with consultation with the trustees (Iasplus.com, 2017). It has to prepare and issue the
IFRS and even exposure drafts using the guidelines given in the Constitution. It also issues and
approves the Interpretations made by the IFRS Interpretation Committee. IASB is known to be
associated with the stakeholders closely all across the world (Iasplus.com, 2017). Its goals are to
have universal reception of a group of international financial reporting standards, to fulfill the
standard-setting work through a transparent and open process with publication of documents
such as exposure drafts and discussion papers.

2
FINANCIAL ACCOUNTING
What is conceptual framework?
In financial reporting Conceptual Framework is basically a theory of accounting
compiled by the standard making bodies such as IASB against which the problems which are
faced in practicality can be tested and tackled objectively (Iasplus.com, 2017). It is also known
as Concepts Statements which is defined as body of interrelated fundamentals and objectives.
Identification is done by objectives of the aims and goals of the financial reporting and
fundamentals help to achieve those objectives (Zhang & Andrew, 2014). A conceptual
framework deals with the basic issues of Financial Reporting and contains the characteristic that
makes information of accounts useful such as assets, liabilities, expenses, equity and income.
This information assist in selecting the transactions, circumstances and events to be accounted
for and the method of their recognition, measurement and the format of summary and report in
which will be presented (Zhang & Andrew, 2014). It can be stated that it is an analytical tool
with much options and variations at its disposal to make organized distinctions and frame ideas
for accounting standards.
Why is conceptual framework required?
In the context of financial reporting, conceptual framework includes establishment of
exact definitions that helps in financial discussions of the issues of accounting. It provides
guidance required by the makers of accounting standards when they review and develop rules of
financial reporting (Eccles, Rogers & Serafeim, 2012). They establish the fact that reporting
standards are consistent internally. They help the auditors to mitigate financial reporting
problems in where there are no accounting standards for a particular issue. The most important
assistance is to decrease the number of accounting standards by giving an overarching theory
which may be applied to all accounting standards to solve specific reporting problems. Only

3
FINANCIAL ACCOUNTING
FASB is not benefited by the Conceptual Framework. It enhances the credibility of financial
reporting when the objectives and fundamentals are used to establish the rules of reporting
(Doukakis, 2014). It helps in the preparation of standards that are not only internally consistent
but are also consistent externally. It also helps in understanding the limitations of financial
standards of reporting so that the issue does not go beyond the scope of a standard.
Issues dealt with the conceptual framework.
Exposure Draft of IASB mentions issues that are there in the conceptual framework which
makes it a bit tainted. Exposure Draft proposes some of the solutions or changes which are to be
made in the existing Conceptual Framework for issue mitigation (DeFond, Hung & Li, 2014).
ED proposes that the definitions of essentials in financial statements should be revised,
derecognition and guidance should be included in the framework. The discussions should be held
on the bases of measurement, principles should be made for incorporating items in Other
Comprehensive Income (OCI) which are to be related with performance reporting and high level
concepts of disclosure and presentation should be revised (Iasplus.com, 2017). Issues covered by
IASB in its ED are:
 Requirement of General Purpose Financial Reporting (GPFR)
 Qualitative feature of valuable financial information
 Reporting entities of GPRF
 Fundamentals of Financial Statements
 Recognition and de-recognition
 Measurement
 Disclosure and Presentation
 Concepts of Capital and Capital Maintenance

4
FINANCIAL ACCOUNTING
Evaluate the role of the conceptual framework plays in the development of IFRSs and IASs
Conceptual framework may provide the preparers with a “fallback provision” for much
needed judgment for the development and application of any accounting policy (Iasplus.com,
2017). This issue is discussed separately in IAS 8, which allows the Framework to have an
authoritative body to guide the preparers to keep in mind the definitions, criteria of recognition
and concepts of measurement such as assets, liabilities, expenses and income in the framework if
other guidelines are absent (Iasplus.com, 2017). Conceptual Framework is extended to discuss
the presentation, reporting entity and disclosures and it needs to be addressed that these new
chapters will be included in IAS 8 or not (Iasplus.com, 2017). It can be said that Conceptual
Framework plays a pivotal role in making rules and standards for IFRSs and IASs (Ifrs.org,
2017).
Conclusion
From the above discussion, it can be concluded that Conceptual Framework has been a
guiding light in making the financial and accounting standards at international level since last
few decades. It has helped the policy makers and experts to come out of the issues where there
was no accounting standard to help them out. It covers almost all the issues related to financial
reporting taking the issue holistically into its ambit. It provides solution to almost each problem
faced in standard making. Conceptual Framework needs to be revised from time to time to be
updated as per the changing needs of accounting and financial reporting.

5
FINANCIAL ACCOUNTING
Reference
Barker, R., Lennard, A., Nobes, C., Trombetta, M., & Walton, P. (2014). Response of the EAA
financial reporting standards committee to the IASB discussion paper A review of the
conceptual framework for financial reporting. Accounting in Europe, 11(2), 149-184.
Barth, M. E. (2013). Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), 331-352.
Bertoni, M., & De Rosa, B. (2013). Comprehensive income, fair value, and conservatism: A
conceptual framework for reporting financial performance.
DeFond, M. L., Hung, M., Li, S., & Li, Y. (2014). Does mandatory IFRS adoption affect crash
risk?. The Accounting Review, 90(1), 265-299.
Doukakis, L. C. (2014). The effect of mandatory IFRS adoption on real and accrual-based
earnings management activities. Journal of Accounting and Public Policy, 33(6), 551-
572.
Eccles, R. G., Krzus, M. P., Rogers, J., & Serafeim, G. (2012). The need for sector‐specific
materiality and sustainability reporting standards. Journal of Applied Corporate
Finance, 24(2), 65-71.
Iasplus.com. (2017). International Accounting Standards. Iasplus.com. Retrieved 12 September
2017, from http://www.iasplus.com/en/standards/ias
Ifrs.org. (2017). IFRS. Ifrs.org. Retrieved 12 September 2017, from http://www.ifrs.org
Zhang, Y., & Andrew, J. (2014). Financialisation and the conceptual framework. Critical
perspectives on accounting, 25(1), 17-26.