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The assignment presents a critical analysis in reference to the advancement of Accounting Conceptual Framework. In the first part, the report focuses on the background of Accounting Conceptual Framework. The changes that have been done from Accounting Conceptual Framework issued in 2010 to Accounting Conceptual Framework issued in March 2018 by the International Accounting Standards Board (IASB) is critically evaluated. The changes are being mentioned with respect to assets and liabilities, updates in measurement and requirements in the disclosure are all explained here. In the later part of the report, a recommendation is being provided with accounting standards which are included in the Conceptual Framework for Financial Reporting.
In the year of 1938, a committee was formed consisting of American Institute of Accountants; for setting the accounting standard-setting body, it was the first sector to make it, and the name of the committee is Committee on Accounting Procedure (CAP). In that time period between 1938 to 1959, 51 Accounting Research Bulletins (ARB) was issued by the committee. Accounting Principles Board (APB) replaced the committee in the year 1959, and 31 Accounting Principles Board Opinions and four statements were issued in the period of 1959 to 1973. In that period, the board has made an attempt to create a conceptual framework, but it does not succeed (Barker & Penman, 2017, pp. 45(4), 514-538). The board was further recognized in the year 1973, and it was renamed to Financial Accounting Standards Board (FASB). The parent organization through which the board is controlled is the Financial Accounting Foundation (FAF). After that, in 1984 under the Financial Accounting Foundation; Government Accounting Standards (GASB) was recognized as a body; so that they can issue standards for financial reporting of the bank (SHOJAEI, Sadeghzadeh & RAMEZANI, 2017).
International Accounting Standards Committee (IASC) was created in the year of 1973, for studying the issues and problems related to the accounting, which requires guidance by the authority. International Accounting Standards Board (IASB) was formed under that committee, and all the accounting standards that were issued is titled as International Financial Reporting Standards (IFRS). Thus, IASB adopted all the 41 International Accounting Standards that was delivered by IASC in the period in-between 1973 to 2002 (Cristea, 2015, pp. 26, 515-521). The IASB and FASB are the two boards, who were working together since October 2002, to remove the dissimilarities in-between the General Accepted Accounting Principles (GAAP) and international standards, so that they can set global accounting standards of high quality. Some projects that have been completed working with IASB and FASB in the period of 10 years; these projects are business combinations (2008), consolidation (2011), fair value measurement (2011), revenue recognition (2014) and leases (2016). There were some projects which were not published due to some issues regarding the presentation of financial statement, contracts of insurance, equities and liabilities, and benefits of employees (People.unica.it, 2019). Some work was done on IFRS 9 Financial Instruments, which was done by IASB (Elkhashen & Ntim, 2018). Though the standard was not aligned further as FASB was mainly focused on developing the financial instrument standard under GAAP.
New Conceptual Framework for Financial Reporting was issued on 29th March, 2018 by the International Accounting Standards Board (IASB). There were certain changes which were made in the Conceptual Framework, which was created in the year 1989, but in the year of 2010 it was partially updated.
The changes were made on the previous Conceptual Framework because there were some important concepts which were outdated as per the terms of IASB and there was lack of clarity (Yong, Lim & Tan, 2016, pp. 35, 62-74). According to the agenda consultation of IASB in 2011, there was an addition of the Conceptual Framework Project in September 2012 to the working plan of IASB. The main focus is to provide high-level concepts so that the standards are defined in detail so that it can be understood in a better way (Tomaszewski & Choi, 2018, pp. 47-58). A separate document is being issued by the board which is Amendments related to the Conceptual Framework in IFRS Standards that will help in setting up the amendments of the affected standards so that it will update the new Conceptual Framework. The standard reference is updated in most of the cases in the new Conceptual Framework. The two exemptions which are seen in the framework are; one is for IFRS 3 Business Combinations, and other is those who were applying for IAS 8 Accounting Principles, Errors in Developing accounting policies and modifications in Accounting Estimates.
In 2010 Conceptual Framework, there was lack of discussion about the reporting entity and determination about the boundary of the entity; whereas in the new Conceptual Framework all the scope and objectives are being described related to assets, liabilities, equity, expenses and income (Alsharari, Dixon & Youssef, 2015, pp. 11(4), 476-502). In the new Conceptual Framework, there are financial statements which are acknowledged, such as consolidated, unconsolidated and combined.
The changes that were made in the approach of the items in the financial statements which was discussed below. In the newly revised statement, there is a clarification of the explanation of assets, and it was well-defined as resources related to an economy which has certain economic benefits that are not needed further and is likely to be predicted to flow to the organization; which is not even needed.
In the explanation of liability, it is being clarified that there is a responsibility for the transfer of resources related to the economy, but there will be no ultimate outflow related to the economic benefits (Zubilevych & Poznyakovska, 2017, pp. 6, 78-85). Another concept has been introduced in the conception of “no practical ability to avoid” for the description of responsibility, and there are certain factors that are used to evaluate that will be dependent on the responsibility of the organization and on nature.
As per as the measurements are concerned, there are two types of the measurement basis one is Historical Cost measurement basis, and other is Current Value measurement basis. In historical cost measures, that delivers information related to the historical prices of an event or transaction. The historical cost is updated over time to depict for both assets and liabilities (Ellwood & Newberry, 2016, pp. 36(3), 231-234). In current value measures, monetary information is being provided by using the information which is being provided, which is updated on the basis of measurement date. The selection on the measurement is made on the basis of the significance of information and accurate illustration. In the relevance of information, it is affected by features of assets and liabilities and contribution to cash flow of future which is evaluated on a measurement basis. The information that is provided by measurement basis on the representation that is accurate and may get effected by measurement inconsistency and measurement uncertainty (Dichev, 2017, pp. 47(6), 617-632). In the new conceptual framework, it has been specified that the organization has to consider the nature of information and on the basis of that, it will select on a measurement basis.
There is a new chapter which is introduced in the 2018 Conceptual Framework is the presentation and disclosure. It does set out high level concepts about the information that are presented and disclosed (Hoffman, 2016, pp. 2(1), 1-32). The new framework has been assumed that all the income and expenses will be usually included in the financial statement until and unless the IASB has specific reason for excluding the income and expenses or it can be included in the other comprehensive income that will be more relevant and provides information.
In the new and revised Conceptual Framework, there were no specific guidance provided to the board, on how the decision should be taken by the board whether the items should be contained within the other comprehensive income (OCI) or the items that will not be subsequently transferred to the financial statements (Barker, 2015). Thus, the board has decided to make the decisions, and after that, the explanations have to be given on the rationale at the time of developing the individual standards.
For the development of Conceptual Framework, International Accounting Standards Board (IASB) has reintroduced some of the concepts so that they can assure consistency, and there will be less confusion on the provided application. The changes that have been made are being effective to the board, and these changes are being reflected in the future discussion for the future. The development that has been done on the accounting policies, which is based on the Conceptual Framework, changes will be effective from 1st January, 2020, and it will be applied accordingly.
It is important for the organization to get updated with changes in the concepts and in the accounting policies, measurement of assets, liabilities, income and expenses and recognition of assets and liabilities. The new concepts that have been implemented will help all the organization in the future as it is being defined and classified well in the revised Conceptual Framework. New rights should be included for various accounts in the conceptual framework, so it will be beneficial for the auditors at the time of auditing.
From the above report it can be determined that, there are certain changes which has been done in the revised Conceptual Framework which is issued in 2018. There are developments in the accounting standards which has been done by International Accounting Standards Board. The changes have been done by keeping the focus on the high level concepts which so that the standards are defined in a better way. In the new conceptual framework, the definition of the assets and the liabilities are being clarified. In the measurements, both the historical cost and current value measurement are updated so that it provides a better understanding. In the revised framework, a new section is being included i.e. presentation and disclosure, it provides the information about the settlement of the accounts in the financial statement.
Alsharari, N.M., Dixon, R. & Youssef, MAEA, (2015). Management accounting change: critical review and a new contextual framework. Journal of Accounting & Organizational Change, pp. 11(4), 476-502.
Barker, R. (2015). Conservatism, prudence and the IASB's conceptual framework. Accounting and Business Research, pp. 45(4), 514-538.
Barker, R., & Penman, S. H. (2017). Moving the conceptual framework forward: Accounting for uncertainty.
Cristea, V. G. (2015). The necessity to introduce the accounting rules and fair value in the conceptual framework. Procedia economics and finance, pp. 26, 515-521.
Dichev, I. D. (2017). On the conceptual foundations of financial reporting. Accounting and Business Research, pp. 47(6), 617-632.
Elkhashen, E., & Ntim, C. G. (2018). Accounting and philosophy: The construction of social reality framework. Elkhashen, EM and Ntim, CG (2018). Accounting and Philosophy: The Construction of Social Reality Framework. Journal of Accounting and Taxation, Forthcoming.
Ellwood, S., & Newberry, S. (2016). New development: The conceptual underpinnings of international public sector accounting. Public Money & Management, pp. 36(3), 231-234.
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, pp. 2(1), 1-32.
People.unica.it. (2019). Retrieved 2nd November 2019, from https://people.unica.it/gianluigiroberto/files/2015/09/Conceptual-Framework-IASB-2010.pdf
SHOJAEI, P., Sadeghzadeh, M. M., & RAMEZANI, H. (2017). Management Accounting Change and Sustainability: A Conceptual Framework with Institutional Approach.
Tomaszewski, S. G. & Choi, Y.C. (2018) The Conceptual Framework: Past, Present, and Future. Review of Business: Interdisciplinary Journal on Risk and Society Vol. 38 No. 1, pp. 47–58, Database: Ebscohost.
Yong, K. O., Lim, C. Y., & Tan, P. (2016). Theory and practice of the proposed conceptual framework: Evidence from the field. Advances in accounting, pp. 35, 62-74.
Zubilevych, S., & Poznyakovska, N. (2017). Conceptual framework of international public sector accounting standards: world experience and Ukraine. International Journal of New Economics and Social Sciences (IJONESS), pp. 6, 78-85.
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