IASB Conceptual Framework - Essay Example

What has been happening with the IASB conceptual framework? Lecturer: What has been happening with the IASB conceptual framework?Introduction Financial statements are regarded as very important corporate documents that speak volumes about organizations and global corporations. Several stakeholder based decisions about companies and global corporations are made based on the outcomes of their financial statements. This is because as noted by Alexander, Britton and Jorissen (2005), the financial statement of an organization gives an overall perspective of the financial health of the organization. With this said, one would appreciate the importance of ensuring that financial statements are as credible, reliable, comprehensive, conclusive, and accurate as possible (Mehrabani and Dadgar, 2013). It is against this background that International Accounting Standards Board (IASB) have continued to make efforts aimed at making the work of the accountant in the preparation of financial statements as easy and well consolidated into the qualities mentioned earlier as possible. Most of these efforts have been done through the preparation of the Conceptual Framework for Financial Reporting, commonly referred to as the conceptual framework (IFRS and IASB, 2012). As global business operations remain a dynamic phenomenon, one would notice a sense for constant change with the approach to financial reporting (EFRAG, 2014). It is against this background that the IASB is making plans on reviewing its existing IASB to align better with changing nature of global business. Purpose of a conceptual framework document for the IASB The need to have a common global language when it comes to financial reporting was the need for setting up the International Financial Reporting Standards (IFRS) (IFRS, 2012). Together with IASB, the IFRS has always acknowledged the need to having a documented conceptual framework. On the whole, the purpose for such a document can be said to be the need to have a common a single medium through which the concepts that underlie the preparation and presentation of financial statements will be presented (FASB 2014). This means that the need for the conceptual framework is purposely to have an avenue through which all accountants across the globe can a single reference point in their practice, especially when it comes to the preparation of financial statements. Already, the importance of financial statements has been emphasised. With the important role that financial statements play, one would constantly want to question what makes a good financial statement and what makes a bad financial statement. The answer to this question is what makes the need to having a conceptual framework documented for the IASB purposeful. This is because the beliefs, standards, regulations, guidelines, and best practices that are considered globally acceptable are all spelled out in the conceptual framework. Another important purpose for having the documented conceptual framework is to ensure that there will be a reference point to which the actions and work of accountants can be judged. As noted by IFRS (2013), the existing conceptual framework is there to serve several purposes, among which is the need to assist IASB in the promotion of harmonisation of regulations, accounting standards and procedures. Meanwhile whenever there is such form of reference point, it is easier to undertake both rewards and punishments based on what the reference point states. Whenever there a reference point where the actions and work of professionals can be deduced, chances that they will be more careful with their practice are higher. This is because the documented conceptual framework is very emphatic with its standards and procedures. This way, there is very little room for excuses as to why a person may be justified for refusing to act according to the standards. In the long run, it is justifiable to say that the documented conceptual framework helps to keep the accountants in check and enforce professionalism. This form of check and professionalism is yielded as accountants strive to avoid punishment but rather receive rewards. Suspension of the IASB and FASB collaborative work To have a single conceptual framework that serves as the mouthpiece for global accountants in financial reporting, one would expect that a lot of work would go into the preparation of such a document. It is for this reason that the IASB acknowledged the need to collaborate with other stakeholders whose roles and activities are directly linked with the mission and vision that they carried (IAS Plus, 2013). One such stakeholder that the IASB recognised was the Financial Accounting Standards Board (FASB). The FASB is a private not for profit organisation established with the purpose of institutionalising accepted accounting principles (GAAP) within the United States in the publics interest (EFRAG, 2014). Even though collaboration between these two bodies went on for a very long time, collaborative negotiations broke in 2010 and refused to continue. The official reason given to the suspension of the IASB and FASB joint conceptual framework is the need for the two parties to concentrate on other projects (FASB, 2014). The technical work program of the FASB also explained that the projects that the two decided to concentrate on are high priority standards-level projects. This means that even though the collaborative conceptual framework was important, it was suspended to look into other issues that were for the good of the accounting community. Importance of the issue of primary user of financial reporting After the suspension of the collaborative conceptual framework, the IASB has now taken steps to revise the existing conceptual framework not as a joint project but as an IASB project (IFRS, 2012). There are several issues that are likely to be included in the 2014 discussion paper. Some of these issues focus on wide range of matters that directly affects the work of the accountant in the preparation of financial statements. Of the issues, one that can be said to be very important is the matter of primary user of financial reporting. Generally, financial statements have been noted to be intended for all people who have knowledge of business and economic activities and accounting (Goergen, 2012). This is however a more generalised description of whom financial reporting are actually meant for. This is because in any typical organisation, there are stakeholders whose influence on the organisation can be arrange in order of preference. It is due to the distinct roles that each of these stakeholders plays that the issue of primary users of financial reporting is identified as an important matter to be considered. Until now, most organisational leaders continue to grumble over the role that some stakeholders have to play within the institution and the influence of these stakeholders over the financial reporting activities of the organisation. It would therefore be important that the next discussion finds a resting place for this issue. Expectations from the final conceptual framework on primary user of financial reporting Based on the importance on clarifying the primary user of financial reporting, there are a number of expectations that would be looked out for from the final conceptual framework to address. First, it is expected that the conceptual framework will clearly outline conditions and factors that make a person an internal user of financial reporting and those that make a person an external user. Having done this, Pagano and Paolo (2005) emphasised that the fact that a person is an internal user or external user of financial reporting does not necessarily define the person’s level of importance to the financial reporting. Based on this, it is expected that the final document will define primary users by going a step ahead of what is currently done to relate the assignment of primary user to roles that these stakeholders perform within or for the organisation. What is more, it is expected that much of the problems with confrontation between organisational leaders and primary stakeholders will be addressed by clearly outlining in the conceptual framework, ways in which organisational leaders and other primary users can collaborate in the usage of the financial reporting for the overall good of their organisations. Until now, it cannot be justified that the outcomes of the financial reporting must be controlled, sabotaged, implemented, or become the sole responsibility of any single individual. But until that line of shared responsibility is clearly drawn within the conceptual framework, the confusion may continue to exist. Conclusion This paper has been useful in identifying current happenings within the IASB and why some of these things are happening. On the whole, it has been explained that the efforts of the IASB to have a documented conceptual framework can be justified. This is because when there is a documented conceptual framework in place, all industry players become guided on best practices that are expected of them in the delivery of their work. By so doing, no one can give excuses for failing to conduct themselves according to acceptable standards or principles. But as it has been stressed in the paper, it would be extremely important that consultation and collaboration becomes a central part in the preparation of the conceptual framework. As it is now, collaboration between the IASB and the FASB has been suspended. It is however expected that the suspension will not be an indefinite thing but something that can be resolved for future purposes. Until that, it is a step in the right direction that the IASB wants to revise the existing conceptual framework as its project. This is because it is important for the board to brace itself with changing needs of the financial reporting roles that its members undertake and find ways of meeting the changing needs, especially in terms of the definition of the primary users of financial reporting. References Alexander, D., Britton, A. and Jorissen, A. 2005, International Financial Reporting and Analysis, Ultimate Press Limited: London. EFRAG 2014. A Review of the Conceptual Framework for Financial Reporting. Available from: [22 November 2014]. FASB 2014. Project Update. Available from: [22 November 2014]. Goergen, M. 2012, International Corporate Governance, Prentice Hall: Sydney. IAS Plus 2013. Conceptual Framework — IASB-FASB joint project. Available from: [21 November 2014] IFRS 2012. Feedback Statement: Agenda Consultation 2011. Available from: [21 November 2014]. IFRS 2013. A Review of the Conceptual Framework for Financial Reporting. Available from: [22 November 2014]. IFRS and IASB 2012. IASB Research Forum 2014. Available from: [22 November 2014]. Mehrabani, F. and Dadgar, Y. 2013, "The Impact of Corporate Governance on Firm Performance: Evidence from Iran", International Journal of Trends in Economics Management and Technology , Vol.2 No. 3, pp: 09- 13 Pagano, M. and Paolo F. V. 2005, "The Political Economy of Corporate Governance," American Economic Review, Vol. 95 No. 4, pp. 1005–1030. Read More