Developing a Conceptual Framework Is an Impossible Possibility - Essay Example

Developing a conceptual framework is an impossible possibility This is a component in accounting process developed to help accountants in carrying out their work. It is a constitution, a logical system of interrelated goals and fundamentals that can lead to consistent standards and that prescribes the nature, functions and limits of financial accounting and financial statements (Chambers, 2009 p. 14). Accounting is also entails a statement of accepted accounting rules. This rule forms the structure of reference for the financial reporting. Out of the above statement therefore, conceptual framework forms the foundation for expansion of new accounting criteria and the assessment of those standards that are already in place. Further, it forms the basis for establishing which events should be accounted for and how the same should be released to the accountants (Macve 1987 p. 11). Problems of developing a conceptual framework Despite the pertinence of the conceptual framework, there are challenges which are involved. This is so because it should and it is a concept that is developed to guide study and what is transpired or has transpired over a given period of time on certain things. Tentative theory explains a conceptual framework as a phenomenon which is subject of investigation. This theory enlighten the rest of your design, it helps in evaluating and also refining your targets, initiate realistic and important research issues. Further, it helps in selecting proper methods and recognizes probable validity perils to your conclusion. This theory also helps in proving your research. Conceptual framework can be described as the research problem. It therefore involves formulating research problem for purposes of initiation and designing of your study. The ideology behind this argument is that conceptual framework identifies something that is happening in the globe which is hard to analyse. As such therefore, the conceptual framework which you develop and deduce for consumption by the rest of the people should be justifiable so that people can be able to appreciate your work. This requires that the conceptual framework k should be backed with factual examples touching on the daily happenings in different institutions (Bhimani, 2005 p. 23). What we have discussed in the above statement does not mean that there exists clear and express report of the research problem. However, it is important that research structure should demonstrate impliedly or expressly some issue which are hypothetical in nature and also reveal which other information so required. Requirements in developing conceptual framework To avoid misleading ideas on the issue of the conceptual framework, one should be cautious not to summarize some body of hypothetical or empirical work as it can lead to myopic focus on literature thereby overlooking other conceptual resources that may have an equal or wider importance for the study that you are carrying out. The best initiation to the subsisting status of research field is cooperation with adviser who appreciate the area of the study you are conducting your research. This means that you should not only be guided by the data on the ground and your knowledge only, but you should also seek and incorporate the knowledge of the expert and other people who are experienced in the field of your area of study. This will in essence prevent a situation whereby your work will lack substance and end up being useless to the targeted consumers. The other thing that your research should incorporate is that, your work should be preceded by a strategy. Your research should be based on a plan. This plan should guide you through out your work. The reasoning is based on the fact that the area you intend to carry out your research may be such that it is saturated with information. Some of the information may be irrelevant and therefore need to be disregarded. It is therefore important to sort out the information and use the relevant information to develop your conceptual framework (Kaplan, 2007 p. 78). Though your work should be to some extent borrowed from the ideas and work of others, it should not be descriptive of their work. First is, the fact that you need and should appreciate the area of your research, criticize by dissecting the existing works of the area of you research seeking to clarify the subsisting contradictions which are being posed works of others. In doing this, your work should be guided by substance and originality. The conceptual framework you are seeking to develop should be constructed and grounded by you as it is something that has not been in existence. Steps which should inform the structure of a conceptual framework (i) Identify user groups and discuss their needs. Determine primary users for whom financial statements are prepared. For instance, financial statements should be developed to precision to avoid misleading users or the consumers of the accounting information that is to be released to the people. (ii) List desirable qualitative characteristics of information provided in the financial statements. (iii) Define elements. This based on the fact that different word can be used in different context to qualify totally different things. It is therefore important to clarify the meaning of certain terms as used in the context you are dealing with. For instance (assets, gains, equity, expenses, revenue, liabilities, loses, investments by owners, distributions to owner, and comprehensive income) to be included in the financial statements. (iv) Specify recognition criteria to determine when elements should be recognized in the financial statements. Let the consumers or the users of the conceptual framework know when and where the elements qualify to be used. Specify measurements basis for elements recognized in the financial statements (Chambers, 2019 p. 13). Functions of conceptual framework Conceptual framework lays out the objectives of the financial statements. Financial statement is meant to reflect the financial standing of an institution. Conceptual framework of accounting therefore offers the foundation and the guidelines that should be followed to reveal the economic situation of an institution at a given period of time. Financial statements include the balance sheet, the income statements, statement of cash flow and the statement of shares holders’ equity. It also identifies the qualitative characteristics which establish the importance of the information in the financial statements. Financial statement reveals the financial situation of a given institution; this has an effect of the stakeholders of the institution. Shareholders and other interested parties in an institution are guided by the financial information of that institution (Coombs, 2005). A Corporation with a positive and promising financial statement are bound to attract the people. This will not only raise the picture of an organisation but also raise its competitiveness. Conceptual framework helps in Definition, recognition and measurements of the elements from which the financial statements are constructed. The conceptual framework offers guideline to framing of financial statements. This framework takes into account the Concept of capital and capital maintenance. Business organisations are meant to make profit as such; an organisation should be able to explain how it will raise its capital and also maintain the same to prevent the business from collapsing. All this should be able to be reflected in the financial statement of an institution. It should take into consideration the users of the financial information. Conceptual framework also should take into account the users of the financial institution reflected in the financial statements. For instance, the shareholders or partners in a partnership business requires to know whether the business has made loss or profits and how the same should be shared, the government on the other hand requires the financial information to be able to tax that organisation. Conceptual framework should offer guideline to ensure that all the important information required is given (Bhimani, 2005 p. 17). Like any other phenomenon, conceptual framework has both merits and demerits. Merits i. A conceptual framework provides a written constitution or framework for the professional standard committee to set criteria in a consistent manner. ii. Provides a framework of reference for the accountants and other people who prepare financial statements. iii. The preparation of financial statements needs an understanding of particular accounting techniques and the application of judgment. A conceptual framework may be useful in differentiating areas of judgments and areas where rules should be followed. iv. The existence of a conceptual framework might win the assurance of consumers of financial statements by escalating their appreciation on how and why they have been produced. v. Lack of a conceptual framework could focus some standards too much into income statement or too much into balance sheet. Demerits i. It is not clear whether a particular conceptual framework can be formulated to meet the requirements of all the users of accounting information. ii. Accounting conventions that underlie financial some areas in reporting cannot be proved to be correct; they depend on consensus. Without consensus there cannot be an agreed conceptual framework and it may not be possible to achieve consensus on wide issues. iii. Whilst it may be argued that it would be desirable for the PSC to develop the standards in accordance with an agreed conceptual framework, in reality it may not happen. The development of accounting standards may be influenced by factors other than the conceptual framework e.g. existing practice and political pressures (Coombs, 2005 p. 46). Conclusion Conceptual framework acts as a guide to the accountants for accounting the financial situation of a given organisation or institution. These organisations may be private or public. Out of the conceptual framework it is easy to know how business losses and profits are going to be distributed to the right parties. Financial statements which are developed by the accountants reveal the situation of particular organisations which in essence helps individuals or public to make an informed choice before they invest in those organisations. Conceptual framework helps in revealing the probity and propriety of the directors of an institution. Without a proper conceptual framework it would be hard for the stakeholders to know the situation of an organisation in a given period of time. It would be hard to make forecast on the steps that an organisation should to improve, maintain or rectify the prevailing situation in an organisation. References Bhimani, A. (2005). Strategic Finance and Cost Management. Washington: Management Press. Chambers, R. J. (2019). Accounting, finance and management. 2010: A. Andersen press. Coombs, H. (2005). Management Accounting: Principles and Applications. New York: SAGE. Kaplan, R. (2007). Accounting & Management: Field Study Perspectives. New York: Harvard Business Press. Macve, R. (1981), The Conceptual Framework in Financial Accounting and Reporting, London: ICA England & Wales. P. 7-113. Read More