IASBS Conceptual Framework - Case Study Example

IASB’s CONCEPTUAL FRAMEWORK ESSAY By Amount of Words 1500 IASB’s Conceptual Framework Essay The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) commenced a detailed project on conceptual framework back in 2004 where they grouped the project into several phases. However, in 2010 the IASB deferred the joint project until other salient matters were put into finalization and clarity between the two bodies. As a result, the IASB decided in 2012 to restructure the creation of conceptual framework to be a project that it solely managed. As part of its function, the conceptual framework stipulates concepts that guide the preparation presentation, and analysis of financial statements in large companies and institutions. Conceptual framework is a tool that assists to develop and to revise the International Financial Reporting Standards (IFRS) (IFRS Foundation 2013). The main objective of the framework is to make better financial reporting by aiding the IASB to develop an updated and comprehensive set of concepts to that make it easy to review financial standards. The Purpose of the Conceptual Framework Document by IASB The first and the major purpose of the IASB document is to offer guidance in preparing and presenting financial analysis in a business firm (Hines 2009, p. 437). The document offers advice on how a company can strategize on how to invest money on important issues that would help it realize its short term and long term goals. Another purpose of the conceptual framework document is to carry out intense analysis on financial issues by making reference to financial statements that give a description of all the financial transactions in a firm. To carry out a critical analysis of financial issues in a firm, this framework advocates for clear presentation and reporting of financial documents to avoid confusion (Khan 2013, p. 204).. The conceptual framework document assists the IASB to come up with a better framework that gives a revision of the conceptual frameworks by IFRS (Hines 2009, p. 440). This document gives guidance on better financial and accounting matters in a business organization. This document also gives a clear definition of some of the terms that IASB considers to be very vital. Some of the important terms that this document sheds light on include offering a detailed distinction between liabilities (obligations that a business must attend to for example debts) and assets (what a business owns that can be of economic help in future), a variation between expense and income, and also gives definitions of terms such as payment and receipts. The conceptual framework document also known as the Discussion Paper (DP), serves the purpose of helping business managers know the difference between profit and loss in their organizations and how this affect their performance. This paper encourage financial accountants to keep a record of the income and expense to make it easy realize if a business is financially gaining or losing. DP also emphasizes on the importance of conducting assessments to become aware of how the business is financially performing. This paper states that it is better to adopt various methods of assessments to be able to come up with a wide range of information (Macve 2007, p. 65). Why the Collaborative work between the IASB and FASB was suspended IASB and FASB commenced a joint analysis about conceptual framework in 2004 to shed more light to business managers and accountants on how to manage their financial Transactions. However, this joint partnership came to end in 2012 due to several reasons. First, the set split to concentrate on their activities that they specialize in. IASB dwells on checking the development of national and international financial standards in different organizations and also takes part in promoting the standards to make the organization perform better (IFRS Foundation 2013). On the other hand, FASB is a non-profit organization that dwells on improving the working condition of businesses and also offers advice on financial transactions. This variation of specialization makes the two bodies suspend their operations. Another reason that makes the two partners to separate is geographical difference. IASB has its base in London in the United Kingdom while FASB had its headquarters in the United States. The geographical difference made regular travelling to attend meetings to be very expensive. As time went by, there was need to suspend the activities of developing concepts in this framework. Ideological differences was also one of the major causes why the two parties ceased their operations. In many instances, the members in this partnership experienced counterattacks where an individual or group of people saw it wise to run operations in a contradictory manner. Financial challenges was another reason why these bodies suspended working together. The IASB had a budget of $ 31.5 million to carry out its activities which was far much less than FABS’s budget of $ 54 million (Khan 2013, p. 201). The unequal amount that each group invested in the project formed one of the reason why IASB and FASB suspended their activities. An Aspect of the Matters to be covered by the 2014 DP and its Importance Various subject issues to be discussed in 2014 discussion, they are, liability and assets, going concern, stewardship, reliability, recognition, and the approach to defining the income and expense. Each issue has its relevant in accounting entity, for example the going concern (Khan 2013, p. 201). Going concern is one of the accounting fundamental concept which state that, the enterprise should be should be viewed as a continuing in existence for the forseeable future, therefore, all the accounts should be made on assumption that the enterprise has neither the objective nor the stipulation of undergoing liquidation or curtailing significantly the scale of the enterprise operations1. The relevance of the going concern may be clearly be depicted in some areas, for instant when deciding about the presentation of various items as the non- current or current in the statement of the financial position. During the assessment control, for example when the investors’ agreement requires transfer of the assets to other investors, in case the investor is not able to continue in the operation as the going concern (Khan 2013, p. 201). The going concern is of important to the people such as the investors and other relevant users and by the regulators. My Opinion about how going concept be dealt with in the conceptual framework. As discussed above we have realized the relevancy of the going concern, basing on my opinion, i would for the following recommendation: the going concern always treated as the fundamental concept, which is relevant to every aspect of the accounting, this should also apply to the financial reporting. This because: when an entity is not following the going concern concept then measurement, presentation and the disclosure prerequisite need to be dissimilar, also when listing some business situations, if the going concern is relevant then some situation may be missing. The description of the going concern maintained since the assumption known to be appropriate by many respondents. The description has been in the line with other well-known accounting setting bodies such as ASSR and international public sector accounting abbreviated as IPSAB. The only parts I will like to be amended is the correct phrase of curtail, significant of its functioning. This because if that need exist then the financial statement can be made on the different basis, if that might be the case then the basis used should be disclosed (Khan 2013, p. 204). Conclusion The IASB and FASB formed a partnership in 2004 to come up with a framework that would help in carrying out effective financial analysis in different business and financial institutions. However, the relationship between the two bodies ceases in 2012 when factors such as financial constraints and ideological differences make the two groups to suspend their operations. This separation though, does not hinder IASB from coming up with better concepts about conceptual framework. In the beginning of 2013, the IASB comes up with a document that outlines its operations. In the document, IASB hoped to come up with better concepts that surpass that of their previous partnership. The concept of profits and losses is one of the important factors that the Discussion Paper puts emphasis on. The framework should ensure the basis to all the requirement for the eleven issues. References Hines, R 2009, “Financial accounting knowledge, conceptual framework projects and the social construction of the accounting profession” Accounting, Auditing and Accountability Journal vol. 2, no. 2, pp. 435-440. IFRS Foundation 2013, Unaccompanied standards: Access the unaccompanied standard and their technical summaries, retrieved from http://www.ifrs.org/IFRSs/Pages/IFRS.aspx IFRS Foundation 2013, Conceptual framework, retrieved from http://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Pages/Conceptual-Framework-Summary.aspx Khan, M 2013, “Developing a conceptual framework to appraise the corporate social responsibility performance of Islamic banking and finance institutions” Accounting and the Public Interest vol. 13, no. 1, pp. 191-207. Macve, R 2007, A conceptual framework for financial accounting and reporting: Vision, tool, or threat? Routledge Publishers, New York, NY. Ravitch, S 2011, Reason and rigor: How conceptual frameworks guide research, Sage Publications, London. Read More