Conceptual Framework - Essay Example

CONCEPTUAL FRAMEWORK by + Introduction There have been varied opinions about conceptual frameworks, some in favor citing out the merits while others are against the idea. There are questions raised whether the accounting theory on developing conceptual framework is as a guide to accountants is the way to go. Those against the idea of developing conceptual framework in the accounting profession argue that much time is wasted in developing it. On the other hand, those in support argue that conceptual framework is an important aspect in the accounting profession.. A conceptual framework is a tool of analysis used in various concepts that aids in explain concepts either through narration or through visual diagrams such as graphs. It helps in differentiating concepts and outlining ideas in an organized way. Good conceptual frameworks turn demonstrate real concepts in a much understandable and applicable way. This helps remembrance of the whole concept and idea. Conceptual frameworks are developed to demonstrate the relationship between variables in various concepts and helps in relating several factors. The conceptual framework can be referred to a theoretical structure composed of assumptions, principles and rules that generate the relevance of coming up with a broadly generalized concept. The structure gives a description to the objectivity as well as the conceptual facts for the overall aims of a financial reporting. The theoretical framework can also get regard as the combination of concepts that have undergone broad definition and organization in a systematic way with a prime aim of providing focus. The other aim may also to offer a rationale among other tools for the interpretation as well as the integration of processed data. “Some argue that despite their existence and use there are a number of reported failures of these concepts. Those opposing conceptual frameworks suggest that, many fraud cases are a result of disregard to standards” (Walton, 1993, p.49). In this particular accounting theoretical paper, I am going to look accounting theory within accounting; whether the topic behind accounting can be relied upon enough to build a conceptual framework. Conceptual frameworks can be developed in any field to help in understanding the concepts and ideas in an easy way, they are not only limited to the accounting profession. In the accounting profession, they are important because they help in arrangements to present the financial statements and report. It is through the conceptual framework that a standard for the accounting profession is developed. “According to those opposing the conceptual frameworks in accounting, lack of legal backing is a justification for less necessity” (Alexander, 2003). They are critical conducting a review and setting the standards for accountants both locally and internationally. Having knowledge of concepts in accounting, helps in adhering to accounting standards. It helps in understanding what is presented in financial reports. Other people such as the auditors can use the concept knowledge in assessing reports. In the absence of authoritative documents, conceptual frameworks help in the analysis of ideas and issues. Conceptual frameworks are important because they ensure order in the preparation accounting standards. “The manner in which conceptual frameworks are developed ensures consistency in the work of accountants” (Davis, 1982, p. 307). There is a logical approach to issues and ideas when conceptual frameworks are developed. Conceptual frameworks are developed in a way that ensures they meet the international standards. This helps the accounting system to be compatible with that of other countries both in the region and internationally. This helps in harmonizing the accounting system with other countries when there are financial dealings involved. The conceptual frameworks help in accountability in accounting bodies. This is because they have to meet the needed requirements for accounting (Jorissen, 2003). Conceptual framework is to support the IASB in the process of coming up with future accounting standards. This will get in hand with the process of reviewing the currently existing accounting standards, hence the validity and reliability in putting in place consistency across different accounting standards. The IASB plays a significant role of promoting the process of harmonizing regulations, different standards for accounting and the other accounting methodologies. Some of these methods and procedures may be relating to the process involved in presenting financial statements. They make this possible by limiting the available chances of the corresponding accounting treatments that get permitted by the different accounting standards. The national standard-setting bodies have the mandate as well as the role of developing the national accounting standards. They are only in a position to meet the required accounting standards by if assisted by the conceptual framework. Therefore, the theoretical framework has the other purpose of assisting the national standard-setting bodies in meeting the required or set standards. The preparation of the financial statements get overlooked by the role of applying international role standards. This gets conducted for the main reason of dealing with arising issues that are evident in the process of forming an accounting standard. Therefore, the conceptual framework has the purpose of assisting these individuals in the process of making the financial statements available for this particular matter. The conceptual framework provides the room for accurately interpreting some accounting information that get accompanied with financial statements. Due to this reason, they have the purpose of assisting the different users of financial statements during the process of interpretation of already processed data “Those against conceptual frameworks explain that the concepts could lead to conflicts between the required accounting standards and the developed framework. However, in my opinion such conflicts can be solved” (Paterson,2002,p.129). This particular data usually come alongside the financial statements that are prepared and made to have compliance with the standards of the global financial reporting. Among the roles played by auditors, there include the role of coming up with different opinions on whether financial statements exhibit compliance with the global international ratings or not. Solely, they are not in a position to undertake this, and, therefore, the conceptual framework comes in assisting them to form the overall best opinion concerning the same financial matters. There are some individuals who get interested in the functioning of the IASB. The majority of this individual lacks the relevant information they need during the processes of developing their interest in the work of the IASB. For this particular case, the conceptual framework has the purpose of providing these interested individuals with the information concerning the approach and the formulation of the accounting standards. The development of the conceptual framework is very significant for accounting. “The concepts help in making important decisions that saves the company or organization money that would have been lost by making wrong decisions. Some conceptual frameworks in accounting enjoy the legal support. Conceptual frameworks are therefore important in the accounting field” (Britton, 2003). When it comes to accounting, the conceptual framework provides the rule as well as the standard that set the nature of financial statements. These rules are also necessary for establishing the rules and extent of the financial accounting as well as the corresponding financial statements. The development of this framework is also necessary since it provides a layout for generalizing accounting rates, and the way out of giving solutions to the differently emerging accounting disputes. The development of the conceptual frameworks, over time, have been significant in the provision of fundamental principles that are very stable and, therefore, no need for their repetition in accounting standards. The presence of a sound conceptual framework in place, the FASB finds itself in a position to provide very consistent and applicable standards. These rules are very significant when it comes to resolving some newer problems that are likely to emerge in accounting. The framework provides a better analysis of the same as well as clearly showing the possible solutions and the way forward for dealing with some of the potential uncertainties in accounting. The financial statement users understanding of financial reporting has always emerged as one of the major fundamentals of accounting. They also need to have high levels of confidence when it comes to financial reporting. The development of conceptual framework improves the financial statement users’ abilities when it comes to these two different scenarios. This later makes it easier and simple for the financial statement users to compare different companies’ financial statements and other audited results. Conceptual frameworks help in easy communication between the accounting bodies and the auditors. This is because the required standards are underpinned which are presented is a much understandable way (Alexander, 1993, p.46). They encourage public participation through comments and opinions. Despite all the arguments in favor of conceptual frameworks, there are other views that that point out on the limitations. These views argue against having conceptual frameworks in the in the accounting profession. The fraud cases have resulted to scandals in many countries both regionally and internationally. Some argue that many accounting concepts do not enjoy the required legal support that is necessary for their effectiveness. Conceptual frameworks have several limitations that make it a difficult task to undertake by countries that are still developing. It is relatively expensive in setting up conceptual frameworks in the accounting system (Tinker, 1991,p.297). This is so because of the money required and time to set up conceptual frameworks. Expertise and investment in research is necessary to have conceptual framework in place. Because of this many countries find it difficult to have them established especially the least developed and poor ones. Those in opposition of conceptual frameworks argue that once the accounting standards are set up there is some form of rigidity (Chalmers, 2013). There are claims that it is difficult to inject in new ideas when need be. This is because once the standards are set it is not easy to change anything to do with the accounting practices (Solomons, 1991, p.287). Some are arguments against conceptual frameworks; point out to the fact that some concepts are not consistent to the standards. Lack of consistency in the accounting concepts and the standards has formed the basis for doubts. This has led to lack of confidence in the conceptual frameworks in the accounting standards. Because of several disparities in the concepts and standards, it has pushed critics to argue against conceptual frameworks (Menon, 1982, p.308). The critics of conceptual frameworks argue that conceptual frameworks are only welcome by a small part of accountants while many do not prefer them. This view is based on grounds that few people benefit from the concepts (only those interested) while others do not such as use of graphs (Whiteley, 1958, p.70). According to IFRS, conceptual framework is necessary and a critical tool for financial reporting of any organization. It helps in putting in place clear policies for accounting and setting standards. Companies that do not observer the conceptual framework aspect are at a high risk of fraud and financial scandals. It is through conceptual frameworks that other can learn and understand accounting standards. Lack of a good conceptual framework can be the basis for a downfall (Morgan, 1982, p.310). A recent case of the Enron Corp Company shows how erroneous accounting systems can lead to failure. Lack of transparency and disregard to standards has led to the company’s losses. According to auditors and analysts there have been consistent contradictions in the financial reporting and lack of transparency. The accounting systems of the company comprised of deceptions and unclear financial dealings (Parker, 2011, p.1). Disregard of conceptual framework by the company management, employees and other staff members has contributed to its downfall. This is because of non-adherence to the requirements of conceptual framework. The main aim of conceptual framework is to ensure release of complete financial reports. This ensures clear reports and provides for any updates where necessary (Lunt, 2000,p.125). Decisions made in a company should involve consultation. Feedback is highly encouraged, board deliberations and issuance of documents are critical in conceptual framework. Whether profit and loss account is important in conceptual framework are some of the questions that are asked. Use of financial instruments is also advised in conceptual framework (Rizwan, 2013, p.592). It is therefore important to have conceptual frameworks in the accounting profession. Since almost all companies and organizations require an accounting system, it is necessary to have a conceptual framework (Hines, 1988, p.251). This helps in developing accounting standards that help in promoting accountability and transparency. Through conceptual frameworks, effective financial reporting is realized accompanied with conceptual tools that make it easy for analysts, auditors and the company management. This helps is reducing the financial risks and losses that a company may face without conceptual frameworks (Ali, 2013, p.590). References Ali, W., & Rizwan, M. 2013. Factors influencing corporate social and environmental disclosure (csed) practices in the developing countries: an institutional theoretical perspective. International Journal of Asian Social Science, 3(3), 590-609. Parker, L. D. 2011, March. Twenty-one years of social and environmental accountability research: A coming of age. In Accounting Forum (Vol. 35, No. 1, pp. 1-10). Elsevier. Whiteley, C. H. 1958. 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