Conceptual Framework of Accounting

Student’s Name

Institutional Affiliation

Course

Instructor

Due Date
Evaluate the importance and limitations of the conceptual framework of accounting in the

business accounting environment

Conceptual Framework

A normative theory of accounting defines a conceptual framework. A conceptual

framework prescribes the goals of accounting, the quality attributes that general-purpose

financial information should have, the definition and recognition of accounting frameworks, and

the measurement of accounting transactions (Viorica Mirela and Adrian, 2018). If we can't agree

on what generic financial reporting means, what the goal of the system is, or what the quality

attributes of the information derived from that system should be, then developing a system of

financial accounting is difficult or even illogical, according to various advocates of conceptual

framework projects. Furthermore, we must agree about how to define, recognize, and measure

the system's components if we are to make the whole thing coherent.

According to the perspective taken, there are a number of building blocks that must be

put together in order to establish a system of accounting that makes sense. Before we can discuss

the purpose of financial reporting, for example, we need to agree on the concept of general

purpose financial reporting and of a reporting business. It's only after we have a clear

understanding of what financial reporting is all about that we can begin to describe the qualities

of financial reporting (Denis, 2018).

The development of accounting rules (assuming that we require rules) is likely to be

performed in a piecemeal way with low coherence between the regulatory norms (which begs

another problem: should we have consistency?). Prior to the establishment of conceptual

frameworks, this discrepancy appeared to be the case in many countries. Various accounting
standards differed widely in their definitions (often implicit) and methods for determining when

and how to recognize and evaluate the various components of accounting. Accounting standards

are expected to be more consistent with a conceptual framework (Framework, 2018).

As a result of the accounting profession's long history of being criticized for its lack of

consensus on crucial problems, it's safe to say that the field might use some conceptual guidance.

A lot of the work done by the Financial Accounting Standards Board (FASB) of the United

States and the International Accounting Standards Board (IASB) to build an updated conceptual

framework has now been surpassed by the FASB and IASB's joint revision project (IASB).

Australia had to accept the IASB conceptual framework since it had agreed to adopt the

accounting standards produced by the IASB (Horuichi, 2018)

Importance of conceptual framework

The following are some of the efficiencies derived through the development of

accounting conceptual frameworks: Conceptual framework elements should be applied

consistently and logically to construct accounting standards. There need to be more international

compatibility between different countries' accounting rules since many of them have developed

conceptual frameworks that are similar (or they have adopted the IASC framework), leading to

greater consistency and comparability between international financial reports (which some

people have argued is important for flows of foreign investment capital). Accounting systems

rely on conceptual frameworks, thus those who establish standards should be held more

accountable for their choices (Tayaksi, Sagnak, & Kazancoglu, 2020). Clearly, if they vary from

a conceptual framework's fundamental issues, an explanation is required.

 When no precise standard exists to handle a particular issue, conceptual frameworks

serve as a means of conveying important concepts to those who generate and utilize financial

reports. Financial reporting standards will be less subject to political pressure when developing

new standards because they have already established the purpose of financial statements, the

criteria, and so on. The creation of accounting principles is expected to be more cost-effective

because standard-setters will have a consensus on many essential topics (Reppond et al., 2018(.

Numerous fundamental difficulties will not necessitate a return to the 'drawing board.'

Limitations of Conceptual Framework

The following are some of the drawbacks of accounting conceptual frameworks: In order

to create a conceptual framework, one must spend a lot of money. Conceptual frameworks are

prone to political meddling, and some say that they are nothing more than the product of a

political process (for example, Hines). When conceptual frameworks have attempted to handle

situations where there is a great deal of underlying dispute (for example, measurement concerns)

(Barker,et al., 2020), progress has been lost. Furthermore, conceptual models tend to avoid

tackling complex problems. Traditionally, conceptual frameworks have focused solely on the

functioning of the economy (in terms of money). Since they tend to overlook other aspects of

performance, they are (for example, the social and environmental performance of a reporting

entity). The emphasis placed on financial performance in conceptual frameworks tends to divert

attention away from other crucial aspects of a company's overall performance, which is

counterproductive. They are merely a formalization of current practice, not a breakthrough in

accounting methodology. They simply serve as a means of legitimizing a profession that is in

danger of losing legitimacy. It is up to each individual to decide whether or not to embrace or

reject the above advantages and disadvantages of conceptual frameworks (Ribeiro & Gonçalves,

2019).
 References

Barker, R., Penman, S., Linsmeier, T. J., & Cooper, S. (2020). Moving the conceptual

framework forward: Accounting for uncertainty. Contemporary Accounting

Research, 37(1), 322-357.

Dennis, I. (2018). What is a conceptual framework for financial reporting? Accounting in

Europe, 15(3), 374-401.

Framework, C. (2018). Conceptual framework for financial reporting. IFRS Foundation.

Horiuchi, T. (2018). Demographic Analysis of Respondents to Financial Accounting Standards

Board (FASB).

Reppond, H. A., Thomas‐Brown, K., Sampson, N. R., & Price, C. E. (2018). Addressing food

insecurity in college: Mapping a shared conceptual framework for campus pantries in

Michigan.

Ribeiro, P. J. G., & Gonçalves, L. A. P. J. (2019). Urban resilience: A conceptual

framework. Sustainable Cities and Society, 50, 101625.

Tayaksi, C., Sagnak, M., & Kazancoglu, Y. (2020). A new holistic conceptual framework for

leanness assessment. International Journal of Mathematical, Engineering and

Management Sciences, 5(4), 567-590.

Viorica Mirela, S. D., & Adrian, S. D. (2018). The Normative Demarche–a Theoretical

Description of the Accounting Normalization. Global Economic Observer, 6(1).