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This paper discusses the statement 'in a politically charged rulemaking environment, conceptual frameworks has only limited utility'.

Extracts from this document...

Introduction

Abstract This paper discusses the statement 'in a politically charged rulemaking environment, conceptual frameworks has only limited utility'. From this statement I will identify and explain the perceived functions of a Conceptual Framework (CF) and the role it plays. Following this will be an explanation of the history and the motivations of the accounting profession in persisting with attempts to develop a CF. The existence of a CF is to serve as a guide for the standard setters to provide them with a set of objectives and constraints. Furthermore, CF provides a framework for setting standards, a basis for resolving accounting disputes and fundamental principles, which then do not have to be repeated in the Standards. The CF has been developed over the years, and it is continually being developed due to the changing environment, especially in a politically charged rulemaking environment to pursue the appropriate structure for a 'real' CF designed to provide a base for the standards. Ultimately, the purpose is to provide "true and fair" financial reports for the users in making and evaluating decisions about the allocation of scare resources. However from this paper, it is appropriate to conclude that accounting professions persist with attempts to develop a CF because of they trying to structure a CF designed to provide a base for the standards programme which is the accounting profession's holy grail. Although it has its limitations, it is still playing a very important role in consistency and standardisation of standards setting and reviewing, furthermore it provides a quality and quantitative guideline in the preparation of financial reports. Introduction This paper discusses the statement 'in a politically charged rulemaking environment, conceptual frameworks has only limited utility'. From this statement I identify and explain the perceived functions of a Conceptual Framework (CF) and a role a CF plays. Following this will be an explanation of the motivations by the accounting profession in persisting with attempts to develop a CF. ...read more.

Middle

The following discussion is going to identify what is the relationship between CF and accounting standards. The CF defines "the nature, subject, purpose and board content of general purpose financial reporting". (Para3, PS5) Accounting Standards specify the ways in which accounting concepts are to be applied in particular circumstances. Their aim is to 'standardise' general purpose financial reporting and to improve the quality of financial reporting across the whole range of reporting entities. Nevertheless, in the event of conflict, Accounting Standards take precedence over CF. In ethical requirements, APS1 (Para10) states "Members are advised that in the context of the preparation and presentation of a general purpose financial report for a reporting entity or where an entity which is not a reporting entity elect to prepare a general purpose financial report, application of the standards set out in Accounting Standards in mandatory as are the Consensus Views set out in UIG Abstracts". APS (Para12) to require members to 'take all reasonable steps within their power to ensure that any departure from' the CF are properly disclosed and explained. Since APS1 is part of the Code of Professional Conduct, the above means that it is an ethical requirement that members use their best endeavours to guarantee that the CF is practical. Moreover, in legal requirements, unlike Accounting Standards application of the CF is not mandatory for entities subject to the Corporations Law. Nevertheless, APS1 (Para21) reminds members that they should refer to the CF for guidance on an accounting treatment or a disclosure issue in the absence of an Accounting Standard or UIG Consensus View on the matter concerned. PS5 (Para6) support the use of the CF as guidance in the absence of other pronouncements. It should also be noted that CF is mandatory for certain Australian Reporting entitles such as Public Sector entitles which is not subject to the Corporations Law are required by legislation or ministerial directive to apply the CF. ...read more.

Conclusion

approach, such as AASB120, however it is contradicted with the CF as it is based on the balance sheet approach (Para95, the Framework). Furthermore, some parts of the framework that originally were not ultimately completed, even though conceptual guidance in those areas continues to be needed. For those reasons, the framework is gradually becoming less helpful in providing guidance to the board for making standard-setting decisions. It is appropriate to conclude in this question that the existing CF is to serve as a guide for the standard setters, which provide them with a set of objectives and constraints, and it serves as a basis for resolving accounting disputes when standard-setters and the preparers encounter any difficulties which the Standards do not serve. Moreover, the CF provides the fundamental principles, so that they do not have to repeat in the Standards. Currently, the accounting professions persist with attempts to develop a CF as in order to meet the changing world and to pursue the appropriate structure for a 'real' CF designed to provide a base for the standards. Ultimately, the purpose is to provide a "true and fair" view in financial reports for the users in making and evaluating decisions about the allocation of scare resources. Conclusion Many believe that a framework will help in the standard-setting process but cautions that because of the complexity of accounting policymaking, the framework alone is not enough. The framework is desirable but it is not sufficient. Reflecting back to the statement 'In a politically charged rulemaking environment, conceptual frameworks have only limited utility', it is appropriate to conclude that accounting professions persist with attempts to develop a CF because of they trying to structure a CF designed to provide a base for the standards programme which is the accounting profession's holy grail. Although it has its limitations, it is still playing a very important role in consistency and standardisation of standards setting and reviewing, furthermore it provides a quality and quantitative guideline in the preparation of financial reports. ...read more.

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