The role of a conceptual framework

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Business Accounting II

Coursework

The role of a conceptual framework

“If the IASB’s movement towards the worldwide adoption of IFRSs is to be successful, the establishment of a more coherent international conceptual framework is necessary.”

Introduction

The IASB which stands for the International Accounting Standards Boards was formed due to a number of different reasons.  These reasons which be discussed later on in this essay.  When the IASB was formed it still used the conceptual framework that was mentioned by the IASC (International Accounting Standards Committee) in 1989, the Framework for the Preparation and Presentation of Financial Statements and this will be explained including why we use the conceptual framework and who uses it.   Also I will identify an accounting standard and will analyse what the framework says about it and the link between the framework and the standard.  Also the advantages and disadvantages will be mentioned along with a conclusion.

Brief History

Before the International Accounting Standards Board (IASB) was introduced many different countries had different accounting requirements.  Therefore when it came to producing accounts people got confused and this “….. creates problems ……….”, (Bendrey, M., Hussey, R. and West, C. (2004), Essentials of Financial Accounting in Business, Thomas Learning,  London, pg.303).  An example of this problem is when a person or companies are trying to attract people from other countries to invest in the business.  Due to this people/ business producing accounts in that country must comply with the Accounting Standards set in that country in order to attract the investors.  From this it can be seen that complying with the Accounting Standards set in other countries maybe easy to follow since the way it is set out is easy to follow and implement.  However the problem is that the outcomes of the accounts will be totally different from one country to another.  This was one of the reasons why the International Accounting Standards Board was set up along with other reasons such as “Taxation Systems differ in many countries depending on the political policies of the country and the trading traditions and objectives”, (Bendrey, M., Hussey, R. and West, C. (2004), Essentials of Financial Accounting in Business, Thomas Learning,  London, pg .303).  Another reason for the setting up of the International Accounting Standards Board is because in certain countries the accounting professional has a real impact on what businesses producing.  For example the “…UK has a very strong accounting profession that has been active in promoting better accounting practices” (Bendrey, M., Hussey, R. and West, C. (2004), Essentials of Financial Accounting in Business, Thomas Learning,  London, pg.303).

The IASB – International Accounting Standards Board

In 1973 the International Accounting Standards Committee (IASC) was established and in the 1989 the IASC issued the 1989 Framework for the Preparation and Presentation of Financial Statements..”, (Bence, D. and Fry, N. (2004) Financial Reporting, Conceptual framework - Which way forward?, Vol.134, Iss. 1335;  pg. 88). About 17 years later the IASC was reorganised into the IASB which is known has the International Accounting Standards Board in order “… to take over the responsibility for standards setting”, (Scott, R. W. (2002) An international comparison and evolution of financial accounting concepts statements, Vol.1, Iss. 2; pg.163, 22pgs).  The preparation and presentation of financial statements “is referred to as its conceptual framework.”, ( [accessed 29th November 2005]).

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 It is said that the “IASB conceptual framework was prepared under the International Accounting Standards Committee..”, (Scott, R. W. (2002) An international comparison and evolution of financial accounting concepts statements, Vol.1, Iss. 2; pg.163, 22pgs).  

The conceptual framework – purposes

The IASB (International Accounting Standards Board) conceptual framework is a document which is used by many people and companies because this allows them to analyse what their financial objectives are and how to achieve these objectives.  The documents also provide guidelines about the presentation of financial documents, how should they be recognised, measured and summarized.  So ...

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