Quashed Conceptual for Accounting Standards - MyAssignmenthelp.com

Question: Discuss about theQuashed Conceptual Frameworkfor Accounting Standards. Answer: Introduction This report focusses on the writing a letter to the chairpersons of the Financial Reporting Council and the Australian Accounting Standards Board by commenting on the failure of the conceptual framework to achieve the intended objective. It is apparent that efforts of bringing about radical changes via the conceptual framework ushering have botched. Where the conceptual framework seemed as though SAC 4 would necessitate firms to report a huger amount of liabilities, intense lobbying commenced in earnest as businesses made sure that any novelty was quelled. Accordingly, the superlative merit that can be expected from the conceptual framework is the legitimization of the present practice, upholds prevailing socioeconomic status, and planks off public sector efforts of controlling setting of accounting standard. Discussion Understanding the Framework In a general sense, a conceptual framework appears to be an effort of defining the nature as well as purpose of accounting. It has to consider theoretical as well as conceptual mattes pertinent to financial reporting as well as form the coherent besides consistent footing that shall underpin the accounting standards development. It is applicable in various disciplines, yet when particular to the financial reporting, CF appears to be the statement of GAAP that creates the frame of reference for the prevailing practices evaluation alongside the development of novel practices (Jones, Rahman and Wolnizer 2004). As the intention of the FR is to give useful info as the benchmark for economic decision making, a CF shall form the theoretical footing for the determination of how transaction need to be measured (current/historical value) and reported that is, the manner of their presentation and communication to the users. Rationale for Framework Opposition Accountants have queried whether the CF is essential to generate reliable FS (financial statement). Previously, history of standard setting entities worldwide, tell us that CF is necessary to produce reliable FS. In the absence of CF, accounting standards (AS) were frequently generated with serious defects: The AS were never consistent with one another especially in the prudence vis--vis matching/accruals. The AS were as well as inconsistent internally and usually the impact of transaction of financial position statement remained regarded as more significant than its impact on the statement of income (Bateman 2013). Also, the AS were generated on the firefighting strategy, frequently reacting to the corporate failure or scandal, instead of being proactive in the determination of the healthier policy. Certain AS setting entities remained biased in their corresponding composition and this impacted the direction and quality of the AS. The similar theoretical matters were reviewed various times in the successive AS for instance, does the transaction culminate in asset (RD spending) or liability (provision for environment). It is arguable that the absence of a CF culminated in the proliferation of rules-oriented accounting systems (AS) whose chief purpose is that the treatment of each and every accounting transaction (AT) need to be dealt with by comprehensive particular rule/requirement. Such a system remained extremely prescriptive as well as rigid, yet has the appealing of FS being increasingly comparable as well as consistent. In contrast, the CF availability might culminate in principle-oriented system in which AS are developed from the consensus-based conceptual footing with particular objectives. This give rise to the IASB the CF for Financial Reporting (FR) also known as the Framework). IASB is essentially the interpretation of the CF by IASB and in the course of being up dated. The chief purpose of the Framework is to: (i) help develop upcoming IFRS and reviewing prevailing AS by setting out key concepts; (ii) promotion of the harmonization of accounting regulation and standards (ARS) via the reduction of number allowed optional accounting treatments and; (iii) help prepare FS in IFRS application that would entail speaking to accounting transaction for which AS still lacks. The CF is also of significant value to auditors and users of FS, and more overall assist interested stakeholders to comprehend the approach of IASB to the AS formulation. The scope of the CF is to identify the FS objectives, reporting body, identify stakeholders using the FS and qualitative features making FS useful. It also covers the outdated CF speaking to FS elements: liabilities, assets, and equity income alongside expenses as well as when they need to be acknowledged and deliberation of measurement matters (for instance, historic and present cost) alongside associated capital maintenance concept. The CF development over the years has resulted in the IASB generating an entity of global-class standards with following merits for such entities adopting these standards: The IFRS are broadly accepted as the set of higher quality as well as transparent international standards intended to realize consistency as well as comparability crossways the world. Standards have been generated in collaboration with additional globally renowned standards setters, driven by the need to achieve consensus as well as international convergence. Firms using IFRS and have their FS audited in line with International Standards on Auditing (ISA) shall gave an improved status alongside reputation. The International Organization of Securities Commission (IOSCO) acknowledge IFRS for the purposes of listing, therefore, firms using IFRS must produce solely a single set of FS for any particular security listing for IOSCO memberships. This makes it even effortless as well as affordable to increase financial in global markets. Firms owning overseas subsidiaries shall find the course of consolidation simplified if each of their subsidiaries embrace IFRS. Firms that adopt IFRS shall find their outcomes increasingly effortlessly compared with the ones that have not embraced IFRS. This need to obviate the need for reconciliation from domestic GAAP to IFRS when examination assess comparative performance (Sikka 2015). Botched Purposes Despite the promising intention of the Framework, it is apparent that efforts of bringing about radical changes via the conceptual framework ushering mentioned above have surprisingly botched. The main reason why the Framework has failed to meet its purpose is that it seemed as though SAC 4 would necessitate reporting entities to report a huger amount of liabilities. According, the Frameworks opponents commenced intense lobbying in earnest as businesses made sure that any novelty or innovation as outlined or envisioned in the Framework was quelled (Kovacic 2017). The investors for example quashed the Framework as they preferred faithful representation in the financial info, as opposed to the prudence advocated by the Framework. They preferred faithful representation in the FR based on the response to the consultation by the IASB to the society. From such a consultation, it was clear that the CF lacked the recognition of the prudence in the CF. The opponents of the prudence asserted that it appeared increasingly subjective thereby resulting in higher concealed risk. The rule of prudence might only culminate in analysts having to build in the censoring determining how prudent they imagined their management was being (Kovacic 2017). The investors quashed the Framework as they thought they would then require to adjust data to consider a conservative bias where prudence was resurfaced as the idea. The FR and analysis committee of the society further supported the faithful representation besides neutrality as it responded to the IASB. Investors lobbied for improved explication of faithful representation by spelling out that implied capturing the fundamental economic reality-or material over form (Bolto 2017). The degree of caution can be referenced when applying this concept in uncertain scenarios. Nonetheless, care must be taken not to have any management bias towards optimism since doing so would be a breach of the neutrality concept and must be opposed by independent directors and auditors. The users of the financial info must be aware of the shortcoming of figures engaged in estimates models and judgments, and which solely associated with statement of financial position date. The business feared increased to report a greater amount of liabilities. Accordingly, the businesses began their intensive lobbying to squash any efforts to report more of their liabilities. Reporting liabilities to the businesses would mean increased loss to them in cases of externalities or damages. They irrationally sought to fight the Framework from all angles so as to see it collapse in achieving its intended purposes. Accordingly, the Framework failed to achieve its benefits (Taplin, Zhao and Brown 2014). Some of the benefits for FR that have been quashed by these oppositions include; (i) the establishment of clear definitions thereby facilitating discourse of accounting matters; (ii) provision of guidance to the AS setters at the point of development ad review of FR rules; (iii) assisting in ensuring that AS remain consistent internally; (iv) assisting auditors and preparers to get resolutions of problems in FR where AS is lacking; and assisting in the limitation of AS volume via the provision of the overarching theories of accounting applicable to particular FR challenges (McKeown 2017). However, the business treated the revised Framework that focused on two primary objectives of FS prepared under the IFRS as more of demanding in terms of greater liabilities reporting through economic decision-making as well as stewardship reporting. Since the main consumers of the FS are regarded as equity investors, creditors and lenders, whereas the primary features making FR info useful to such users are faithful and relevance representation, the business fought the Framework as this would make them incur additional losses as liabilities will be reported. This is because the liability was then defined as the present obligation of the company to transfer the economic resource due to previous occurrences (Jones, Rahman and Wolnizer 2004). The business increasingly became fearful by the CFs view on presentation and disclosure of liabilities. This is because the IASB held that the primary FS objective is the provision of summarized info relating to recognized assets classified as well as aggregated in a way that is useful to the FS users in making rational decisions regarding the resource provision to the entity. Further, by incorporating the notes to the FS specifically to supplement primary FS via the extra useful info provision relating to liabilities alongside the efficiency and effectiveness of the companys management alongside board of governance to discharge their responsibilities to utilize resources of the company was a blow to the businesses and hence the fierce opposition. The Framework was also opposed since it held that in meeting the disclosure objective the entity had to disclose the extent and nature of unrecognized liabilities and assets of the organization alongside the corresponding risks emerging from both recognized and unrecognized liabilities and assets (Singh 2015). Way Forward In my view, it remains irrational to conclude that the superlative merit that can be expected from the CF is the legitimization of the present practice, upholding of prevailing socioeconomic status, and planks off public sector efforts of controlling setting of accounting standard. This letter is an awakening call to the Financial Reporting Council (FRC) and the Australian Accounting Standards Board (AASB) to ensure that the promising and productive intentions of the Framework are met (von Bogdandy, Goldmann and Venzke 2017). The Chairman needs to realized that the Frameworks has substantial benefits that if implemented accordingly will ensure a promising stride on disclosure and presentation of the liabilities. Despite the fierce opposition from the business community, the both Council and Board must realize that these businesses are out to achieve their self-interests rather than the societal interests and, hence, a way must be harnessed to ensure that the provisions of the CF are achieved to achieve its disclosure requirement and the ultimate potential benefits. As outline above, both the interest of the business and the other main users of the FS info outlined above must be taken into account. The Council and the Board must not allow the business to get away with this and quash the potential benefits that the Framework hold. It is the right time that the Council and the stamp their authorities and bring every on board again to explain the need for the implementation of the disclosure requirement related to liabilities as required (Bakre 2014). Conclusion To this end, my letter is summarized on a call to action voice for both the Board and Council to ensure that the disclosure requirements of the Framework are met by the businesses who are only out to achieve their own interest at the expense of other users of FS info including investors, creditors and lenders and even the community at large. References Bakre, O.M., 2014. Imperialism and the integration of accountancy in the Commonwealth Caribbean. Critical Perspectives on Accounting, 25(7), pp.558-575. Bateman, M., 2013. The age of microfinance: Destroying Latin American economies from the bottom up. 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