Limitations And Comparison Of Conceptual Framework In Financial Accounting

741 Words2 Pages
bulb-icon

Recommended: The role of a conceptual framework in accounting

Definision of Conceptual Framework
The first conceptual framework for financial reporting was developed in the 1970s by the Financial Accounting Standards Board (FASB) in the US. The conceptual framework is a series of Statements of Financial Accounting Concepts (SFACs), taken as a whole, set the objectives, characteristics and other concepts that determine how financial information is measured and displayed in financial statements. In financial reporting, a conceptual framework is a theory of accounting prepared by a standard-setting body against which practical problems can be tested objectively. A conceptual framework deals with fundamental financial reporting issues. Accordingly, the International Accounting Standards Board (IASB) developed …show more content…

It is important however to realize the limitations of accounting and financial reporting when forming those decisions. The first of limitiation of conceptual framework is timely and costly. Time is consuming and expensive to set up and operate. Smaller or less developed economies may not be able to afford it. Next, the second limitation of conceptual framework is Accounting estimates. When accountancy estimates the preparation of financial statements requires the use of accounting where the exact amount can not be determined. Estimates are subjective, so the lack of accuracy, as they relate to the financial statements included in determining the value of the use and management of prescient. Among them, the estimate is not based on objective and verifiable information, they can reduce the reliability of accounting information. Verifiability also is the limitaions of conceptual framework. Audit is to enable users to be able to trust the main mechanism of financial statements. However, the audit of the financial statements can only provide authenticity and fairness "reasonable" and not an absolute guarantee, which means that, although carried in accordance with acceptable standards of auditing, in certain material misstatement of the financial statements is likely to continue, due to the inherent limitations of the audit

Show More
Related

  • An Analysis Of Ruth Dianne Hines And The Conceptual Frameworks

    1510 Words  | 4 Pages

    The Conceptual Framework (CF) is not a standard or interpretation and does not override any specific standard or interpretation (CF discussion paper). A CF is a coherent system of inter-related objectives and fundamentals that should lead to consistent standards that prescribe the nature, function and limits of financial accounting and financial statements. The CF was formed with the intention of providing the backbone for principle-based accounting standards (...

    Read More

  • Adjustments for Financial Reporting

    1150 Words  | 3 Pages

    Hermanson, R., Edwards, J., & Maher, M. (2010).Accounting principles: A business perspective. (Vol. 2). Textbook Equity inc. DOI: www.textbookequity.com

    Read More

  • Budget Analysis

    1842 Words  | 4 Pages

    Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.

    Read More

  • Financial Reporting in New Zealand

    933 Words  | 2 Pages

    This essay will discuss the influence NZ Framework brings to financial reporting standards that included NZ GAAP based on the debate between principles-based and rule-based. In particular, it will portray: (1) the nature and orientation of financial reporting framework and GAAP; (2) the main improvement of NZ Framework and the applications framework guided in NZ GAAP.

    Read More

  • Improving Performance Evaluation At Tri-Cities Community Bank (TCCB)

    1710 Words  | 4 Pages

    Traditionally, companies collect information regarding past transactions. These are then converted to statements which are used for analysis and regulatory requirements. Financial accounting has been revolving around these financial transactions and ignoring qualitative factors that may contribute to a company’s profit. Nowadays, managers recognize the impact of such qualitative factors since these contribute to the company’s future performance.

    Read More

  • Financial vs. Managerial Accounting

    1091 Words  | 3 Pages

    Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)

    Read More

  • A Critical Component Of Any Accounting Theory Course

    1218 Words  | 3 Pages

    References Financial Accounting Standards Board. 2006, July 6 -. Conceptual Framework for Financial Reporting. Financial Accounting Series, 1-55. Wolk, H., Dodd, J., & Tearney, M. (2003).

    Read More

  • International Financial Reporting Standards

    1068 Words  | 3 Pages

    The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S GAAP). The increasing recognition and acceptance of the International Financial Reporting Standards by accounting professionals in the United States, will affect the way in which the U.S will record financial statements in the future.

    Read More

  • Accounting Theory Of Accounting

    1774 Words  | 4 Pages

    The significance of this article stems from the necessity of making the infrastructures of accounting knowledge more scientific. The infrastructures which would be the bases of assumptions, principles, and concepts of accounting knowledge. Only via making these infrastructures scientific, one can promote the status of accounting among other sciences. In addition, without any justification, reasoning, and argumentation, one cannot have scientific claims. The theory of accounting should ultimately enable the standards setters to deduce the standards. Considering the impact of accounting theory on standard setting, this article aims at analyzing the point that whether the type of reasoning applied in developing accounting theory and setting accounting

    Read More

  • The Purpose of Accounting

    632 Words  | 2 Pages

    The purpose of this document is to describe the nature, purpose and scope of accounting and it deliberately explains the details of each category in accounting. Accounting involves in preparing financial documents of an entity by analyzing, verifying, and reporting this records. It emphasizes its major characteristic role in field of banking and finance, with a mixture of supportive sub topics.

    Read More

  • s

    844 Words  | 2 Pages

    Accounting information can be used by business owners to carry out a financial analysis of the businesses and their operations. The use of this information for such function is attributed to the fact that it usually contains quantitative and qualitative characteristics. While quantitative characteristics are the calculations of financial transactions while qualitative characteristics can be described as the business owner’s apparent significance of financial information. In essence, qualitative characteristics of financial information are attributes that contribute to the usefulness of information provided in financial statements. Since these qualities can sometimes be at odds with each other, they need to be balanced against each other. In addition, these qualities are essential in decision making because they provide the basis for assessing businesses and the effectiveness of their operations.

    Read More

  • Importance Of Conceptual Framework In Accounting

    1711 Words  | 4 Pages

    The Financial Accounting Standards Boards (FASB) defined conceptual framework as a consistent of underlying concepts and the ideas that describe the nature and general purpose of financial reporting which may lead to consistent standard in accounting (Deegan 2010). The role of the conceptual framework is to ensure that financial statements in accounting are free from bias and to provide useful information that is useful for user’s decision making. The standard-setting board also formulated a range of perceptions and theories related to accounting to trigger the objectives of financial reporting. The standard-setting board keeps issuing the conceptual framework over time to ensure that the conceptual framework’s objectives are improving to provide useful financial information. The innovative work on conceptual framework was embraced in the United States by the FASB in the early 1970s. The FASB accomplished disappointment in attempting to generate a standard that at the outset might not appear to present, especially testing theoretical issues. Regardless, while attempting to achieve concession on Statement of Financial Accounting Standard, tending to the theoretical issues produced critical matter for the board members. In this manner, throughout the outset the FASB understood the requirement for an obvious conceptual framework. Based on Hines’s argument, the conceptual framework is mean to provide the ability to increase self-regulate of a profession in order to neutralizing government interference from arising. Whether this argument has been accepted or not will be discussed in more detail with supported evidence to clarify the main point about Hines’s argument. Further details about this argument will discuss below.

    Read More

  • Accounting: Accounting And Accounting

    841 Words  | 2 Pages

    The revenue/cost period-: Revenue and the cost period in accounting that the company get income from normal business activities. It’s referred to normal business income that the company got by selling their product and service.

    Read More

  • Accounting Regulatory Bodies Paper

    721 Words  | 2 Pages

    The success of a company is very dependent upon its financial accounting. In accounting there are numerous Regulatory bodies that govern the accounting world. These companies are extremely important to a company because they set the standards when it comes to the language and decision making of a company. These regulatory bodies can be structured as agencies, associations, commissions, and boards. Without companies like the Security and Exchange Commission (SEC), The Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), Internal Accounting Standards Board (IASB), Internal Revenue Service (IRS), and other regulatory bodies a company could not make well informed decisions. In this paper the author will look at only four of them.

    Read More

  • Features Of Management Information Systems MIS

    1563 Words  | 4 Pages

    The information that has for financial department will determine the budget and the planning for the organization. In establish or development for the organization, the financial information that gathers will determine the size of the company.

    Read More

More about Limitations And Comparison Of Conceptual Framework In Financial Accounting

Open Document