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Conceptual Framework in Financial Accounting

The document discusses the role and objectives of a conceptual framework for financial accounting. It outlines the levels of a conceptual framework and the objective of providing useful information for investors and creditors. It also examines criticisms of conceptual framework projects, including that they are prescriptive, have unspecified rules, and do not resolve disclosure issues.

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Kevin Satria
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10 views1 page

Conceptual Framework in Financial Accounting

The document discusses the role and objectives of a conceptual framework for financial accounting. It outlines the levels of a conceptual framework and the objective of providing useful information for investors and creditors. It also examines criticisms of conceptual framework projects, including that they are prescriptive, have unspecified rules, and do not resolve disclosure issues.

Uploaded by

Kevin Satria
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Gregorius Achilles Gunawan

1706058716
Weekly Summary Financial Accounting Theory – Week 3
The role of a conceptual framework

 A structured theory of accounting


 1st level (Highest) -States the scope and objective of financial reporting
 2nd level - Identifies and defines qualitative characteristics of financial information and the basic
elements of accounting
 3rd level - Deals with principles and rules of recognition and measurement, and report disclosures
The objective of a conceptual framework
- FASB: Financial reporting should provide information that is useful to present and potential investors
and creditors and other users in making rational investment, credit and similar decisions
- Information should be useful in making economic decisions, useful in assessing cash flow prospects,
about enterprise resources, claims to those resources and changes in them
Developing a conceptual framework
- The development of conceptual frameworks is influenced by two key issues:
a. principles versus rules-based approaches to standard setting
b. information for decision making and the decision-theory approach
- Information for decision-making & the decision-theory approach
a. Accounting data are required for decision making or accountability purposes stewardship & decision
making
b. The decision-theory approach maps the process by which the outputs of the accounting system
provide inputs to the decision model of a user
c. Decision Theory Process
A critique of conceptual framework projects
1. Approaches to developing a Conceptual Framework:
a. Scientific  recourse to logic and empiricism or both
b. Professional  prescribes the best course of action by recourse to professional values
2. Scientific criticisms:
- Prescriptive
- Unspecified rules and conventions
- Do not resolve contemporary disclosure issues
3. Ontological & epistemological assumptions
- Freedom from bias (neutrality): an information quality that avoids leading users to conclusions
that secure the particular needs, desires or preconceptions of the preparers
- Solomons: freedom from bias as ‘financial map making’
- Feyerabend: scientific truth is not absolute
- Hines claims mainstream accounting is ‘taken-for-granted’
4. Positive research
- Conceptual framework projects ignore the empirical findings of positive accounting research in
conflict with each other
- Mounting evidence that capital markets are not efficient
- If the conceptual framework could ensure users receive useful information this would serve a
useful purpose
5. Professional values & self-preservation
- ‘Self-preservation’ - implies the pursuit of self-interest
- ‘Professional values’ - suggests idealism and altruism
- Gerboth – sense of personal responsibility
- Hines - professional legitimacy

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