In: Accounting
discuss the accounting theory/ conceptual framework underlying current accounting practice and how accounting regulation and economic, social, political and technological factors impact on accounting practice.
A conceptual framework can be defined as a system of ideas and objectives that lead to the creation of a consistent set of rules and standards. Specifically in accounting, the rule and standards set the the nature, function and limits of financial accounting and financial statements.
The main reasons for developing an agreed conceptual framework are that it provides:
· a framework for setting accounting standards;
· a basis for resolving accounting disputes;
· fundamental principles which then do not have to be repeated in accounting standards.
The objective of business financial reporting is to provide information that is useful for making business and economic decisions.
For the better understanding of any business the following are widely used worldwide.
1. Statement of profit and loss.
2. Balance sheet
3. Statement of Cashflows
Accounting regulation and economic, social, political and technological factors impact on accounting practice, these are the factors which influence any accounting system
Every factor mentioned above is interrelated to each other , change in any factor effects the others simultaneously.
Economical and Social Factors : Social and economical factors of a economy shall be considered and its one of the important factors in accounting and reporting . In a global economic world a developing country (with a weak equity market ‒see further Classification based on corporate financing‒), which has its own accounting rules (different from the international standards) could not be considered in the securities selection and portfolio analysis of for example, some institutional investors.
Political and technological factors:
It is considered a major influential factor of accounting systems and reporting systems alike. The impact of this factor is also evident through history, with invading countries imposing their political, as well as their accounting system on the countries they have conquered and colonised. It is also a fact that many countries, upon gaining independence, have continued to use the same political and accounting system even though it no longer suits their current needs and economic situation, whereas others have opted for a different political and accounting system. The influence of a political system is reflected in the strong effect of other cultures on certain countries because of their size (small), low level of their development or their previous colonial status.
Every accounting system and reporting shall change as per the needs of the changing technological world. In the modern era with the increased technology accounting and reporting has changed drastically.