Question

Your Financial Controller recently mentioned to you that one aspect of normative accounting theory relates to the issue of the usefulness of a conceptual framework and how helpful such a framework is in terms of both users and preparers of financial statements.

She went on to say that despite concerted efforts over many years, the IASB and FASB have so far not succeeded in arriving at consensus on the contents of a globally applicable conceptual framework. Your Financial Controller would like you to find out more about this debate and asks you to write a short summary critically evaluating the debate for and against an international conceptual framework and international accounting standards.

Answer 1

A. Case for international conceptual framework:-

1. Focus on drivers of value :- It is necessary for an informed understanding of the organizational drivers of cost, revenue, profits and value.

2. Cost for a purpose:- Over a long time it has been recognized that there is a cost concept relevant for a purpose. Thus, external reporting requires historical and full absorption costing while performance evaluation requires attention directing and diagnostic information.

3. Reality driven:- It must reflect the entity's business mode, its operational processes, its strategy etc.

B. Case for international accounting standard's:-

1. It is more flexible.

2. It shows greater comparability.

Case against international accounting standard:-

1. It is expensive in terms of cost and time.

2. Chances of manipulation are there.

C. Case against international conceptual framework:-

1. It may be difficult to adopt international conceptual framework for the entities as the framework adopted and propounded in the national territory may be different from the international framework.