Question

a)(i) Explain Hines view that the CF is a socially constructed and socially constructing document forming a body of professional knowledge essential to the existence of the Accounting Profession. (ii) Could the two views be aligned based on the notion that accounting standards do change?b) Hines arguments is that a CF is a defensive document produced by the Accounting Profession in reaction to financial crises when it becomes threatened by government regulation. Explain whether you agree with this view.

Answer 1

Answer -(i) According to most authors, a body of (formal) knowledge is the crucial trait of professions. It is the presumed existence of this knowledge which legitimises claims to expertise, professional powers, autonomy and control over work. The body of knowledge around which the financial accounting professionalisation project has taken place is described and it is shown that professionalisation took place around a variety of personal qualities, such as honesty, independence and respectability – skills not specific to “accountants”, such as penmanship, arithmetic, work and knowledge, which at the time were contestable as being the domain of the legal profession.

According to Hine - a major reason stated by the FASB for undertaking its CF project was to provide a coherent conceptual core that would enable the setting of theoretically grounded and consistent rather than arbitrary and ad hoc standards”.

(ii) Many researchers have pointed out the incompleteness, the inconsistency, the circular reasoning and non-operationality of the American Framework (Dopuch and Sundern 1980; Solomons 1986; Gerboth 1987; Hines 1989). Standards promulgated prior to the conclusion of the Framework had not been revised and as such were not consistent. This raises the problem of an ex-post framework. But even for new standards, the FASB CF has not provided sufficient theoretical grounding to achieve the consistency and comparability objectives3 . Mozes (2003) explains how the vagueness of the FASB CF and its level of abstraction enabled the SEC to oppose the FASB‟s proposals about accounting for employee stock options in 1993.

b) No I dont agree with this view because creation of CF relates to the validity of accounting as a discipline, and the point can be put several different ways. Any valid and self-respecting discipline needs an established 'way of thinking', and a CF seeks to provide this. This does not imply the creation of theory purely for the sake of theory. An agreed way of thinking, with coherent basic assumptions and definitions, can materially assist in the creation and operation of consistent practices. Given the existence of a wide variety of alternatives regarding accounting measurement and reporting practices, coherence and consistency are needed in the accounting treatment of different specific issues. A CF should provide the parameters within which such coherence and consistency can be achieved.