Question

a) Outline the advantages for accounting that could result from the development of conceptual frameworks.

b) Refer to the following journal article:

Hines, R (1989), "Financial accounting knowledge, conceptual framework projects and the social construction of the Accounting profession". Accounting, Auditing and Accountability Journal, 2(2), pp. 72-92.

Who does Hines believe has the most to gain from the development of conceptual frameworks? Compare and contrast the views of Hines with the advantages you identified in part a)

Answer 1

a) A conceptual framework is a framework of accounting that deals with financial reporting matters like the objectives and uses of financial statements, the usefulness of accounting information to users, the various elements of financial statements such as income and expenses, assets, equity & liabilities), and the methods for measurement and recognition of these elements in the preparation of financial statements.

The advantages for accounting that could result from the develpment of conceptual frameworks can be enumerated as follows:

1. A Conceptual Framework enables standard setters to establish a particular framework for the preparation of financial statements in such a way that accounting principles and practices are based on a common ideology.
2. The framework provides the users and preparers of financial statements guidance on unusual transactions.
3. A framework for accounting ensures that random and haphazard decisions are not made to resolve an accounting issue. This prevents users from using inconsistent accounting approach in similar instances.
4. If there is no framework in place, the entities may indulge in creative representation of financial statements which may not show the true and fair view of the state of affairs of the entity.

b) According to Hines the most to gain from the development of conceptual frameworks is the Accounting Profession and the accountants who have been able to attain significant level of success in their profession.

The above statement can be substantiated by the fact that the Conceptual frameworks have enabled the Accounting Professionals to have a Body of Knowledge for accounting. Further, it can be said that the framework provides transparency to both preparers of accounting information as well its users.