The idea of accounting a set by using a standard setter body is called a conceptual framework. This framework is used as an important supporting tool (Ey.com 2018).
In the conceptual framework any standard or the requirements in standard is not overridden. Moreover, the conceptual framework is also not a standard. (IFRS)
The conceptual framework was introduced by IASB in 2010. However, this concept did not gave a clear measurement guidance when a specific method was required under varying circumstances and also was also inconsistent in nature.
Information is very much important when the question is what to choose from different measurement bases. These bases include value to the business, historic costs, fair value, value in use and realizable value which are consistent with the financial reporting. However, if these bases are considered correctly, then, there might be misunderstanding in the interpretations of various areas like assets, income, expenses and liabilities. Further, inconsistent measurements for the same is also derived (Icaew.com 2018).
Moreover, the qualitative characteristics are also not fulfilled as the measurement does not meet the targets of financial statement. Whenever the values or present market costs are not appropriate or unobtainable then the cash flow based measurements is to be used (Frc.org.uk 2018). Tons of information is required in order to choose various bases of measurement. When different factors are considered then there is a diversification of the measurement of bases like assets, income, expenses and liabilities. Different measurement systems might provide valuable information to the users in various environments.
IASB conceptual framework have released discussions relating to the improvement of the conceptual framework which includes new ideas of presentation as well as disclosure. As said by the board there exists unit gaps within abstract framework in revealing and presentation (Barth 2013). Moreover, the IASB also requires a number of steps associated to disclosures which are to be additional relevant for users and also to scale back the burden of prepares. The main aim of the presentation and disclosure is to provide better communication by providing better information about assets, equity, liabilities, income and expenses (Ifrs.org 2018). The existing lenders, investors, other creditors, stakeholders and employees will be more benefitted on using these changed indicators.
As per the definition of the existing framework an asset is defined as the resource that is controlled by an entity because of the past events and due to which the entities are expecting some future inflows of benefits. Similarly, by the term liability it is meant as the present obligations occurring from the entity occurring because of past events. The settlement of these liabilities will result in outflow form the entity that incur economic profits (IASB 2010).
Further, the present recognition criteria requires that the future benefits of inflow and outflow of assets and liabilities are probabilistic in nature. The definition of assets and liabilities does not hold true if the minimum probability threshold is not met. Because of this misunderstanding the question arises of whether a purchase is labeled as an asset is qualified to be an asset or whether a written guarantee is termed as a liability is actually a liability as per the definition (orrell and streaser 2013).
The entity’s financial performance and position is fully described in an organized summary as per the IASB definition of assets, equity, liabilities, income and expenses. The recognition criteria of an entity is provided by the existing framework. This should be recognized when the definition criterion of the entity is met if the inflow of benefits was to the entity. Also, the entity should also have a value or cost that could be determined efficiently. The 2010 Conceptual framework gives is inappropriate as per the TASB board. Therefore, better defined set of guidance needs to be provided relating to the definitions.
Stewardship management is one of the main concepts relating to the objective of financial reporting. The existing framework discusses the stewardship management characteristics comprising of decision relevance objectives. This gives relevant information that would be very useful to the decision makers like the creditors, investors, stakeholders or the employees (Gebhardt, Mora and Wagenhofer 2014). This basically involves providing economic benefits to both the parties and also finds a strategy to satisfy the government agencies. The major role of the management of an entity is to group the parties in business transactions as well as to provide them with information that is required to carry out the business in an unbiased and fair manner.
The users started to use different meanings for the word Prudent, thus in 2010 the word was removed such that they do not mean different meanings. This has led further confusion users (Ey.com. 2018).
The qualitative characteristics should be provided by the word prudent. The major implication of this word is to provide neutrality. By qualitative characteristics it is meant faithfulness in financial reporting when the users are required to make decisions in certain circumstances (Ifrs.org. 2018). As per the conceptual framework, the word prudence does not allow assets, equity, liabilities, income and expenses to be understated or overstated in financial reporting.
The new definition of an asset says that an asset is a present economic resource that is controlled by entity which is a result of the past events. These economic resource have the ability to produce economic profits. Economic resource is the revised term that is used in place of assets. This is not the ultimate inflows of the monetary benefits. The deletion of ‘expected flow which economic benefits assumed to happen’ from the assets definition is the major change (Icaew.com. 2018). However, there is very little possibility of economic benefits that affects the measuring of assets and the recognition decision.
The definition of liability says that the current obligation of the entity to shift an economic resource due to past events. This obligation is a responsibility or rather a duty which cannot be practically avoided. The new definition of liability has included the ‘no practical ability to avoid’ criteria that is the major change (Icaew.com. 2018).
The new criteria refers to the qualitative characteristics of the information. The low probability among the flow of economic benefits may affect the relevance of the information. Inconsistency in recognition, uncertainty in measurement, disclosure and presentation all these affect the faithfulness property (Brouwer, Hoogendoorn and Naarding 2015).
References
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.
Brouwer, A., Hoogendoorn, M. and Naarding, E., 2015. Will the changes proposed to the conceptual framework’s definitions and recognition criteria provide a better basis for IASB standard setting?. Accounting and Business Research, 45(5), pp.547-571.
Ey.com. (2018). [online] Available at: https://www.ey.com/Publication/vwLUAssets/EY-IFRS-A-Review-of-the-Conceptual-Framework-for-Financial-Reporting-DP-July-2013/$FILE/EY-Discussion-Paper-Conceptual-Framework-July-2013.pdf [Accessed 23 Sep. 2018].
Frc.org.uk. (2018). [online] Available at: https://www.frc.org.uk/getattachment/a5a9e9b9-3da3-45aa-b80f-8440f508f014/CF_Response13Jan(Final [Accessed 23 Sep. 2018].
Gebhardt, G., Mora, A. and Wagenhofer, A., 2014. Revisiting the fundamental concepts of IFRS. Abacus, 50(1), pp.107-116.
IASB, 2010c Conceptual Framework for Financial Reporting 2010. London: International Accounting Standards Board.
Iasplus.com. (2018). IFRS in Focus — IASB issues a revised Conceptual Framework. [online] Available at: https://www.iasplus.com/en/publications/global/ifrs-in-focus/2018/cf [Accessed 23 Sep. 2018].
Icaew.com. (2018). [online] Available at: https://www.icaew.com/-/media/corporate/files/technical/financial-reporting/information-for-better-markets/ifbm/measurement-in-financial-reporting.ashx [Accessed 23 Sep. 2018].
Ifrs.org. (2018). [online] Available at: https://www.ifrs.org/-/media/project/conceptual-framework/fact-sheet-project-summary-and-feedback-statement/conceptual-framework-project-summary.pdf [Accessed 23 Sep. 2018].
Orrell, M. and Streaser, S. (2013). IASB Invites Comments on Financial Reporting Framework. [online] Deloitte.wsj.com. Available at: https://deloitte.wsj.com/cfo/files/2013/09/us_aers_hu_082613.pdf [Accessed 19 Sep. 2018].
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download