1 History and evolution of accounting conceptual framework

Accounting Conceptual framework provide guidance in developing accounting standards, assist

in compiling consistent accounting policies in instances where accounting standards are directly
relatable to particular transaction or event and assist in understanding and interpreting accounting
standards.

Globally the evaluation of conceptual framework spans from post era world war 2, followed by
political and Corporate collapses happening around the world such as Enron (Article 01). The
accounting standards in Australia at the inception were developed by professional accounting
bodies and later jointly operated with Australian Accounting Research Foundation (AARF)
,Accounting Standards Board (AcSB) and the Public Sector Accounting Standards Board
(PSASB) however due to non-availability of proper enforceability, in conceptual framework
applied and accounting standards, the Australian accounting standard board was formed in 1991
as a re-establishment of the Accounting standard review board under the Australian securities
commission act.

Australian accounting stanadards had a higher level of international recognition for it’s quality
and comprehensive coverage (Article 04). Accounting standard setters of Australia also made an
immense contribution in development of international accounting standards under international
accounting standards board (IASB) by harmonizing its coverage to apply in International
accounting standards. ( Article 02) Accordingly from the beginning of 2005, international
reporting standards was incorporated to Australian accounting standards while retaining some
domestic standards and interpretations. Resulting formation of AASB, the Australian framework
equivalent to international reporting standards (Article 04)

In the global context, after 1929 stock market crash, there was an urge of forming a regulatory
body to establish formalities in accounting and financial reporting practices of both public and
private companies. As a result, in U.S, securities and exchange act was passed in 1934 creating
FASB (financial accounting standard board) the organization responsible to govern accounting
standards in US. Then project on developing conceptual framework was begun in 1973 with an
aim of building a sound theoretical base for development of accounting standards. Prevalence of
high level of globalization and international trade required to have a consistent basis of
accounting across geographical boundaries, this resulted in creating a common platform of
accounting around the globe with the application of international financial reporting standards
(IFRSs’) (Article 5)

2 Specific changes and development between the Conceptual Framework

issued by AASB in March 2016 and 2019

In 2004 Financial accounting standards board (FASB) and international accounting standard
board (IASB) began a joint project to revise the coverage and develop conceptual framework. As
the project progressed the accounting standards moved to less of rule based and took more of
principle-based approach. The stakeholders urged the need of having a well-structured
conceptual framework resulting a further improvement of conceptual framework in 2012 and
development took place in 2016 exposure draft of conceptual framework and a revised final
version was put forward in 29th March 2018. (Article 6)

The revised version of conceptual framework of financial reporting issued in 2018 comprises
with a comprehensive set of concepts in financial reporting.

It consists of comprehensive description and explanations on the following areas

 Financial reporting objectives

 Qualitative characteristics of financial information
 Proper definition on reporting entity and boundaries
 Revised definitions on assets, liability, equity, income and expenses
 Criteria on recognition and derecognitions of assets and liabilities in financial
statements
 Guidance on measurement and when to use them
 Guidance disclosures and presentation

The objective of the revision is to have a consistent base on IFRS development and to ensure
consistent application of accounting policies for transactions and events which does not involve
direct application of accounting standards. The board required the conceptual framework to
become a comprehensive practical guide when developing accounting standards.

Figure 1:Main changes and improvements in revised conceptual framework

Source: Article 07
I. The objective of financial reporting

This clarifies the reason for the use of information in assessing the stewardship is required in
achieving the financial reporting objectives. The main users of financial statements are investors,
lenders, creditors etc. the users must be able to rely on the financial information provided and
able to assess the prospects future cashflows and management’s accountability on entity’s
resources to make decisions. To asses this user may require the financial statements to provide
information on entity’s economic resources and claims along with the information on possible
and probable changes that could take place. Further information on how effectively and
efficiently the the economic resources are being managed.

II. Qualitative characteristics of financial information

This section of the revision identifies that, information to be useful it should be both relevant
and have a faithful representation of what it intends to represent and considers them as the
fundamental qualitative characteristics that need to have and act as a guidance in the revised
conceptual framework.

Further, it also clarifies the use of substance over form, prudence and measurement uncertainty
in determining whether a piece of information is useful.

III. Proper definition on reporting entity and boundaries

This is a new section added to the revised conceptual framework which defines the scope of a
reporting entity. Accordingly reporting entity need not be necessarily a legal entity and could be
a portion of entity or more than one entity. Financial statements are prepared to provide
information of assets, liabilities, equity, income and expenses of the reporting entity as defined
by this scope. This could be a consolidated financial statement or a combined financial statement
or a unconsolidated financial statement.

IV. Revised definitions on assets, liability, equity, income and expenses

The definitions used for assets, liabilities, income and expenses have been revised and updated
under the new conceptual framework.

Asset

The previous definition of the assets Revised definition of assets

Source: Article 6

Main changes in the definition of assets in the revised conceptual framework

  It clarifies that the asset is an economic resource and not the ultimate inflow of benefits
 Removal of the wording “expected flow” as it need not be certain or likely to benefit to
arise
 The lessen probability of economic benefits has an impact on recognition and
measurement decision

Liability

The previous definition of the liabilities Revised definition of liabilities

Source: Article 6

Main changes in the definition liabilities in the revised conceptual framework

 Clarifies that liability represents an obligation to transfer resources and not the outflow of
economic benefits
  Replacement of expected flow like asset definition
 Inclusion of the term “no practical ability to avoid”

Revised definition of Income and expenses

Income Expense

Source: Article 6

Equity

V. Criteria on recognition and derecognitions of assets and liabilities in financial

statements

VI. Guidance on measurement and when to use them

VII. Guidance disclosures and presentation

3 Future directions and your insights in development of Conceptual

Framework.

                 This is the challenge question. use the link provided in the assessment (Attachment 2)
and use an extra journal article as well.  
Articles to refer
Sylwia Gornik-Tomaszewski and Yeong C. Cho
Tomaszewski, S. G. & Choi, Y.C. (2018)

Interdisciplinary Journal on Risk and Society Vol. 38 No. 1, pp. 47–58,

Database: Ebscohost

Source
Attached- Article 1
https://www.aasb.gov.au/About-the-AASB/For-students.aspx#qa1440 -Article 02
Attached- Article 4
Attached- Article 5
Attached- Article 6

Use at least 10 referances