Scribd
Upload
998 views21 pages

Topic 2 - Conceptual Framework Standard Setting Process

The document discusses the conceptual framework and standard setting process. It begins by outlining the objectives of the conceptual framework, which provides boundaries for standard setters and a basis for accounting principles. The conceptual framework consists of 7 statements that cover objectives, qualitative characteristics, elements, and cash flows. It establishes a normative foundation for accounting. International standard setters like the IASB and FASB follow due processes for setting standards that involve task forces, exposure drafts, and public feedback. The conceptual framework may need to broaden its focus to incorporate environmental and social responsibilities.

Uploaded by

Nur Fahana
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
998 views21 pages

Topic 2 - Conceptual Framework Standard Setting Process

The document discusses the conceptual framework and standard setting process. It begins by outlining the objectives of the conceptual framework, which provides boundaries for standard setters and a basis for accounting principles. The conceptual framework consists of 7 statements that cover objectives, qualitative characteristics, elements, and cash flows. It establishes a normative foundation for accounting. International standard setters like the IASB and FASB follow due processes for setting standards that involve task forces, exposure drafts, and public feedback. The conceptual framework may need to broaden its focus to incorporate environmental and social responsibilities.

Uploaded by

Nur Fahana
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 21

TOPIC 2

MAB4013 ACCOUNTING FRAMEWORK MAC4013

CONCEPTUAL FRAMEWORK & STANDARD SETTING PROCESS

Learning Objectives:
The need for conceptual framework Issued faced by the national standards setter in adopting a conceptual framework premised on the international accounting framework Participation in international standard setting process

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

Conceptual Framework (CF)


A conceptual framework is a formal set of interrelated concepts specifying the function, scope and purpose of financial accounting and reporting In Malaysia, MASB conceptual framework is similar to the Framework for the Preparation & Presentation of Financial Statements issued in July 1989 by the IASC.

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

Needs for CF
It is as a devise to provide a boundary within which accounting standard setters can operate. Given the political nature of accounting standards, a CF provides standard setters a coherent understanding of the elements of the financial statements and an explicit value position taken with respect to the objective of financial reporting and primacy of investor-user group. It provides a basis for supporting the standard setters, viewpoints or conclusions.
TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

Conceptual Framework Consists of 7 SFACs


(Statement of Financial Accounting Concept)

1 2 3 4 5 6 7

Objectives of Financial Reporting by Business Enterprises Qualitative Characteristics of Accounting Information Elements of Financial Statements of Business Enterprises Objectives of Financial Reporting by Nonbusiness Organizations Recognition and Measurement in Financial Statements Elements of Financial Statements Using Cash Flow Information & PV in Accounting Measurements

1978 1980 1980 1980 1984 1985 2000


5

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

Conceptual Framework

OBJECTIVES

QUALITATIVE CHARACTERISTICS

ELEMENTS

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

Conceptual Frameworks
It is interrelated structure of propositions and observations that provides a logical foundation for deducing what accounting principles ought to be. 2 presumptions are:
CF has a normative purpose it is intended to provide a basis for determining what accounting principles ought to be It is a logical foundation involving process of deduction or reasoning forward within a rational structure of propositions and evidence This supports the view that accounting may be at least more of an applied science rather than art and its conceptual basis much more than a generalization of existing conventions and practices.
TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

Objectives of CF
The CF begins with the objectives of financial statements and elements to be reported. It includes:
The user information needs Qualities of useful information Concepts on recognition and measurement

The main objectives of CF:


Assessment of management stewardship Decision usefulness Promotion of Social Welfare
TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

Qualitative Characteristics
4 key qualities:
Understandability Relevance
Feedback value Predictive value Timeliness Materiality Representational faithfulness - substance over form & prudence Verifiability Completeness Neutrality
9

Reliability

Comparability - Consistency
TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

Underlying Assumptions & Influences

Qualitative Characteristics

Assumptions

Influences

Accrual Basis Going Concern Periodicity


TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

Balance between: Qualitative Characteristics Benefit and Cost


10

Universal CF?
In moving towards convergence and global standards, it appears that a universal CF may be appropriate. However this would means that the needs of smaller entities need to addressed with a differential reporting framework.

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

11

Evolution of the Conceptual Framework


Working Group 1: Conceptual Framework
Evolution of the conceptual framework Influences that have impacted the contemporary conceptual framework

In the Western civilisation accounting has been widespread for over 600 years. Need theory of accounting? 20th centuries termed as GAAP Professional accountants, government agencies codify such principles Create independent and representative committee Standard setting bodies
TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

12

Influences on the development of CF


The influences that impacted development of the CF include:
the US experience, the needs of the capital markets, research drawing from efficient market literature that impacted the thinking behind the CF and moving on the convergence initiative between the USA and IASB will see renewed interest in aligning the FASB framework with that of the IASB.

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

13

IASB Conceptual Framework


Predecessor IASB In 1973, IASC was formed
Objective: harmonising the accounting principles used by businesses and other organisations for financial reporting Exposure Draft published in May 1988. Final version: was issued in July 1989
Framework for the Preparation and Presentation of Financial Statements

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

14

Issue: IASB Conceptual Framework


In the light of current initiatives to expand responsibility of the reporting entity to environmental issues and corporate social responsibility reporting,
it appears that moves are for the broadening of responsibility to include the biosphere as well.

The narrow focus of the CF may need to be readdressed to incorporate the societal responsibilities of reporting entities.
This is happening in the more developed countries such as Sweden where investors groups demand for such responsibility to be placed on the corporations.
TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

15

MASB Discussion Paper


MASB was established
Working Group 1: Conceptual Framework A Discussion Paper DP1, Framework for the Preparation and Presentation of Financial Statements was issued in July 1998. Did revise but a final statement has yet to be issued.

Main Issues:
Accounting Issues & the Environment Islamic Perspectives Capital Maintenance v Transaction Approach Performance Reporting
TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

16

Differential reporting
Evolution in the Direction of Convergent Standards Defining the Reporting Entity Exempt Enterprise and Differential Reporting

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

17

Proposed MASB Framework: The Way Forward


A fully developed and clearly stated, CF closely related to the information needs of capital markets. Further develop the framework for differential reporting for exempt enterprises. Islamic perspective may be applied to account for and report transactions that in line with the Shariah (Islamic law).

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

18

FASBs Standard-Setting Process

1. Identify problem 2. Form task force 3. Produce discussion memorandum 4. Circulate to interested parties 5. Convene a public hearing

6.
7. 8.

9.

Issue exposure draft and request comments Consider written comments Another exposure draft or a final vote is taken by the board 4 of 7 votes needed to issue a standard (2002)

TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

19

Participation in International standard setting process (pg 157)


IASB comprises individuals with different background:
5 practising auditors (eg. UK, France, Canada, Japan) 3 preparers (Germany, Switzerland) 3 users of financial statements (UK) 2 others (liaison for national standard setters US, Aussie/NZ) 1 academic (part-time)

Standard Advisory Council (SAC)


TOPIC2-CONCEPTUAL FRAMEWORK & STANDARD SETTING

20

End of Topic 2
MAB4013 ACCOUNTING FRAMEWORK MAC4013

You might also like