Current Development In Thought Accounting †Myassignmenthelp.Com

Question: Discuss About The Current Development In Thought Accounting? Answer: Introduction The present paper presents there short critical essays related to the contemporary issues in accounting. In this context, the first essay aims in demonstrating the knowledge of the qualitative characteristics of accounting as mentioned in conceptual framework. The next essay demonstrates knowledge of normative theories in accounting and the last essay is about discussing the building blocks of conceptual framework. Define CF in accounting As per the IASB, a non-profit organization responsible for developing global accounting standards has developed and implemented conceptual accounting framework for improving the quality of financial reports of business entities. The conceptual framework determines the concepts that help in preparation and presentation of financial statements to end-users (IFRS Conceptual Framework: About, 2017). The main purpose of developing conceptual framework is to provide guidance to the IFRS in developing future financial reporting standards and assisting national standard-setting bodies in developing accounting standards. The conceptual framework assembles the interrelated concepts on different accounting theories for developing standard-setting and consent accounting principles (Deegan, 2014, p.214). The four major qualitative characteristics of useful financial information as per the conceptual accounting framework are relevance, reliability, comparability and understandability (Internationa l Accounting Standards Board [IASB] 2010, p.xxx). Link CF to the objectives of general purpose financial reporting The objectives of general purpose financial report provide a basis to the development and foundation of conceptual framework. The major objectives of the general purpose financial reports are to provide useful and credible financial information to the present and future investors of a business entity. These objectives are linked with the conceptual framework principles of relevance, reliability, comparability and understandability that aim at enhancing the decision-making usefulness of financial statements (IFRS Foundation, 2015). Link the objectives of general purpose financial reporting to intended users The general purpose financial reports aims to provide useful and pertinent information to the end-users for enabling them to make investment decisions. The IASB, in this context, has included stewardship under its objective of decision-usefulness. The stewardship approach as aligned the general purpose financial reporting objectives with those of the intended users. The main objective of stewardship is to disclose more information about the past events and future performance of a business entity in financial reporting to support the decision-making process of end-users (Deegan, 2014, p.166). Qualitative characteristics of accounting linked to intended users The qualitative characteristics of financial information as per the IASB are relevancy, comparability, verifiable, timely and understandable. These are linked to the intended users as these characteristics aims to disclose all the necessary and materialistic financial information to the users for protecting their interest. The development of financial statements on the basis of these characteristic will ensure that end-users such as investors and creditors receive all the accurate and realistic financial information for making correct decisions regarding their investment (IASB CF, 2015, p.27-30). Linking the qualitative characteristics to the objectives of measurement As per the IASB objectives of measurement, the financial reports should measure all the assets and liabilities on a uniform basis as per the relevance qualitative characteristics of financial reporting. Also, the fundamental qualitative characteristics of faithful representation have also some implications for measurements as per which financial reports developed must be free from any error. However, this does not imply that measurements should be perfectly accurate but any deviations must be faithful represented during financial reporting. As per the understandability qualitative characteristic, the users of financial report must be able to develop an understanding of the measurements used (International Accounting Standards Board [IASB] 2013, p.xxx). Which is more important: relevance or faithful representation The relevance and faithful representation are the two main qualitative characteristics of financial reporting. However, with the increasing incidents about the fraudulent activities in the organizations due to hiding and concealing of useful information has initiated the debate of determining the most important qualitative characteristic of accounting between relevance and faithful representation. The relevance has been regarded as most important over fair representation as it more impact on improving the quality of financial reports by disclosing all the materialistic facts and figures so that investors realize a true picture of the financial position of a firm (IASB CF, 2015, p.27-30). Is it possible for accounting to ever achieve faithful representation? The financial statements must have completeness, neutrality and free from any materialistic error in order to achieve faithful representation. However, this is not possible in real terms as the business entities are not able to provide accurate value of a reporting firm but only provide an estimation of its value. The financial reports cannot provide all the information required by the potential investors such as about the economic conditions impacting the financial performance. However, the goal of faithful representation in accounting is to accurately represent the general economic conditions it has not achieved faithfulness (Alexander et al, 2007, p.120-121). Define normative theory The normative approach to accounting is used for development of conceptual framework and provides an understanding of the reporting the different entries of the financial statements for attaining the optimum outputs. The theory provides guidance to the policy makers about the future accounting processes to be adopted on the basis of theoretical principle. It provides suggestions to the accounting policy makers on the basis of existing accounting theories and lead to the development of specific accounting policies (Matthews Perera, 1996, p.xxx). Define HCA and briefly discuss its characteristics, strengths and weaknesses The Historic Cost Accounting (HCA) involves developing the accounts of an entity on the basis of historic cost. The historic cost is referred to as nominal or original cost of an asset on the data of its acquisition. The HCA principles states that an asset should be reported at its cost during an accounting transaction that includes all the costs involves in making an asset ready for the use. The main advantage of this approach is that this approach is an easier method of asset valuation. The original cost of an asset is easy to be determined and verified as it already exists and as such cannot be altered. However, its drawback is that the approach does not provide an estimation of the future value of assets and thus does not comply with relevance principle of accounting (Institute of Chartered Accountants in England and Wales [ICAEW], 2006, p.xxx). Describe the normative alternatives to HCA and discuss their characteristics, strengths and weaknesses in their attempt to overcome HCA's weaknesses The constant purchasing power accounting (CPPA), capital cost allowance (CCA) and Fair Value Accounting (FVA) are some of the normative alternatives to HCA. The major benefit of CPPA over HCA is that provides reliable financial information to the management for facilitating its decision-making process. On the other hand, CCA method takes into account the annual depreciation on the cost of assets that can be claimed for the purpose of income tax. However, it does not overcome the defects of historical cost approach appropriately as this method also does not help in providing a future estimate of a firm performance. In this context, the FVA is the most useful accounting method that represents the current information about the assets and liabilities value on the balance sheet. The FVA is also subjected to some criticism as it does not provide reliable financial information as it is based on assumptions by the managers thus lowering the reliability of financial reporting (IASB CF, 2015, p. 61-64). Evaluation process for determining the success-levels for both HCA and the normative alternatives to HCA The business entities are required to select the most appropriate measurement basis for valuing its assets and liabilities for protecting the investors interest. It is important to consider the required information to be disclosed in the general purpose financial statements. In this context, a business entity is required to assess the ability of an asset or liability to produce future cash flows and their nature and characteristics. The business entity is required to select a measurement basis that provides the most relevant information in its financial reports (IASB CF, 2015, p.67). Were any of the normative alternatives to HCA successful? There have been the development of different normative alternatives to HCA such as CPPA, CCA or CoCoA but none of the approach was able to provide an accounting standard for measuring the assets and liabilities. However, the fair value accounting method has helped in overcoming some of the drawbacks of HCA and also incorporates the features of CPPA, CCA and CoCoA successfully. The FVA is also associated with some drawbacks and therefore the accounting professionals are considering other methods of measurement such as conservative accounting for maintaining the reliability of financial information (IASB CF, 2013, p.113-116). Description of the key building blocks of Conceptual Framework The key building blocks of conceptual accounting framework are the objectives of financial reporting, the quality of financial information, the elements of financial statements and the recognition and measurement. The objective of financial reporting aims to provide useful and rational information to the potential investors and creditors through financial reporting. The quality emphasizes on usefulness of the financial information disclosed in decision-making. The elements of financial statements are assets, liabilities, equity, revenue, expense, profit and loss that determines the type of information to be presented in financial reports. The recognition and measurement concept assesses the type of items to be disclosed and the measurement method used for measuring the items (IASB CF, 2010). Structured order and relative connections of the key building blocks The key building blocks of the conceptual framework are inter-related with each other. The objective of financial reporting ensures that conceptual framework provides detailed information about an entity resources and obligations. The quality of financial reporting maintains that conceptual framework provides useful information through making it relevant, reliable and comparable (Australian Accounting Standards Board [AASB], 2001, p.xxx). The elements of financial information provide the type of financial elements whose quality needs to be assessed. The recognition and measurement decides the presentation of the elements of financial statements and the measurement method adopted for their valuation (Deegan, 2014, p.216-218). Advantages and criticisms of the conceptual framework The main advantage of the conceptual framework of accounting is that it helps in development of accounting standards and policies to be followed for financial reporting and thus helps in making the financial statements more useful and purposeful for the end-users. However, the main criticism against the conceptual framework is that it is very difficult to be established as it is very expensive and time-consuming (Deegan, 2014, p.256-261). Do you agree with the criticisms of the conceptual framework The conceptual framework though helping in improving the usefulness of financial statements faces criticism of being expensive, rigid and time-consuming. However, in my opinion these drawbacks of conceptual framework are completely outweighed by its benefits of providing reliable, relevant, comparable and consistent financial information to the end-users. It has helped in protecting the investors interest and is also largely helpful in restricting the fraudulent accounting activities sin business corporations (IASB CF, 2010). Conclusion It can be inferred from the overall discussion that conceptual framework has become fundamental to financial reporting for ensuring the transparency in business operations. References Alexander, D; Britton, A. Jorissen, A. (2007). International Financial Reporting and Analysis, 3rd edn., Hong Kong: Thomson. Australian Accounting Standards Board [AASB]. (2001). The Nature and Purpose of Statements of Accounting Concepts (Policy Statement PS5). Retrieved from https://www.aasb.gov.au/admin/file/content102/c3/ACCPS5_07-01.pdf Deegan, C. (2014). Financial Accounting Theory (4th ed.). McGraw-Hill: Sydney. IFRS Conceptual Framework: About. August 2017. Retrieved from https://www.ifrs.org/projects/work-plan/conceptual-framework/#about IFRS Foundation.(2015). Exposure Draft ED/2015/3: Conceptual Framework for Financial Reporting, May 2015. Retrieved from https://www.ifrs.org/-/media/project/conceptual-framework/exposure-draft/published-documents/ed-conceptual-framework.pdf Institute of Chartered Accountants in England and Wales [ICAEW].(2006). Measurement in Financial Reporting: Information for better markets initiative. Retrieved from https://www.icaew.com/-/media/corporate/files/technical/financial-reporting/information-for-better-markets/ifbm/measurement-in-financial-reporting.ashx International Accounting Standards Board [IASB].(2010). Conceptual Framework for Financial Reporting 2010. Retrieved from https://www.ifrs.org/News/Press-Releases/Documents/ConceptualFW2010vb.pdf International Accounting Standards Board [IASB].(2013). A Review of the Conceptual Framework for Financial Reporting: Discussion Paper DP/2013/1. Retrieved from https://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Discussion-Paper-July-2013/Documents/Discussion-Paper-Conceptual-Framework-July-2013.pdf Mathews, M. R. Perera, M. H. B. (1996). Theory construction in accounting. InAccounting theory and development, 3rd edn., Melbourne: Thomas Nelson.