Conceptual Framework by Vilgia and Hanna

8/11/2019 Conceptual Framework by Vilgia and Hanna

1/20

Framework ( Continue )

&

A Conceptual Framework

By :

Vilgia Delarhoza ( 1110534016 )

Hanna Deseasari ( 1110534003 )


2/20

Standards

1. The early 2000s, FASB were being concern about the

quality and transparency of accounting information.

2. one of the main concern was the increasing complexity

of FASB standards and the development of rule-based

accounting standards.

3. Sarbanes-Oxley Act of 2002 required SEC to examine

the feasibility of a principles-based accounting standards.

4. in 2003, SEC published its study on adoption of a

principle based standards.


3/20

Principle based

1. Better able to cope

with speed of changeof businessenvironment

2. Less Voluminous

3. Encourages use ofprofessional judgmentwith focus on what isright

4. Seen as possibly

discouraging financialengineering

Rule based

1. More workable in large,complex economies &countries

2. Less room forinterpretation

3. Provides more guidance

for practicalimplementation

4. Less need forexplanation in financialstatements


4/20

The FASB issued an invitation to commentabout this issue

The AAA Committee was appointed to

comment. The committee listed thecharacteristics that concept-based shouldpossess.

In 2003, SEC submitted study to congress

about this issue that included therecommendations to FASB.

In July 2004,FASB responded to the studys

recommendations and noted that some of itwere already being implemented


5/20

The FASBs spesific responses to the

recommendations :

1. Issuing Objectives-Oriented Standards

2. Conceptual Framework3. One U.S. Standard Setter

4. GAAP Hierarchy

5. Access to Authoritative Literature

6. Comprehensive Review of Literature


6/20

Sept 18, 2002 Norwalk Agreement (Achieve

compatibility,Maintain compatibility)

3 Major aspects:1. Financial Statements Presentation Project

2. Conceptual Framework Project

3. Standards Update Project

In April 2004, FASB and IASB fiancial statementpresentation project. Has 3 phases :

phase A : What constitutes complete set of statements?

Phase B : Fundamental issues for presentation of

information

Phase C : Presentation of interim financial information

in U.S. GAAP


7/20

IASB

Convergence will progress : Boards to reach conclusion

on major differences in focused areas (2008 goal) and

FASB & IASB seek to make continued progress in other

areas

November 2009, published progress report : Milestone

targets for each project, Commitment to reporting

quarterly on progress, Host monthly joint board

meetings

FASB issued four new statements to bring U.S GAAP

into IFRS :

- 4 New SFASs(SFAS No. 151 (Superseded), SFASNo. 153 (Superseded),SFAS No. 154,SFAS No. 163)

- SFAS No. 141 revised


8/20

,framework project

The eight phases of CFP

-Objectives and qualitative characteristics

-Definitions of elements, recognition and recognition

-Measurement

-Reporting entity concept

-Boundaries of financial reporting, and presentation anddisclosure

-Purpose and status of framework

-Application of framework to not-for-profit entities

-Remaining issues, if any

IASB and FASB also working on a numeral of

individual standard issues


9/20


10/20

The Role of Conceptual Framework

Issues:

Do we need a general

theory of accounting?

Is current accounting

too permissive?

Are current accounting

practices too

inconsistent?

Is there too much

political interference inthe neutrality of

accounting reports?

Benefits

consistent, logical

reporting requirements

greater compliance

enhancedaccountability

fewer specific

standards

enhancedunderstanding of

reporting requirements

more economical

standard setting


11/20

ec ves o concep ua ramewor

Financial reporting should provide informationthat is useful to present and potential investorsand creditors and other users in making rational

investment, credit and similar decisions.

Information should be

useful in making economic decisions

useful in assessing cash flow prospects

about enterprise resources, claims to those

resources and changes in them


12/20

Developing a conceptual

framework

The development of conceptual

frameworks is influenced by two key

issues:

principles versus rules-based approaches to

standard setting

information for decision making and the

decision-theory approach


13/20

Principles-based and rule-based

standard setting IASB mostly produces consistent, coherent principles-based

standards

Rule-based standards may increase comparability and

verifiability and may reduce earnings management

The standards of the FASB have traditionally been rule-based

Emphasis now being given to principles

Timely given the IASB/FASB convergence program

Accounting data are required for decision making or

accountability purposes stewardship

decision making


14/20

Information for decision making and thedecision-theory approach

Decision-theory process

Overall theory

of accounting

Individual

accounting

system

Prediction

model of

user

Decision

model of

user


15/20

International developments: the IASB

and FASB ConceptualFramework

In 2004 the FASB and IASB agree toundertake a joint project to:

develop an improved, common conceptual

framework goal of developing standards that are

principles-based, internally consistent andinternationally converged

an Exposure Draft was produced - June 2009 deferred consideration of not-for-profit sector

issues


16/20

International developments: the IASB

and FASB ConceptualFramework

ED has several contentious areas:

entity vs proprietorship perspective

primary user group

decision usefulness and stewardship

qualitative characteristics


17/20

International developments: the IASBand FASB ConceptualFramework

Australia follows an approach whereby

issues for both the not-for-profit and for-

profit sectors are considered together

Standards are intended to apply to both

sectors

IFACs International Public Sector

Accounting Standards Board has begun a

project to develop a public sector CF

A iti f t l


18/20

A critique of conceptual

framework projects

Approaches to developing a CF:

scientific

recourse to logic and empiricism or both professional

prescribes the best course of action by recourse to

professional values

P f i l l d lf


19/20

Professional values and self-

preservation

Self -preservation implies the pursuit of self-interest

Professional values

suggests idealism and altruism Gerboth

sense of personal responsibility

Hines professional legitimacy

19


20/20

Conceptual framework for

auditing standards

Auditing is a discipline based in logic

The traditional verification role has evolved

into business risk auditing

20

Documents

Conceptual Framework by Vilgia and Hanna