Critically discuss the development of the Conceptual Framework for Financial Reporting.
Individual Report Each individual team member is required to undertake research to address the question posed for your team’s particular topic of investigation and individually submit a complete and thoroughly investigated report using your own research.
The initial reference is related to the topic of investigation. The initial reference can be used in your report, but you must go beyond the initial reference and include at least another 10 recent academic references in your report. You should read through the rubric to better understand the expectations of this assessment.
There you will see that you are expected to engage with an accounting theory/theories to explain your topic of investigation. Choose the theory/theories which are relevant and can be applied to explain your topic and try to link the theory/theories throughout your whole report. It is advised that one of your sections is dedicated to defining and explaining these theory/theories. Your other sections can be used to explain key aspects of your topic.
What is a Conceptual Framework for Financial Reporting?
Despite more than forty years of exploration into constructing a conceptual framework (CF) for financial reporting the question ‘What is a CF?’ has not been adequately answered. The result is that those who construct CFs are not guided by a clear concept of a CF and communication about CFs is undermined by differences in understanding what it is. There has been a failure to undertake a conceptual inquiry into the nature of a CF or into the expressions used in describing it. This paper addresses this failure by undertaking such a conceptual inquiry. Existing explanations of CFs are examined and found to be inadequate. What is wanted from a CF is identified and explained and this is used to prescribe what should be understood by the expression ‘conceptual framework’. A new characterization of CFs is given that should assist any future construction of new CFs. Problems that may be faced by those who seek to
construct a CF are identified.
The Method of the Paper: Conceptual Enquiry
Conceptual inquiry is recognized as important in the philosophy of language of the kind undertaken by Wittgenstein. One of the enduring legacies of his philosophy is the recognition that concepts are important in human activities. They are important not only in communication but also because they ‘lead us to make investigations; are the expression of our interest, and direct our interest’ (Wittgenstein, 1953, §570). From a social constructivist perspective, both the CF and its concept are inventions and the invention of the concept of a CF guides the development of the CF itself. Concepts help us to comprehend things. They correspond to a particular way of dealing with situations’ (Wittgenstein, 1978, p. 431). Conceptual inquiry or analysis is understood as ‘a higher-order reflection’ on the use of ‘terms’ by practitioners in a practice (Lyas, 1993, p. 156). It is an examination of the meaning of words and expressions as they are used in practices with a view to determining whether they have a
precise meaning, are used consistently, or are ambiguous (Dennis, 2008, pp. 262–263). Lyas explains that language is ‘naturalistic’.
A Descriptive Conceptual Enquiry into the Concept of a CF
When the IASB and the FASB commenced their joint project to revisit the CF in 2004, the senior project managers and the senior technical advisor with the FASB published articles explaining the nature of the CF (FASB, 2004a, 2004b; FASB/IASB, 2005). This provides a useful account of their understanding of the concept of a CF, the kind of thing that was to ‘direct their interest’ and guide their investigations into a revised CF.
The CF is described using similar expressions that were used at the outset of the FASB project in the 1970s. A CF is ‘a coherent system of interrelated objectives and fundamentals that prescribes the nature, function, and limitations of financial reporting’ (FASB, 2004b, p. 1). A further explanation is given that ‘the objectives identify the goals and purposes of financial reporting, and the fundamentals are the underlying concepts of financial accounting and reporting’ (FASB, 2004b, p. 1).
The paper goes on to say ‘those concepts provide guidance in selecting the transactions, events, and circumstances to be accounted for, how they should be recognized and measured, and how they should be summarized and reported’ (FASB, 2004b, p. 1). The FASB Discussion Memorandum No. 1 explains the role of concepts