The Conceptual Framework in Accounting

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Information qualities like neutrality, representational faithfulness, and reliability are significant qualities of accounting that both the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) employ when setting standards (Kaminski & Carpenter 2011). Standard setters bear in mind that although past Conceptual Frameworks (CF) are being used in accounting today, they have not been successful in providing accounting standards that accomplish the desired qualities. By presenting scholarly proof on this subject, this paper presents knowledge that will assist standard setters in creating essential resolutions regarding a successful conceptual framework in accounting. In addition, this paper examines different theories on this idea, studies the economic significance of accounting by determining if the noted associations control decisions concerning the valuation of a company, and finally presents a Conceptual Framework that could assist in generating accounting principles that achieve desirable qualities.

Radical perspective

It is simple to observe and perpetuate the criticism of radical accountants to traditional accounting as compared with Conceptual Framework projects, which are still under use and depend on information excellence like representational faithfulness, reliability, and neutrality among other aspects that suppose an existing objective world. Traditional Conceptual Frameworks have failed in creating accounting values that realise the aforementioned information excellences (Solomons 1991). Additionally, it can be proposed that alterations of traditional accounting could help in meeting the disapprovals. Most accounting processes concur with the marginalist value theory. The reason behind this observation lies in the fact that the only value theory that the majority of accountants are familiar with is marginalism. In this regard, accountants concentrate every aspect of economics to marginalism.

It is vital for accountants to diverge from marginalistic patterns. The diversions alongside concessions have entirely been minimal (Solomons 1991). Nevertheless, even the highly bragged section of social accounting represents nothing much than just marginalism with exteriorities. The unconsciousness of accounting with respect to every value theory bears enough justification for affirming that accounting is unashamedly marginalist in its logical associations. According to Tinker (1991), theories, including accounting theory, signify items of social conflict. Marginalism forces accounting to bear a slanted representation of reality that acts as an ideological aspect since it misinterprets situations and occurrences in a bid to encourage particular partisan concerns.

Statements of account are employed in arriving at judgments regarding many diverse issues including securities of a corporation and evaluating liabilities of a company. This assertion does not denote either an unreceptive or a representational faithfulness for accounting is incorporated in the exchange practice like an informational product that enhances exchange. If accounting process were not incorporated in the process, then aggressive pressures would get rid of accounting like an unnecessary production cost (Solomons 1991). The distinction drawn concerning the representational faithfulness and passive functions of accounting, viz. the function of accounting as informational product for encouraging exchange, leads to utter confusion. For instance, an individual could invoke a representation of a phone that does not just pass the ideas of one party to another, but is as well turned into being a player in the process. Additional confusion stems from placing the solecism of capitalism on accountants and making accounting to appear responsible for fraud in addition to limitations associated with economic systems.

Overlooked constituencies

The FASB articulates the neglected aspects of accounting by the traditional Conceptual Frameworks. With respect to statements of accounts, the board affirms that, in order to recognise the requirements of creditors and shareholders, statements of accounts narrow the extent of financial judgments and different requirements for knowledge that statements of general function must meet (Birkin 1996). This justification is invalid with regard to statements of account for general use. Meeting these requirements has been of little concern to accountants and it is hard to generalise regarding the way to cover up these gaps (Solomons 1991).

A different charge presented by theories of radical accounting touch on ignored exteriorities. Accounting touches on the transactions that a firm carries out. In this regard, accounting takes into consideration the outlays for which a firm is identified to be lawfully accountable. Nevertheless, there might be additional costs that a firm inflicts on the community for which it is not lawfully accountable (Steer & Wade-Gery 1993). The latter aspects are not included in the records of a firm and thus are not part of its statements of account. Social costs that might not be entered include ecological pollution and effects of generating noxious but legal substances like tobacco. For instance, a vivid instance of a private outlay being shifted to the public occurs when a drinks producing company changes from utilising returnable bottles to using nonreturnable bottles. The expenditure on the community of getting rid of the nonreturnable bottles should be a deduction in coming to the social outlay of the producing company. However, the aforementioned social cost will be not feature in the statements of accounts of the company.

On the other hand, there exist other unaccounted constructive exteriorities are as well. For instance, a firm will note the outlay of erecting a billboard without crediting its accounts because of bettering the environment (Loft 1986). The same case applies to comparable attributes of decoration, like landscaping close to the offices of a firm. However, companies are not answerable to some of the negative externalities. For instance, air pollution by vehicles may not be blamed on the manufacturers, as drivers are to blame because of the states in which they maintain their vehicles. In addition, a beer bottle thrown by a careless individual may not be blamed on the producing company.

The exclusion of external costs in the statements of accounts of a company is noteworthy for a couple of explanations. The first explanation is the role of a company in bettering the community (Kadous, Koonce, & Thayer 2012). In this regard, the social improvement might equal the negative effects inflicted costs in the process. The second explanation for the omission of external costs is that they lead to an organisation being responsible for compensating people that suffer because of its endeavours. Even if there were validations for radical accountants in seeking notice of the catastrophes due to negative externalities to a company, they have nothing fresh to add with regard to gauging the influences of the externalities to a company. Moreover, not unless accounting reaches a point where it will be possible to resolve the calculation difficulties, there will be no solution for this accounting failure.

Reliability and caution

The argument on the suggested measurements brings about several subjects of reliability, mainly with regard to the calculation of complete goodwill (together with goodwill in the gained entity that is ascribable to marginal concerns). This aspect relies on the existence of a dependable assessment of the fair worth of the obtained entity, instead of just the available section (Power 2010). Paying back of goodwill was discarded in support of destruction testing. Critics recognised that destruction was subjective (as is the reduction of concrete assets), but stated that it warranted the accountability of executives for their spending on the possession, since in the course of its existence, the entire expenditure of goodwill could be converted to profit. With respect to this destruction assessment, there is no assurance due to the complexity of separating obtained from internally made goodwill. An associated subject is that the impairment assessment is weaker than it ought to be. This observation is occasioned by the fact that it does not take account of a consequent cash flow assessment like the one in the original model of the United Kingdom ASB that may be considered as a use of caution, but which is the entire asymmetric standard of impairment assessment.

Detection criteria

A couple of detection criteria exist in the prevailing IASB Framework that includes the possibility that the company will get future cash gains (with regard to an asset) in addition to reliability of calculation. A number of recent pronouncements of the IASB have eradicated the possibility standard (Alexander & Archer 2003). This aspect disregards the element of doubt, and it is contradictory to the handling of other insubstantial assets.

Performance and income

The IASB boasts of a long-running task on reporting monetary feats, which has become extremely contentious, and the project is currently a section of a combined FASB project, viz. Presentation of Financial Statements (PFS). The key intention of the project was to boost the appearance of the revenue assertion to embrace a complete income assessment. This objective could be attained by having statements of accounts. A number of the members of IASB raised a strong and openly articulated fondness for just one statement in addition to a dislike to stipulated sub-totals like operating revenue (Rubenstein 1992). This move acted as the chief source of resistance, mostly from planners of accounts and as well from a number of consumers, who thought an assessment of working income was a significant pointer of management feat and a significant contribution to valuing the firm.

It is simple to conventionalise this approach as opposition to modification or management craving for something less than functional profit in which to conceal terrible news, although there is an additional commendable underlying principle. In several companies, the functions and margins on functions are stimulators of cash flow (Power 2010). In instances as such, it might well be extremely helpful to detach these mainstay actions from other actions like funding or non-mainstay deals like property possession. A clear representation of this advance has been affirmed in recent studies, which employed the case of assessing the Coca Cola Corporation to demonstrate how cost-derived earnings figures can be utilised in the assessment.


In his article, “Accounting and social change”, Solomons highlights the misleading notions of representational faithfulness and proves the legitimacy of Practical Reflexivity (omission). Practical Reflexivity reveals the way accounting frameworks deviate from fundamental economic actuality. Nevertheless, when declaring these divergences, Solomons does not succeed in dependably representing the social situations that replicate them (Tinker 1991). Solomons is unusually quiet concerning political creation of accounting signs. Apart from emerging as representationally faithful, Solomons appears evangelistic as well as an enthusiast (partisan) in bringing forward particular economic concerns and beneficiaries. Solomons proposes that accountants should develop multiple identities and sustain themselves in various psychic confines.

Another view presents the social world where functions are closely interlocked and conflicting with personal requirements to build up a social self-awareness for excelling clashes. An accountant emerges on numerous sections of a single dispute; ultimately, he might cause his own oppression and exploitation (Tinker 1991). For instance, an assessor that approves excessive consulting charges for ex-federal workers’ representatives might lessen the reliability of the public establishments on which he relies. Similarly, an accounting scholar that invents improved techniques of management control might finally add to his or her own scrutiny at work.


It is effortless to view the criticism of radical accountants to traditional accounting along with CF projects, which still remain in use and depend on information excellence like representational faithfulness, reliability, and neutrality among other aspects that suppose an existing objective world. Nevertheless, traditional Conceptual Frameworks have gained little or no success in creating accounting values that grasp the aforementioned information excellences. One response to the difficulty facing Conceptual Framework projects is that, it is impossible to develop universal and theoretically accurate accounting assessments. This scenario is unfortunate for such assessments can merely study what is noticeable, meaning that they cannot build up or assess recent reporting techniques. A more productive advance may be to distinguish that past Conceptual Frameworks are not liable to present universal remedies and as an alternative work in a restricted approach to resolve particular difficulties. In a bid to ensure success in generating accounting principles that achieve desired qualities, it is necessary to develop devices of testing for applications to particular problems devoid of claiming to offer universal resolutions. Probably, the time has come for them to cease attempting to act miracles like developing a universal excellent measurement technique from an intricate description anchored in conceptual assessment theory.

Reference List

Alexander, D & Archer, S 2003, ‘On economic reality, representational faithfulness and the true and fair override’, Accounting & Business Research, vol. 33 no. 1, pp. 3-17.

Birkin, F 1996, ‘The ecological accountant: from the cogito to thinking like a mountain’, Critical Perspectives on Accounting, vol. 7 no. 1, pp. 231-257.

Kadous, K, Koonce, L & Thayer, J 2012, ‘Do Financial Statement Users Judge Relevance Based on Properties of Reliability’, Accounting Review vol. 87 no. 4, pp. 1335-1356.

Kaminski, K & Carpenter, J 2011, ‘Accounting conceptual frameworks: a comparison of FASB and IASB approaches’, International Journal of Business, Accounting, & Finance, vol. 5 no. 1, pp. 16-26.

Loft, A 1986, ‘Towards a critical understanding of accounting: the case of cost accounting in the UK’, Accounting, Organisations and Society, vol. 1 no. 1, pp. 137-169.

Power, M 2010, ‘Fair value accounting, financial economics, and the transformation of reliability’, Accounting & Business Research, vol. 40 no. 3, pp. 197-210.

Rubenstein, D 1992, ‘Bridging the Gap between Green Accounting and Black Ink’, Accounting, Organisations and Society, vol. 17 no. 5, pp. 501-508.

Solomons, D 1991, ‘Accounting and social change: a neutralist view’, Accounting, organisations and society, vol. 16 no. 3, pp. 287-295.

Steer, A & Wade-Gery, W 1993, ‘Sustainable Development: Theory and Practice for a Sustainable Future’, Sustainable Development, vol. 1 no. 3, pp. 23-35.

Tinker, T 1991, ‘The accountant as partisan’, Accounting, organisations and society, vol. 16 no. 3, pp. 297-310.

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