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Nature And Purpose Of The Conceptual Framework Accounting Essay

Introduction The accounting conceptual framework has been criticized for not providing an adequate basis for standard setting. This inadequacy is evidenced through the FASB’s standards becoming more and more rule-based. Nevertheless, no empirical evidence has been gathered to support the criticisms of the conceptual framework. We analyzed the five qualitative characteristics of accounting information from the conceptual framework in conjunction with an individual’s intention to use/rely on financial statements. Using structural equation modelling, we found that only one qualitative characteristic, reliability, affected a person’s intention to use financial statements. Additionally, it appears that the greatest factor that influences whether an individual rely on financial statements is their familiarity with accounting. Based on our findings, it appears that not only does the conceptual framework need to be altered, but it also needs to be changed to help create principle-based accounting standards that are useful to all people, regardless of their background.
Criticism has been directed towards the Financial Accounting Standards Board (FASB) for not requiring firms to report information that is interpretable and useful for financial statements users (CICA, 1980). The FASB’s conceptual framework is the core in which all accounting standards are derived. Therefore, the accounting conceptual framework must embody a set of qualitative characteristics that ensure financial reporting grants users of economic statements with sufficient information for assessments. The U.S. financial accounting conceptual framework was established between late 1970’s and early 1980’s. Statement of Financial Accounting Concepts (SFAC) No. 2 (1980) indicates that there are five main qualitative characteristics of accounting information; understandability, relevance, reliability, comparability, and consistency.
Nature and Purpose of the Conceptual Framework The conceptual frame work has some disadvantages. It is broad based in nature and principles and may not help when actually producing the financial statement. Its standards contents may conflict with those of other boards. This framework, with minor changes, still provides the basis for the FASB’s standard setting today. Statement of Financial Accounting Concepts (SFAC) No. 2 (1980) develops and discusses the qualitative characteristics that make accounting information useful. SFAC No. 2 separates the qualitative characteristics as possessing either user-specific or decision-specific qualities. The overall user-specific characteristic of accounting information is that it must be understandable. Today, the accounting conceptual framework is being blamed for accounting standards becoming rule-based, which leads to the structuring of transactions (Nobes, 2005; SEC 108(d)). In fact, FASB has even acknowledged that the conceptual framework might be inadequate for current accounting standards (AICPA, 2002).
The conceptual framework was formed with the intention of providing the backbone for principle-based accounting standards (Nobes, 2005). However, the Securities and Exchange Commission (SEC) has recently criticized the accounting standards setting board for becoming overly rules-based, which paves the way for the structuring of transactions in the company’s favour (SEC 108(d)). Critics of the framework have stressed that the move towards rule-based standards are a consequence of inadequacies in the accounting conceptual foundation. Nobes (2005) argues that the need for rule-based accounting standards is a direct result of the FASB trying to force a fit between standards and a conceptual framework that is not fully developed. A coherent and strong conceptual framework is vital for the development of principle-based accounting standards and the progression towards convergence in international accounting standards.
However, researchers are unaware of any empirical evidence that supports the criticisms of the current conceptual framework. Additionally, none of the critics have looked at the conceptual framework from the most important viewpoint, the user’s perspective. Therefore, the rationale of this paper is to practically analyze the sufficiency of the conceptual framework, from a user’s perspective, in relation to an individual’s reliance on financial statements for decision making. We developed a survey instrument to analyze an individual’s intention to rely on financial statements using Ajzen’s (1991) Theory of Planned Behaviour. We found that the reliability characteristic of the conceptual framework represented the only significant dimension of a person’s attitude affecting their intention to rely on financial statements. However, the understandability characteristic was approaching significance. Within the context of the theory of planned behaviour, social pressures was not significant influence on the intention to use/rely on financial statements, yet familiarity with accounting was found to significantly influence intention.
The conceptual framework and potential financial statement user’s intentions can be analyzed within the context of Ajzen’s (1991) Theory of Planned Behaviour. Ajzen (1991) indicates that empirical evidence suggests that we can determine an individual’s intention to perform behaviour through analyzing their attitude, subjective norms, and perceived behavioural control. Within this perspective, we adapted Ajzen’s (1991) theory of planned behaviour to an individual’s propensity to rely on accounting financial statements as shown in the figure below (figure 2):
(Draw a figure) The purpose of this study was to provide an empirical analysis to the criticism against the FASB’s conceptual framework. Our overall results suggest that the current conceptual framework does not adequately align the objectives of financing reporting with the users of financial statements. Nevertheless, available findings have some interesting implications for the conceptual framework and future standard setting. Reliability is the only qualitative characteristic that has a positive statistical significant relationship with intention. The accounting profession is facing a choice between reliability and relevance in financial reporting, as there is an inherent trade-off between reliability and relevance (Paton and Littleton, 1940; Vatter, 1947). Reliable information possesses the characteristic of objectivity and verifiability, which is associated with historical cost accounting. Relevance, on the other hand, pertains to any information that will influence the users’ financial decision.
Many times the most relevant information is often current or prospective in nature. Thus, we cannot have accounting information that maximizes the characteristics of both relevant and reliable because relevant information is not always verifiable. We would have expected to see relevance as a significant factor in users’ intention to use financial statements since the recent accounting standards have moved toward fair value accounting measures, which are considered to be more relevant than reliable information (Ciesielski

Essay On Corporate Social Responsibility Accounting Essay

The term stakeholders means a party that can effect or be effected by the actions of the business as a whole and they are the group of members without whose support the organisation cannot exist or they are the interested parties who is keen to know what the business is doing. In this situation the stakeholder is Steve Morgan who is the controller of the Newton Industries and is interested in production cost reports.
What are the ethical issues involved in this situation?
Steve Morgan is involved in the ethical issue as he did not inform the management that the advertising cost is expensed in the current period the net income wouldn’t be overstated and this would help the financial managers to make decisions and maintain effective control over resources.
What would you do if you were Steve Morgan ?
Managerial Accounting or management accounting is a set of practices and techniques aimed at the providing managers with financial information to help them make decisions and maintain effective control over corporate resources.
So, if I was in Steve Morgan’s position I would had recorded the advertising cost as expense in the current period , so as to not to overstate net income.
BYP 3-6
Who are the potential stakeholders involved in this situation?
The term stakeholders means a party that can effect or be effected by the actions of the business as a whole and they are the group of members without whose support the organisation cannot exist or they are the interested parties who is keen to know what the business is doing. In this case the potential stakeholders are Jan Wooten who is department head in the Moulding Dept. And Tony Ferneti who is quality control inspector of moulding department and are interested in saving the company’s money.
What alternatives does Tony have in this situation? What might the company do to prevent this situation from occurring?
Tony has two alternatives in this situation, first alternative is that pass through the inspection and on to the Assembly Department all the units that had defects non-detectable to the human eye. The second alternative is that Tony can reject all the units that had defects.
The company can lower the wages of the employees so that the employees will be extra vigilant and will be careful. Also the company could use the extra money after lowering the wages in providing the employees a better training and could avoid such situation in the future.
Part B: Essay on corporate social responsibility “CORPORATE SOCIAL RESPONSIBILITY” Corporate social responsibility (CSR) in business is related to the obligation of companies and other business organizations to increase their positive influence and reduce their negative activity toward society. In that sense, while ethics is a matter for each individual in the business field, social responsibility is related to the influence of an organization’s business decisions on society. One of the most significant principles on which modern business is based is that of an organization based on responsibility. Organizations must take responsibility for their role in society.
Corporate Social Responsibility is becoming an increasingly important activity to businesses nationally and internationally. As globalization accelerates and large corporations serve as global providers, these corporations have progressively recognised the benefits of providing CSR programs in their various locations. CSR activities are now being undertaken throughout the globe.
The rationale for CSR has been articulated in a number of ways. In essence it is about building sustainable businesses, which need healthy economies, markets and communities.(megatrend)
The key drivers for CSR are:
Enlightened self-interest – creating a synergy of ethics, a cohesive society and a Sustainable global economy where markets, labour and communities are able function well together.
Social investment – contributing to physical infrastructure and social capital is increasingly seen as a necessary part of doing business.
Transparency and trust – business has low ratings of trust in public perception. There is increasing expectation that companies will be more open, more accountable and be prepared to report publicly on their performance in social and environmental.
Increased public expectations of business – globally companies are expected to-do more than merely provide jobs and contribute to the economy through taxes and employment.”
The concept of corporate social responsibility has been standardized and today represents an integral part of integrated management systems. The principles connected with existing definitions of corporate social responsibility consist of the following: taking part in community life, accountability, sustainability, transparency, ethical behaviour (without corruption), honesty and inclusion. Socially responsible companies adhere to the “triple result” approach, keeping in mind the social, economic and environmental influence of their business operations. (Weygand, kimmel