Accounting Concepts of Conceptual Framework

Questions: Case Study 1:Reassessing the Conceptual Framework. Case study 2: Accounting system based on fair value. Answers: Case study 1: Conceptual requirements of a principle based requirement: Introduction: Through the adoption of IFRS globally, the progress of work in todays world has shifted towards a set of standard that defines high quality. The regulators, constructors and auditors of various nations will face the challenges of acting together with IASB in order to ensure that IFRS is principle based as IFRS has been adopted by many nations around the world. This component of the study has shown and discussed the important changes of principle based standards and its characteristics that have been considered as the market transaction internationally towards the single quality accounting standards (Academia.edu. 2016). Framework for inaugurating principle based standards related to accounting: It has been argued upon the fact that in order to inaugurate universally accepted characteristics of what is being considered as standards that has been employed in the course of inaugurating a quality principle based accounting system. The two characteristics that mainly evaluate the importance critically ensure the fact that the succeeding principle based system promotes the financial reports and it has been discussed in the following manner: Presentation of economic actuality The principle based accounting system must acquires the outcomes of financial reporting that represents economic repercussion due to the transaction, and the economic balance are being purported and presented as a whole of the accounting system, like Faithful representation Reflection of the economic substance Presentation of the provided fair value Retaliation of the users need with transparency The management commentary and the transparent disclosure play a vital role in ensuring the fact that investors do understand and also have confidence on the financial reports depended on principle based accounting standards. Recently the investors are getting interested in the reflection of current state of business through financial statement along with the implantation such reports as a predictive tool. Principle based accounting system need to be developed in such a way so that the investors can obtain the desired information and understanding of the financial reports (Accounting-simplified.com.2016). The common framework o0f IASB and FASB Background In a jointly held meeting the IASB and FASB have decided to generate a joint project based on the correlated agendas in order to form a common framework based on the agreement that both of the boards would engage their accounting standard. These principles should be based on the economic essential aspects rather than collective arbitrary conventions. In order to provide a proper foundation to the principle based accounting standards they have improvised the conceptual framework (Accountingtools.com. 2016). In recent years it has been observed that the IASB and FASB are conducting a joint project on the conceptual framework. An overview about why the framework of IASB and FASB are unable to attain the needs of financial standards and it also asserts the need for revisiting the reasons behind it. The framework has been constructed with eight elements namely; Objectives and qualitative characteristics of financial standards Elements and recognition of the different aspects Measurement of financial standard Recognizing the reporting entity Presentation and disclosure of the important facts Purpose and status of financial standards Application to not for profit Discussion paper issued by IASB and FASB in order to acquire boards preliminary exposure and drafts. Benefits of conceptual framework The boards have started to pursue a certain number of joint projects in order to achieve short term convergence on certain issues along with some major aspects. The main objective of the boards to aligned the agendas so that they can obtain the convergence for future standards. If the boards will depend on the different conceptual frameworks they might encounter difficulties in future. The frameworks of IASB and FASB have formed mainly during the 70s and 80s facilitating the concepts that explains a long way towards the accurate base of principle based accounting system. Although the present concept proved to be helpful as previously IASB and FASB were unable to understand their goals based of the conceptual framework (Coursehero.com. 2016). Cost cutting In the course of the joint project, it can be realised that some issues may arise and will be reoccurring in this context. A variety of different aspects that are almost difficult to address the cost cutting issues in the principle based accounting system. Therefore the conceptual framework shows a better path in which the boards would be able to improvise their standard level guidance. According to the financial reports the boards have received and generated comments on recognition and measurement along with exposure draft related to the reporting entity. The issues like gender equality and environment under cross cutting concepts are relevant to the atmosphere of development. The issues related to cross cutting is generally considered as a strategy to development including the various integral dimensions like design, monitoring and evaluation of developmental policies and programmes (Environmental Disclosure Committee Newsletter. 2012). The systematic accounting system of cross cutting aspects that has been taken into consideration by Luxembourg includes implementation, formulation and evaluation of the fact. The official agency LuxDev has rebuilt its code of conduct in order to encompass the rights against women discrimination and the environment. Its operational business agency GIZ in Germany supported the formation of contract between international alliances in partnership. Instances can be cited in this regard like GIZ have provided the proper insight to its partners to rectify the environmental risks, helped in improving the environmental policies, and develops strategies based on regional environmental strategies to generate effective policies related to environment in their respective areas. The initial approach has been made on the specific interventions and the establishment of inner structure in order to promote and monitor mainstreaming. On the other hand the, Switzerlands approach has been evaluated thro ugh the mainstreaming of gender equality across the strategic and targeted plan (mainstreaming cross-cutting issues advancing gender equality and environmental sustainability. 2014). Case study 2: The essential issues related to financial statement constructed on the historical cost measurement principle under GAAP The nominal or original cost explaining the balance sheet of a company shows a historical cost of measure faire value has been used in accounting. In the US under generally accepted accounting principles (GAAP) the cost methods are being assessed. Based on the historical cost principle most of the assets that are being recorded in the cost cutting paper works even if they have significantly changed over the years. For instance, the headquarters of a company has bought a land against the amount of $100,000 in 1925, but the land value has increased at present in $20 million, but the asset is still recoded in the balance sheet as $100,000. In this regard it can be said that not all the assets can be considered as historical cost. For example the marketable securities are considered as the market value on balance sheet. The term fair value that has been assessed by the reporting standards aims to present financial statement measured by faire value and also explained as an evaluation of t he techniques of the financial statement rather than their historical cost. The concept of fair value and historical cost are the main instruments that help to detect major changes in the financial situation of a company. The concept of fair value in the financial context has been inculcated from 1980s. The term has been widely used in respect of acquisition and allocation for the entry value and it states that financial accounting is a reliable source that could prevent the future crisis in the organizational structure. The SEC accounting system has encouraged from the very beginning the debates of fair value and historical accounting system (Fasb.org. 2016). The reflection of economic reality in measurement accounting. Economic reality is such a concept that may vary in different conditions. Valuation depends on the various aspects of economic measurement like financial assets (cash), market price and values drawn from future cash flows and ongoing operations. The economic reality changes its forms in accordance with the demands of investors, auditors and manufacturers which come in different forms. The arguments are evidently same as both appeals to historical cost rather than an alternate way. It has been observed in this regard that the transaction accounting is based on the technical rulings. It is also evident that the political impacts on the accounting system can be learned from the reinforced introduction of it. Other aspects may relate to the risk of asset class and permanent and temporary earnings and liquidity (Iasplus.com. 2016). Measurement Of Economic Reality: Economic reality beholds a special place in the practices related to accounting and standard setting practices. Different point of view has been nurtured in this context from decades on the nature of economic reality and the right ways of its approach. While taking about the positivism philosophy reality can be asserted as an independent object but in other sense interpretive views the reality as a socially constructed philosophy about reality. This study highlights the argue about the utilization of interpretive to the world in relation to the accounting research is better able to detect the economic reality that is socially formed and exercises much effect in this regard. This happens due to the concept of accounting as a social science and can be understood in a better way by assessing the various views of different parties involved in this course (Luiz et al. 2004). Dependability in financial accounting: The information which that is worth trusting is always based on material accuracy and also on ways in which it represent he information in the present context. If there are over writing, correction and missing of valid statement then the faith in the financial data automatically reduces. For an instance when a firm is involved in managing the issues of another firm and the settlement issue could create problem and affect financial stability of the organisation. If the issue is not disclosed, would create further problem. Validity of financial data may be further managed through key steps, concepts and approaches like, neutral approach, faithful representation, completing the task, caution and adopting single economic entity concept. The principle of validity is a particular idea that would help in recording main transactions in the system and could be verified easily. Some key examples of objective instances are; Appraisal reports, Purchase receipts, Promissory notes, Bank statements and Cancelled checks. It could be further stated here after completing the study that it is often difficult for the organisation to meet reliability principle. It becomes all the more difficult when there is an issues connected to inventory obsolescence reserve, return on the sales or allowance for doubtful accounts. It is therefore essential to take justifiable steps and approaches and also conduct detailed analysis for the reserve. This is generally based on the verifiable experience from the past that happened in handling similar type of data. The reliability principle is generally identified as the objectivity principle (Hennes, 2014). References Academia.edu. (2016).Historical Cost vs Fair (Market) Value. Accounting-simplified.com. (2016).Reliability Concept of accounting information explained with examples. Accountingtools.com. (2016).Reliability Principle - AccountingTools. Campbell, K., Sefcik, S. and Soderstrom, N. (2003). Disclosure of Private Information and Reduction of Uncertainty: Coursehero.com. (2016).It is important to separate out both components because - ACCOUNTING - 1. Environmental and Sustainability Management Accounting (EMA) for Advancing Sustainability Management. (2013). Fasb.org. (2016).Summary of Statement No. 96. Hennes, K. (2014). Disclosure of contingent legal liabilities.Journal of Accounting and Public Policy, 33(1), pp.32-50.