The IASB Framework Its Formation And Objectives Accounting Essay

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

The previous conceptual framework known as Framework for the Preparation and Presentation of Financial Statements was issued by the International Accounting Standards Committee (IASC) in 1989. In April 2001 the framework was adopted by International Accounting Standards Board (IASB). It main role was to aid external users in designing the preparation and presentation of financial statements (Accounting web, 2005).

A Framework primarily has 4 main purposes- the first and foremost is in defining the objectives of financial statements. These include providing information on financial position, ability to comment on the organization's financial performance and to determine changes in either of it. The second objective is in identifying useful characteristics of information. Thirdly, it defines the basic aspects of the financial statements. And lastly, it provides concepts of capital maintenance (Rudy, 2008).

An analysis of the old framework suggests that though the framework was helpful in resolving many standard-setting issues it did face difficulties too. Consider an example for the definition of liability. The IAS37 and Statement 5 states that a "contingency or provision should be recognized only if a present obligation arises from a past event thereby ruling out premature recognition of reserves for possible losses from events that have not yet occurred" (Halsey, 2005). This helped both IASB and FASB decide that derivative instruments resulting in liabilities must be recognized. However, the definition has been inadequate for the boards in "recognizing the obligation from past events" in certain cases such as environmental liability. At the same time the current definition made it difficult for the boards to distinguish between revenues and liabilities. An example of this would be when payments are made in advance for a service or product (Halsey, 2005).

Though the IASB Framework is helpful in preparation of financial statements, the Framework can be considered to be less beneficial in setting standards than initially planned to be especially as a comprehensive guidance for the standard setting issues. However, the qualitative characteristic which includes comparability, relevancy, reliability and understandability has helped users in interpreting financial reports (Attril).

THE MAJOR DIFFERENCES CONCERNING GAAP & IFRS

There are a number of differences in the standards used in US GAAP and IFRS. For the Statement of Income extraordinary items are not segregated under IFRS but for GAAP they are mentioned below the net income. The models adopted for Consolidation are dissimilar too. IFRS follows a Control Model whereas GAAP stick to Risk and Rewards model. In the case of Inventory, IFRS consents the use of FIFO but forbids the use of LIFO since the method results in lower gross profit there by allowing the company to be taxed less. However GAAP permits the use of both LIFO and FIFO. Finally under Development Cost, IFRS allows the cost to be capitalized if certain criteria are met but on the other hand GAAP states it to be considered as expenses (UK Essay).

REASONS FOR THE ADOPTION OF NEW CONCEPTUAL FRAMEWORK AND ITS OBJECTIVES

The new IFRS Framework was developed jointly by IASB and FASB and was accepted by IASB in September 2010. This was due to two reasons. First motive was to update the accounting standards of the IASB framework. An amendment was necessary to tackle this issue. The second reason takes in to account the effects of globalization which made boundaries to drop and allowed organizations to set up offices in different nations. But these companies in different countries had to make financial reports in various standards depending on the accounting standards followed in the country. This turned out to be problematic. Hence the demand for a single set of accounting standards was necessary. Also, in the U.S, companies required to prepare financial statements adhering to U.S Securities and Exchange Commission (SEC) had been asked to replace the U.S General Accepted Accounting Principles (GAAP) which was a rule based model to International Financial Reporting Standards (IFRS) which is principle based. This change is expected by the beginning of 2014 which means eventually all companies in U.S will have to adopt IFRS. All these led to the development of a new Conceptual Framework (UK Essay).

The primary objective is to make statements that are convergent leading to a single set of high level global accounting standards and to resolve any accounting disputes that exists. The purpose also includes identify users and to provide them information that is of most importance (Dauphalex, 2011).

CONCLUSION

In general, the Conceptual Framework has helped corporate accounting in organizing its underlying concepts. Moreover, the offering of a conceptual basis for the accounting standards has helped promote a better degree of apprehension of the standards and improve the foresee ability of interpretations. Most importantly, it helped users of financial statements to avoid undesirable cost that might incur when interpreting accounting standards.

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.