Abstract
In general terms, a conceptual framework is a statement of generally accepted theoretical principles which form the frame of reference for a particular field of enquiry. In terms of financial reporting, these theoretical principles provide the basis for both the development of new reporting practices and the evaluation of existing ones. Since the financial reporting process is concerned with the provision of information that is useful in making business and economic decisions, a conceptual framework will form the theoretical basis for determining which events should be accounted for, how they should be measured and how they should be communicated to the user. Therefore, although it is theoretical in nature, a conceptual framework for financial reporting has a highly practical end in view.
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References
For a full discussion on the politicisation of accounting see: David Solomons, ‘The Politicization of Accounting’, Journal of Accountancy, November 1978, p. 71.
W. A. Paton and A. C. Littleton, An Introduction to Corporate Accounting Standards, Monograph No. 3, American Accounting Association, 1940.
See, for example: American Accounting Association, Executive Committee, ‘A Tentative Statement of Accounting Principles Affecting Corporate Reports’, Accounting Review, June 1936, pp. 187–191; American Accounting Association, Executive Committee, ‘Accounting Principles Underlying Corporate Financial Statements’, Accounting Review, June 1941, pp. 133–139; American Accounting Association, Committee to Prepare a Statement of Basic Accounting Theory, A Statement of Basic Accounting Theory, 1966; American Accounting Association, Committee on Concepts and Standards for External Financial Reports, Statement on Accounting Theory and Theory Acceptance, 1977. The 1977 report concluded that closure on the debate was not feasible, which is perhaps indicative of the complexity of the problem.
David Solomons, ‘The Political Implications of Accounting and Accounting Standard Setting’, Being the third Arthur Young Lecture delivered within the University of Glasgow on 22nd October, 1980, p. 9.
ASC, Setting Accounting Standards: A Consultative document.
Ibid., para. 7.2.
Ibid.
Ibid., para. 7.7.
Ibid., p. 47.
Ibid.
ASC, Submissions on the Accounting Standards Committee’s Consultative Document: Setting Accounting Standards, in two volumes, ASC, 1979.
Ibid., Volume I, p. 270.
Maurice Moonitz, The Basic Postulates of Accounting, Accounting Research Study No. 1, AICPA, 1961, Preface.
Maurice Moonitz, op. cit.
Robert T. Sprouse and Maurice Moonitz, A Tentative Set of Broad Accounting Principles for Business Enterprises, Accounting Research Study No. 3, AICPA, 1962.
Ibid., p. 14.
Ibid., p. 27.
APB Statement No. 4, Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises, AICPA, October 1970.
Ibid., para. 3.
Ibid., para. 132.
Report of the Study Group on the Objectives of Financial Statements, Objectives of Financial Statements, AICPA, October 1973, p. 65.
Ibid.
Ibid.
Report of the Study Group on the Objectives of Financial Statements, Objectives of Financial Statements, AICPA, October 1973.
Ibid., p. 13.
Ibid., pp. 57–60.
FASB Discussion Memorandum, Conceptual Framework for Accounting and Reporting: Consideration of the Report of the Study Group on the Objectives of Financial Statements, FASB, June 6, 1974.
FASB, Scope and Implications of the Conceptual Framework Project, FASB, December 2, 1976.
Ibid., p. 5.
Ibid., p. 2.
Ibid., pp. 5 and 6.
SFAC No. 1, Objectives of Financial Reporting by Business Enterprises, para. 7.
Ibid., para. 9.
Ibid., para. 24.
Ibid., para. 34.
Ibid., para. 37.
Ibid., p. 18, footnote 6.
Lucia S. Chang and Kenneth S. Most, Financial Statements and Investment Decisions, Miami: Florida International University, 1979.
Ibid., p. 33.
SFAC 1, para. 43.
Ibid., para. 50.
Ibid., para. 51.
SFAC No. 2, Qualitative Characteristics of Accounting Information, p. 15.
Ibid., para 36.
Ibid., p. x.
Ibid., para. 90.
Ibid., p. xi.
Ibid., para. 56.
Ibid.
Ibid., para. 51.
Ibid., p. xvi.
Ibid.
Ibid., para. 59.
Ibid., paras. 91–97.
Ibid., para. 93.
Ibid., para. 95.
SFAC No. 6, Elements of Financial Statements, para. 25.
Ibid., para. 27.
Ibid., para. 28.
Ibid., para. 35
Ibid., para. 36.
Ibid., para. 49.
Ibid., para. 66.
Ibid.
Ibid., para. 67.
Ibid., para. 70.
SFAC No. 1, para. 43.
SFAC No. 6, p. 1, footnote 1.
Ibid., para. 78.
Ibid., para. 80.
Ibid., para. 82.
Ibid., para. 83.
Ibid., para. 77.
See, for example, SFAC No. 3, Elements of Financial Statements of Business Enterprises, para. 58.
SFAC No. 5, para. 66.
Ibid., paras. 66–70.
Ibid., paras. 45–48.
Ibid., para. 58.
Ibid., para. 63.
Ibid., para. 35.
David Solomons, ‘The FASB’s Conceptual Framework: An Evaluation’, Journal of Accountancy, June 1986, pp. 114–124, at p. 124.
SFAC No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, December 1984, para. 13.
SSAP 2, Disclosure of accounting policies, November 1971.
Ibid., para. 2.
Ibid., para. 14.
Ibid.
CA 85, Sch. 4. paras. 9–13.
Ibid., para. 14.
SSAP 2, para. 15.
Ibid., para. 16.
Ibid., para. 18.
SSAP 12, Accounting for depreciation, para. 21.
The Corporate Report, A discussion paper published for comment by the Accounting Standards Steering Committee, London, 1975.
Ibid., para. 0.1.
Ibid., para. 0.2.
The committee’s recommended package of information which should be contained in the annual corporate reports of business enterprises is listed in Appendix 2 of the discussion paper.
The Corporate Report, para. 0.3.
Ibid., para. 1.1.
Ibid., para. 1.8.
Ibid., para. 1.9. The seven user groups identified were: (a) the equity investor group, (b) the loan creditor group, (c) the employee group, (d) the analyst-adviser group, (e) the business contact group (f) the government and (g) the public.
Ibid., paras. 2.1–2.40.
Ibid., para. 3.3.
Ibid., para. 4.30.
Ibid., para. 4.40.
Ibid., para. 6.56.
Ibid., paras. 6.56 and 6.57.
Ibid., para. 7.4.
Ibid., para. 7.15.
Ibid., paras. 7.40 and 7.43.
Report of the Inflation Accounting Committee, Inflation Accounting, Cmnd. 6225, London: HMSO 1975. (The Sandilands Report.)
Ibid., p. iv.
Ibid., para. 144.
Ibid., Chapter 12.
SSAP 7 (Provisional), Accounting for changes in the purchasing power of money, May 1974.
SSAP 7 recommended that the RPI should be used for this purpose.
SSAP 7, para. 12.
The Sandilands Report, para. 20.
Ibid., para. 422.
Ibid., paras. 411 and 412.
Ibid., para. 415.
Edwards and Bell have made significant contributions in the areas of income determination and value measurement — however, it is beyond the scope of this book to provide a detailed analysis of their theories. Their case for income and value measurement based on replacement costs may be found in their classic work: E. O. Edwards and P.W. Bell, The Theory and Measurement of Business Income, University of California Press, 1961.
The Sandilands Report, para. 453.
Ibid., para. 499.
Kenneth MacNeal, Truth in Accounting, Philadelphia: University of Pennsylvania Press, 1939.
R. J. Chambers, Accounting, Evaluation and Economic Behaviour, Prentice-Hall, 1966.
R. R. Sterling, Theory of the Measurement of Enterprise Income, University of Kansas Press, 1970.
R. J. Chambers, The Design of Accounting Standards, University of Sydney Accounting Research Centre, Monograph No. 1, 1980.
Edward Stamp, ‘Does the Chambers’ Evidence Support the CoCoA System’, Accounting and Business Research, Spring 1983, pp. 119–127.
Ibid., p. 127.
The Sandilands Report, para. 510.
The Institute of Chartered Accountants of Scotland, Making Corporate Reports Valuable, London: Kogan Page, 1988, paras. 6.20–6.23.
Lee has published numerous papers on the subject of cash flow accounting, the ideas of which have been drawn together in his book: Tom Lee, Cash Flow Accounting, Wokingham, Van Nostrand Reinhold (UK), 1984.
Lawson has published widely on the subject of cash flow accounting–see, for example: G. H. Lawson, ‘Cash-flow Accounting’, The Accountant, October 28th, 1971, pp. 586–589; G. H. Lawson, ‘The Measurement of Corporate Profitability on a Cash-flow Basis’, The International Journal of Accounting Education and Research, Vol. 16, No. 1, pp. 11–46.
Tom Lee, op. cit., p. 51.
Ibid., pp. 51–52.
Lee presents a quantified example of his proposed cash flow reporting system, op. cit., pp. 57–72.
The Sandilands Report, para. 518.
Ibid., para. 517.
Ibid., para. 537.
For a detailed discussion of the capital maintenance concepts which apply in the Sandilands proposals, see: H. C. Edey, ‘Sandilands and the Logic of Current Cost’, Accounting and Business Research, Volume 9, No. 35, Summer 1979, pp. 191–200.
ASC, ED 24: Current cost accounting, para. 6.
ASC, Inflation accounting — an interim recommendation by the Accounting Standards Committee, November 1977.
Ibid., para. 4.
ED 24, para. 8.
Ibid.
Ibid., para. 9.
SSAP 16, Current cost accounting, March 1980.
Ibid., para. 48.
SFAS No. 33, Financial Reporting and Changing Prices, paras. 47–56 passim.
SFAS No. 89, Financial Reporting and Changing Prices, paras. 34, 35 and 40–43 passim.
SFAC No. 5, paras. 45–48.
In January 1983, the Research Board of the ICAEW initiated a research project into the usefulness of current cost accounting. The research was divided into a number of studies designed to investigate the uses made by different interest groups, the benefits and the costs of current cost accounting; the whole project was undertaken under the control of the ICAEW’s then Director of Research, Professor Bryan Carsberg. The project was completed in September 1983 and the results were made available to the ASC to assist with its review of SSAP 16. See: Bryan Carsberg and Michael Page (Joint Editors), Current Cost Accounting: The Benefits and the Costs, ICAEW, 1984.
Accounting Standards Committee, Accounting for the effects of changing prices: a Handbook, ASC, 1986.
It is still fairly widely used in the public sector, partly influenced by the Byatt Report — Accounting for Economic Costs and Changing Prices —, published in 1986.
British Gas is one example of a major company which presents its main accounts on a current cost basis.
Richard Macve, A Conceptual Framework for Financial Accounting and Reporting: the possibilities for an agreed structure, A report prepared at the request of the Accounting Standards Committee, ICAEW, 1981, Preface, p. 3.
Ibid., Chapter 6, passim.
Ibid., p. 52.
Ibid., p. 64.
Ibid., p. 91.
David Solomons, Guidelines for Financial Reporting Standards, A Paper Prepared for The Research Board of the Institute of Chartered Accountants in England and Wales and addressed to the Accounting Standards Committee, ICAEW, 1989, (the Solomons Report).
Edward Stamp, Corporate Reporting: Its Future Evolution, a research study published by the Canadian Institute of Chartered Accountants, 1980, (the Stamp Report), Ch. 1, para. 3.
The Corporate Report, paras. 2.22–2.31.
Stamp’s proposed user groups were as follows: shareholders, management, long and short-term creditors, analysts and advisers, employees, non-executive directors, customers, suppliers, industry groups, labour unions, government departments and ministers, the public, regulatory agencies, other companies, standard setters and academic researchers. See the Stamp Report, Table 1, p. 44.
Edward Stamp, ‘First steps towards a British conceptual framework’, Accountancy, March 1982, pp. 123–130.
Stamp’s qualitative criteria were ranked (from most important to least important) by the ASC members as follows (Ibid., Figure 2, p. 126): relevance, clarity, substance over form, timeliness, comparability, materiality, freedom from bias, objectivity, rationality, full disclosure, consistency, isomorphism, verifiability, cost/benefit effectiveness, non-arbitrariness, data availability, flexibility, uniformity, precision, conservatism.
The Stamp Report, Chapter 2.
Ibid., Chapter 12.
Ibid., para. 0.2.
Ibid., Chapter 8.
Ibid., paras. 1.1–1.20, passim.
Ibid., para. 3.6.
Ibid., para. 3.11.
The Corporate Report, paras. 2.2–2.8.
ICAS, Making Corporate Reports Valuable, para. 3.12.
Ibid., para. 6.36.
Ibid.
Ibid., para. 6.24.
The Institute of Chartered Accountants of Scotland, Making Corporate Reports Valuable — The Literature Surveys, ICAS, 1988.
Ibid., p. 301.
ICAS, Making Corporate Reports Valuable, paras. 7.12–7.20, passim.
Ibid., para. 7.21.
Ibid., paras. 7.23–7.26, passim.
Ibid., paras. 7.27–7.32, passim.
Ibid., para. 7.35.
Ibid., para. 7.39.
Ibid., para. 5.44.
Ibid., para. 7.54.
‘Melody plc’, ICAS, September 1990.
Report of the Review Committee under the chairmanship of Sir Ronald Dearing CB, The Making of Accounting Standards, September 1988, para. 7.2.
David Solomons, Guidelines for Financial Reporting Standards, p. 17.
Ibid., p. 18.
Ibid.
Ibid., p. 20.
Ibid., p. 21.
Ibid., pp. 23–28.
Ibid., p. 43.
Ibid., pp. 51–52.
Ibid., p. 53.
Ibid.
Ibid., p. 54.
Ibid., p. 55.
Ibid., p. 56.
Ibid., p. 63.
Ibid., p. 65.
Ibid., p. 69.
The Future Shape of Financial Reports, ICAEW/ICAS, 1991, para. 1–2.
Ibid., paras. 3–1 to 3–5.
Ibid., para. 4–3.
Foreword to Accounting Standards, ASB, 1991, para. 1.
The objective of financial statements, Exposure Draft of Chapter 1 of Statement of Principles, ASB, July 1991, para. 12.
Ibid., para 14.
Ibid., para 9.
Ibid., para 10.
The qualitative characteristics of financial information, Exposure Draft of Chapter 2 of Statement of Principles, ASB, July 1991, para. 23.
Ibid., para 26.
Ibid., paras. 34–37.
Ibid., para 38.
Ibid., para 39.
The elements of financial statements, Discussion Draft of Chapter 3 of Statement of Principles, ASB, July 1991, para 7.
Ibid., para 24.
Ibid., para 44.
Ibid., para 52.
Ibid.
Ibid., para 59.
Ibid., para 63.
The recognition of items in financial statements, Discussion Draft of Chapter 4 of Statement of Principles, ASB, July 1992, para. 1.
Ibid., para. 4.
Ibid., para. 7.
Ibid., para. 9.
Ibid., para. 11.
Ibid., para. 17.
Ibid., para. 55.
Presentation of financial information, Exposure Draft of Chapter 6 of Statement of Principles, ASB, December 1991, para. 14.
The Institute of Chartered Accountants of Scotland, Making Corporate Reports Valuable, Kogan Page, 1988.
Framework for the Preparation and Presentation of Financial Statements, IASC, May 1988.
Framework for the Preparation and Presentation of Financial Statements, IASC, September 1989, para. 4.
Ibid., para. 2.
Ibid., para. 7.
Ibid., paras. 99–101.
Ibid., para. 95.
ASC Foreword to the IASC Framework for the Preparation and Presentation of Financial Statements, ASC, December 1989, paras. 3 and 4.
Preface to Statement of Principles, ASB, July 1991, para. iv.
CICA Handbook, General Accounting, Section 1000, Financial Statement Concepts, para. .01.
Ibid., para. .02.
SAC 1, Definition of the Reporting Entity, AARF and ASRB, August 1990, para. 40.
SAC 2, Objective of General Purpose Financial Reporting, AARF and ASRB, August 1990, para. 43.
Ibid., para. 44.
Ibid., para. 45.
SAC 3, Qualitative Characteristics of Financial Information, AARF and ASRB, August 1990, para. 48.
Ibid., para. 49.
New Zealand ED 59, Explanatory Foreword to General Purpose External Financial Reporting, NZSA, December 1991, para. 2.1.
Ibid., para. 3.2.
New Zealand ED 60, Concepts for General Purpose External Financial Reporting, NZSA, December 1991, para. 3.1.
Ibid., paras. 4.3 to 4.8.
Ibid., paras. 5.1 to 5.13.
Ibid., paras. 6.1 to 6.4.
Ibid., paras. 7.1 to 7.3 and 10.1 to 10.4.
New Zealand ED 62, Framework for Differential Reporting, NZSA, December 1991, para. 4.21.
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Davies, M., Paterson, R., Wilson, A. (1992). The quest for a conceptual framework for financial reporting. In: UK Gaap. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-12998-0_2
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