The conceptual framework of accounting is a set of theoretical constructs that determines the logic, structure and functioning principles of the adopted accounting system in the context of the surrounding legal, political and economic environment. It is also considered as a basis for the development of accounting standards. However, the system has still some problems that prevent it from being a perfect one. This article discusses the essence of the conceptual framework of accounting as well as its main disadvantages.
Defining the Basis of Accounting
For the first time, the term conceptual framework of accounting was proposed in 1952 by the American Institute of Accountants (now the American Institute of Certified Public Accountants AICPA) as a characteristic of the basic ideas, postulates, principles, and concepts in the field of accounting. Currently, in the United States, this term refers to a set of Statements of Financial Accounting Concepts (SFAC) that includes:
- Goals of financial reporting of commercial (profitable) organizations;
- Qualitative characteristics of accounting information;
- Elements of financial statements of commercial (profitable) organizations;
- Goals of financial reporting of non-commercial (non-profit) organizations;
- Evaluation and identification of the financial statements of commercial (profitable) organizations;
- Elements of financial statements.
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Over the time, the term conceptual basis of accounting" has received an independent sounding in the above sense. In particular, in the most general form, a conceptual framework can be presented as a model consisting of seven interrelated and sequentially deployed elements:
Interests - interests of users of accounting information;
Objectives – purposes of the accounting reporting;
Qualities – characteristics of the data in the accounting system;
Axioms – postulates of accounting;
Principles – principles of accounting;
Concepts – basic concepts and categories of accounting;
Techniques – techniques and technical accounting.
The logic of sequential deployment of model elements is that each subsequent element is largely predetermined by the preceding one.
The starting point is the interests of people who have a significant direct or indirect influence on the firm. The judgment on whether their interests are respected can be based on the data provided to them in the form of the main product of the accounting system – reporting. Therefore, reporting should be tailored in such a way that it can most fully satisfy the interests of users, and thus the information contained in it must meet certain requirements. Meanwhile, the fulfillment of these requirements is possible only if the accounting is conducted in accordance with unambiguously interpreted and generally accepted rules and agreements that are specified in the technical procedures applied to the accounting objects, expressed through basic categories and concepts.
Talking about Disadvantages
Even though conceptual framework does have a lot of advantages, the main uncertainty is that it is really difficult to implement it. Apart from that, installing the conceptual framework is also quite time-spending as well as expensive. Therefore, it may seem sometimes unreasonable to put it to work under certain conditions.
Apart from that, the conceptual framework of accounting does not stand the former standards. Once implemented, it is essential to check whether there is no conflict between the current and new system of accounting.
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