This is an essay writing assignment where analysis is required to make in relation to failure of introducing the conceptual framework with an attempt to bring radical changes. In addition, with the introduction of SAC-4 (Statement of Accounting Concepts), it would enable in necessitating the firm for making the reporting of a greater number of liabilities where lobbying began serious and trade ensures than any modernism was quashed (Weil, Schipper & Francis, 2013). Furthermore, the important fundamental to be discussed in this paper is addressing the best practice in relation to conceptual framework that it can legitimize with the current practice. The current segment helps in maintaining the existing position of social and economic status and staves off the community division organization from making controlling to accounting standard practice (Wagenhofer, 2015).
In the initial Draft of SAC 4, it was clearly mentioned that there was detailed recording of liabilities that was opposed by the companies. This is because it will be difficult for the companies if liabilities are recorded very minutely with each aspects covered (Saunders & Cornett, 2014).
Liabilities are the prospect sacrifice of monetary benefits where the business unit is represent indebted for making it to other entities as a consequence of previous dealings or other past events. In other words, a liability should be recorded in the report of fiscal statement when it is possible that the prospect sacrifice of monetary benefits will be needed and the amount of the liability is deliberate in reliable way (Pratt, 2013).
Conceptual Framework for Financial Reporting
Conceptual Framework is one of the hypotheses of secretarial that is developed by a typical setting unit. In that case, practical issues can be tested for defining set of ideas as well as objectives that leads to creating of a definite set of rules (Oluwadare & Samy, 2015). The Conceptual Framework for Financial Reporting explains the purpose as well as notion for general purpose financial reporting. In addition, the conceptual framework is a realistic tool that assists the International Accounting Standards Board for developing principles that are based on dependable perception. Furthermore, conceptual framework assist prepares for developing reliable secretarial rule when no standard applies to specific business or event or when a Standard allows a choice of secretarial strategy. This standard assists others for understanding as well as interpreting the Standards (Oldroyd, Tyson & Fleischman, 2015).
Limitation of conceptual framework
One of the major reasons for developing a conceptual framework is setting up new accounting standards. It is the main basis for resolving the disputes other than a theoretical framework. Furthermore, conceptual framework is all about setting a stage of monetary secretarial (Jones & Aiken, 2015). One of the limitations of conceptual framework is setting up process. As far as other factors are concerned, it can be seen as a constraint to theoretical structure is that it is time consuming. It is difficult for setting up theoretical structure as it is time consuming as well as expensive. There is conflict between previously developed accounting frameworks as well as conceptual framework. It is the previous recognized principles that vary from the fundamental values of conceptual framework. Conceptual framework comes with a lot of inflexibility that features of the structure may not provide with such supervision to secretarial behavior (Weil, Schipper & Francis, 2013). In other words, the thought of theoretical structure is rigid as well as incorporating new ideas that are difficult to ascertain. In that case, there is always a disagreement between previous developed secretarial values as well as theoretical framework. It is based on the previous established standards that vary from the fundamental philosophy of theoretical structure (Hopper et al., 2015).
SAC 4 (Definition and Recognition of the elements of financial statements)
This statement explains accounting concepts SAC 4 as issued on March 2012. The main purpose of SAC 4 is prepared in accordance to the Australian Accounting Standards Board as well as Public Sector Accounting Standards Board (Henderson et al., 2015). In addition, the statement is set out the perception that has been accepted by the Board in value of the nature in accordance with the general purpose financial reporting. SAC 4 explains description and detection of the fundamentals of fiscal statements that constitutes with the blocks of conceptual framework for general purpose of financial reporting. The comparison between the conception in SAC 4 as well as overseas structure that strengthen Board decisions for retaining the concepts as set in the financial statement (Freeman et al., 2014).
The Conceptual Framework is a joint scheme between International Accounting Standards Board as well as Financial Accounting Standards Board for developing an enhanced and common theoretical structure (Jones & Aiken, 2015). This particular framework will be providing a sound foundation for developing potential secretarial standards as well as fulfils the objective for developing principles that are main beliefs based that leads to financial reporting that offers financial information that is needed for investment and credit for similar decisions (Edwards, 2013).
SAC 4 explains revenue as inflows as well as other improvement or savings in outflows of prospect financial benefits in the form of increase in assets or decrease in liabilities of the unit. SAC 4 defines expenses as “expenditure or losses of prospect monetary benefits in the form of decrease in assets or increases in liabilities of the unit other than those connecting to distributions to owners those consequences in reduce in equity at the time of coverage stage”. Under the structure, operating cost include losses that are reported on a net basis and may or may not arise in the route of normal action of a unit. Therefore under SAC 4 outflows are exposed on a gross basis while under the structure some outflows are revealed on a gross basis while others are revealed on a net basis (Deegan, 2014).
AASB issued SAC 4 in the Australia conceptual framework over the period of time. In that case, the statement helps in providing important supervision especially to normal setters as well as monetary account preparers in and across Australia. In that case, the standard represents inventive work in an area for the coverage unit notion as well as explained on how one framework can be applied for the private as well as public and not for profit sectors (Deegan, 2013).
It requires following the decision for adopting IFRS in Australia where AASB has reviewed the statements (Weil, Schipper & Francis, 2013). This has reviewed or retained SAC 4 that replaces mainly with the IASB structure. In addition, outlook work on theoretical structure in Australia has led by the agenda shown in IASB. Convergence of accounting standards reveals the fact that AASB will not continue with work on the structure that separately works with IASB. It is noted that IASB has various project that help in influencing its framework as well as affect Australian financial reporting. This financial reporting includes measurement project as well as concepts of revenue, equity and liabilities (Bonin, 2013).
The framework has significant role that plays in potential normal surroundings where ability of the IASB for developing and applying a vigorous theoretical structure that is uncertain in nature. In that case, the decision made for refining as well as developing conceptual framework for working with IASB on timely manner. The statement will assist IASB for developing the framework that includes both resources as well as legitimacy. Joint project has been made by FASB and IASB who unite the resources in the given ordinary setting bodies in and across the world. In that way, it is a combined approach that increases the probability that results in the structure that will be accepted. Furthermore, the extent to which the IASB framework is conventional as well as used in principles that is real test for the success (Blayney, Kalyuga & Sweller, 2015).
It is argued that there is delicate but dissimilarity between the current obligations for making it a prospect sacrifice of financial benefits to other unit where the compulsion is integrated in the SAC 4 description as well as preset obligations to other business entities for making a prospect sacrifice of financial benefits that is chosen notion of an compulsion (Banerjee, 2014). It is argued that the business entity can have an obligation for making prospect sacrifice of financial benefits without being grateful in sacrificing with those entities. In that case, a unit may assume an ecological cleanup itself that recognizes the compulsion as a liability but believes that SAC 4 meaning for precluding such identification. It is believed that the definition of liability is shown in the IASC framework that consists of flaw in common with the definition of liabilities in the statement SAC 4 (Weil, Schipper & Francis, 2013). It is believed that there is distinction between present obligations as well as future commitments that are both in SAC 4 and the IASC Framework for justifying on theoretical grounds. It is noted that the amendment for defining that make it symmetrical by defining the assets. It is believed that the definition of liability in the IASC framework that involves flaw in common with the definition of liabilities in SAC 4. In that case, the statements explain the meaning of obligations that arises from normal course business practice where custom for maintaining superior trade dealings for acting in a reasonable manner. It is noted that conservatory of the significance of compulsion that takes into account future commitments in the most appropriate way. It is argued that there are two basic problems with meaning of liabilities in the SAC 4 that will be conquer by adopting the classification. It means adopting consistent approach that defines revenues as well as expenses that separates elements gains and losses. In this case, the Statement places inadequate emphasis upon the principles that regulates after interpreting the information in the financial statements (Blayney, Kalyuga & Sweller, 2015).
From the above analysis, it can be noted that the essay address to the argument and present to the Chairpersons of Financial Reporting Council as well as Australian Accounting Standards Board. In addition, attempts have been made to introduce a conceptual framework that has failed in previous times. When it comes with SAC 4 that need firm to report a greater number of liabilities where lobbying began in earnest as well as trade ensured that any innovation was quashed. In that way, the best that can be hoped from the theoretical structure is that it legitimates existing practice, maintaining obtainable communal as well as financial status and staves off public sector attempts for controlling secretarial normal location
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