This report is developed for the purpose of carrying out a research work about a recent issue in the relation of financial reporting. In this context, the research issue that is addressed through developing the report is examining the importance that accounting framework developed by IASB holds in preparation of the quality financial information. The overall analysis of this research issue is conducted by examination of the views and opinions of different researchers in its context through selected of pertinent research articles. The finding that has been derived with the overall analysis carried out is also presented in the report. Also, the accounting theories that can be used for addressing the research issue have also been discussed in this research report.
Research Areas of interest and importance
The importance of conceptual accounting framework to present quality financial information to the end-users can be regarded as a contemporary topic in the field of financial reporting. This is because the increased pressure from the global investors is causing the need for business entities to disclose the financial information in a format so that it is easily understandable and comparable. This is causing the need for developing a coherent set of principle that needs to be applied by the business entities during development of their financial reports. The conceptual accounting framework has been developed by the IASB in this regard only as its main purpose is to enrich the usefulness of financial information for economic decision-making. The role of financial reporting is very important to support the growth and development of the stakeholders. As such, there was an increasing need for IASB to developing an accounting framework that could help in promoting uniformity and reduce inconsistencies that exist in the financial reporting mechanism of different countries globally. As such, the investigation held in the research area through this report will help in establishing the relation between the conceptual framework principles and the accounting quality.
The research area focuses on role played by the conceptual framework in providing the effective accounting rules and policies to enhance the quality of financial reporting. Keeping in mind this research area, the research question has been framed as under:
“What is the role and function of the conceptual framework in improving the quality of financial reporting?”
Evaluation of 8 articles on the selected research topic
Vorster (2007) has carried out a study related to the present area of research that has examined the theoretical approaches in financial accounting that has lead to the development of conceptual framework of accounting. Accounting theories as stated in the article can be regarded as a general frame of reference that is used for developing new accounting practices and procedures. The article is highly important for examining the various perspectives offered by different accounting theories such as positive and normative that leads to the development of conceptual accounting framework. The study carried out has concluded that normative theory of accounting that emphasizes on the norms and values of the researchers and as such describes the financial accounting practices to be used on the basis of observation. The qualitative characteristics of Conceptual Framework (CF) as such are based on the observed norms and values that need to be present within the financial formation and as such can be stated to be highly essential for quality financial reporting (Vorster, 2007).
Liana (2012) has also presented his views and opinions about the research area through presenting a research article in its context. The article has provided an insight into the useful characteristics of accounting information that need to be present within the financial statements. The article can be attributed to be extremely pertinent for addressing the research issue as it has explained the qualitative characteristics that conceptual framework has stated to be present within the financial reporting. The contribution of these characteristics in improving the financial reporting quality has been analyzed in this article by comparing the information that entity at an international level discloses before and after the adoption of the conceptual framework. As such, this article by eliminating the differences in the nature of financial reporting process before and after the development and integration of the CF principles has adequately addressed the research context (Liana, 2012).
Whittington (2008) has presented a research article that has addressed the issues that need to be addressed by the IASB and FASB for successful integration of the conceptual framework to enhance the usefulness of financial information for the end-users. In this context, the article has most importantly elaborated on the issue of fair value accounting that is responsible for causing major criticism for the adoption of the IASB’s standards. As such, the article has analyzed specifically the measurement issues that have risen due to the development of conceptual accounting framework. The CF has provided the use of fair value accounting approach to measure the value of its key financial items such as assets and liabilities. In addition to this, the article has provided a brief explanation about the different building blacks of the CF that will help to adequately understand the contribution of this framework in developing improved quality financial reports (Whittington, 2008).
The research article written by Achim and Chis (2014) in this context has highlighted the importance of developing high-quality financial statements and maximizing the value created for the shareholders. It has been expressed by the authors in the article that conceptual framework by developing and describing the essential quality of accounting information have lead to the development of improved finical reporting process. The article in relation to the selected research issue has provided a theoretical qualitative study in the field of financial accounting quality and the qualitative characteristics of the financial information. The importance of providing accounting information that is of high quality is very useful for facilitating the economic decision making process has been examined in detail through theoretical discussion carried out in the article (Achim and Chis, 2014).
As per the research article written by Bala (2012), the conceptual framework has been defined as the significant part on which accounting rules, standards and regulations have been drawn. Critical research has been conducted by the Bala to provide for the complete overview of new conceptual framework drawn in year 2010 and how it has helped in delivering the objectives of International Accounting Standard Board. It has been mentioned in the article that although the new conceptual framework was incomplete as it lack some information but it was successful in delivering the complete set of objectives required for the purpose of financial reporting. The purpose of including this research article is to review the changes made by the new conceptual framework and how it has improved the financial reporting. This article has successfully drawn conclusions on benefits gained through the new conceptual framework and major changes that have been provided after the global financial crises (Bala, 2012).
The journal article provided by Herath and Albarqi (2017) was related to role played by the conceptual framework in enhancing the financial quality reports developed by the entities. The purpose of this research article is to review the existing literature on importance of conceptual framework and how it has improved the quality of financial reporting. Through this article, author has found that there is a significant gap in existing literature as they are incomplete or short to provide sufficient information. However, it can be articulated from this article that there was major role of conceptual framework in improving the financial quality as it set downs all the required information upon which all the accounting rules and regulations has been drafted. It helps in maintaining uniformity in accounting standards and allows the comparability of the financial reports all around the world. As the purpose of current research is provide a gene comment on role of conceptual framework not in particular context, the selected will be helpful in meeting the requirement of research (Herath and Albarqi, 2017).
Cuong and Ly (2017), provides that quality of information provided in the financial reports is very important from the view point of the financial users and without the help of conceptual framework it is not possible to deliver such quality information. The research article by Cuong and Ly was specifically drawn on the quality of financial reporting by the companies listed on Vietnam stock exchange. The article provides that format given by the conceptual framework to develop the financial statements is very useful in interpreting the financial performance of the company. The conceptual framework has been defined as statement that contained various definitions, rules, guidelines, elements of financial statements, measurement criteria and important disclosures that need to be followed by accountants, entities, accounting bodies and other concerned individual while preparing the financial report. The results drawn from the selected research articles clearly mentions that quality of information provided in the financial reports helps to compare and easily understand which is very critical for the investors point of view (Cuong and Ly, 2017).
As per the views of Ohlson et al. (2010), the financial reporting is the essential part of every company and there must a common platform on which whole accounting procedure must be based. Further this article provides that conceptual framework developed by the IASB act as the necessary base on which international accounting standards have been drawn. So it can be said that conceptual framework is very significant part of financial reporting or it can be said whole reporting is based on it. The purpose of chose this research article is to gain information on CF has laid down the foundation stone to provide for all necessary information needed to draft the standards and prepare the financial report (Ohlson, et al., 2010).
Finding concluded through critical review of research articles
The critical analysis of the selected research articles in the context of the research issue has depicted that quality of accounting information can largely improvise through the integration of the characteristics and principles stated in the conceptual framework of reporting. The framework developed by the IASB has clarified the concepts of the financial accountants and helped them in providing a specific set of accounting policies that need to be used to develop the financial reports. The use of the accounting policies and method stated out in the CF will largely facilitate the business entities to address the varying needs of stakeholders. The CF is based on the normative theory of accounting that has stated that accounting policies and choices are largely pendent on the norms and values of the accounting researchers. The CF developed on the observed ethical norms and values can be regarded to be best suited for developing quality financial reports.
Theories applied to the research
The accounting theories has been defined as set of principles that provides the framework through which practices in accounting can be analyzed and it also act as the guide for the development of new practices and procedures of in accounting field. In this respect various accounting theories have been drafted to purse the practice of accounting and to present what is right in front of stakeholders. The most important accounting theory on which complete accounting is based is known as normative accounting theory. This theory is based on the principle that once should act or perform as per circumstances it means one should be liable for act that he has performed and has to report in same way as it was. The development of conceptual framework is based on normative theory as while drafting the framework one should consider the facts and relevancy of information to be included in financial reporting. Normative theory is not based observations but it considers facts to derive the values of accounting. Definition of elements of financial statements are derived from the normative theory as it is this theory considers practical observations and measurement which is very important in to drafting the definition of assets, liabilities etc (Deegan, 2014).
Stakeholder’s theory is also applicable on the research study as it provides that it is management duty to provide all such information that is needed by the users to measure and compare the performance of entities. In this context CF plays an important role in delivering the financial quality to the users (Belal, 2016).
It can be implied form the overall discussion carried in the research report that conceptual framework has reduce uncertainty that exist in the mind of accountants during development of financial reports and assisting them to provide complete and error-free information that has high relevance in decision-making process.
Achim, A. and Chis, A. 2014. Fair Value and the IASB/FASB Conceptual Framework Project: An Alternative View. Practical Application of Science II(3), pp. 93-98.
Bala, S.K. 2012. The New Conceptual Framework for Financial Reporting 2010: Some Reflective Comments. Independent Business Review 5(2), pp. 1-25.
Belal, A.R. 2016. Corporate Social Responsibility Reporting in Developing Countries: The Case of Bangladesh. Routledge.
Cuong, N.T. and Ly, D.T. 2017. Measuring and Assessing the Quality of Information on the Annual Reports: The Case of Seafood’s Companies Listed on the Vietnam Stock Market. International Research Journal of Finance and Economics 160, pp. 26-40.
Deegan, C. 2014. Financial Accounting Theory. McGraw-Hill Education Australia.
Herath, S.K. and Albarqi, N. 2017. Financial Reporting Quality: A Literature Review. International Journal of Business Management and Commerce 2(2), pp. 1-14.
Liana, G. 2012. The Quality Increasing Of Information in The Financial Statements: A Rearrangement Of The Qualitative Characteristics. Economy Series 3, pp. 125-130.
Ohlson, J.A. et al. 2010. A Framework for Financial Reporting Standards: Issues and a Suggested Model. American Accounting Association 24(3), pp. 471-485.
Schroeder, R.G., Clark, M. and Cathey, J.M. 2016. Financial Accounting Theory and Analysis: Text and Cases. Wiley.
Vorster, Q. 2007. The Conceptual Framework, Accounting Principles And What We Believe Is True. Accountancy, pp. 30-33.
Whittington, G. 2008. Fair Value and the IASB/FASB Conceptual Framework Project: An Alternative View. ABACUS 44(2), pp. 139-168.