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1.Financial reports (and the conceptual frameworks on which they are based) can either embrace a ‘decision usefulness’ or ‘stewardship’ function. Define these two terms. Which of these functions has the IASB deemed more important in recent years? Critically evaluate whether the approach adopted by the IASB will lead to the provision of relevant and/or reliable information for all users. 

2.Identify the weaknesses of historical cost accounting. Were any of the alternatives to historical cost (CPPA/CCA/CoCoA) successful? In your response you will need to outline your criteria for success. 

3.Outline the key building blocks of conceptual frameworks. Conceptual Frameworks are yet to provide significant prescription in relation to measurement issues in accounting. Why do you think this is the case? Would you consider conceptual frameworks to have been successful in achieving their objectives? Justify your response.

Decision Usefulness and Stewardship Functions in Financial Reports


The Conceptual framework is the assumptions, rules and regulations that binds the thoughts to a greater ideas. It is a systematical tool that which binds in itself variations and context. The usage of this particular framework called the conceptual framework is done in different types of jobs. The particular concept or framework is needed to implement various organize ideas and distinctions (Ezzamel & Xiao, 2015).

Fair value refers to the estimation that is rational and rational of the potential price of the market of an asset or commodity. The factors that include acquisition, production and replacement cost are considered. The usefulness of decision approach with respect to the financial reporting method is used for preparing the financial accounting information (Kvaal, 2017). The method stresses on the decision of the investor theory for putting types and nature of the information that is needed from the organizations (Sidera & Patsavoudi, 2014). The aim of GPFR (General Purpose Financial Reports), the usefulness of decision is a very much developed economy of exchange with commercial variation, accounting culture related to finance and market capital as related to other nations. The term Stewardship also is governance system that has a number of responsibilities and functions that are done in order to reach the goals. To talk about the matter of financial reporting, stewardship denotes to the archives that are maintained by the parts  of the the capital employed and various transactions debts(Jessen et al., 2014).  

 The Theory or approach of decision usefulness has been one of the most important in the thoughts of accounting in the mid of the century. This particular theory is based on a coherent of broad themes, on which has been built the structure of ideas. Similar to the most of the theories in social science, this theory has a mixture of both the principles of descriptive and normative (Hopper & Tanima, 2017). Since those doing accountingg don't for the most part acknowledge the choice of helpfulness objectives of this theory, the hypothesis can without much of a stretch be seen as normative. Meanwhile this can be said that it is currect to describe the current practice of accounting and related practice has been slowly becoming more cohesive and in line of this theory and this has happened mostly in the twentieth century, second part. It can be stated in this regards that no alternatives to the principle or theory of decision usefulness exists in the absence of a generally and universally accepted accounting principle (Sheppes et al., 2014). The evolution of this theory can be one of the imteresting subject matter of study for most of the individuals dealing with the subject matter.

Weaknesses of Historical Cost Accounting and its Alternatives

The concept of Stewerdship accounting has been existing for ages and is one of the accounting system that has evolved since the devellopment of this field of study. The stewerds had developed this particular system of accounting who wree the resource managers and the system was providing accounts at regular periods to the owners of those resources. The concept of Steweredship in Accounting had been further stretched and used in the field of accounting when in the year of  1844 after the industrial revolution when the joint Stock Company was established (Hoyle, Schaefer & Doupnik, 2015). However this must be accepted that, in the course of recent years, the capacity of stewardship has been tested, and its importance initially diminished before coming back to unmistakable quality.

 As stated in the conceptual framework both the above discussed theories like the theory of decision usefulness and stewerdship functions have their focuses on the needs of various information and various users. Whereas the Stewerdship theory has its focus on the context of the theory of stakeholders on the other hand the Decision usefulness theory stresses on the capital and money providers who has their own requirement of information about the financial nature and status of the organisation (Louwers et al., 2015). In both of these cases the similarity is they are seekers of information of some kind. In the case of decision making the priorit is on the relevance of information however in stewerdshipt reliability is given relevance.

 In the financial reporting process, relevance refers to  the concept that deals with the accounting system information that can impact the  people’s decision making who uses the data. Similarly the reliability in accounting is the financial data that can be used consistently as well as verified by the investors and creditors with the same outcome. It  basically refers to the trustworthiness of the financial statements. The usefulness of decision-making has the motive to give priority to the applicable stewardship and information prioritises on reliability (Kvaal, 2017).

The financial report’s primary users are the stakeholders  who are basically the set of investors. They are keen to gain the company profits of the business entities with the investment motive.

The general-purpose financial report  users also consists of lenders, suppliers, government, employees along with the customers. They want to get knowledge of the financial report for obtaining various information in the context of the performance and the operations  of enterprise as they are indirectly and directly related to the firm.

Key Building Blocks of Conceptual Frameworks

According to conceptual framework of the IASB, both stewardship and usefulness of decision-making has a vital function for the accounting users. As both the roles deals with seeking of information, it consist of a valuable sources that are adapted by the users of the  financial report of the organization. Hence, the variety of users have variety of information needs, processing skills for information and information sources that are alternative, the development of Conceptual Framework finally consists of making decisions (Francis, Huang & Khurana, 2016).  The functions of stewardship that are attached with the users of the financial report consist of the purpose and measurement of the business transaction.


The various processes as well as procedures of the things that are to be done is known as the Normative approach. With the rise in the normative theory since the late 1960s, various other measurement models of development took place. The historical cost value is the measurement in accounting where the price of te asset in the balance sheet is on the basis on its nominal or original cost at the time enterprise acquired it.  The historical-cost principle according to GAAP is realted to the assets that are held on the balance sheet is to be recorded at the historical cost even if there is a change in the value in due course.

As per principles of historical cost the liabilities and assets are identified at original cost. The historical cost principle is a transaction between reliability and usefulness. The historical cost of the asset is totally reliable, as it represents the sum, the enterprise paid for the asset. The FASB (Financial Accounting Standard Board) has determined to follow the principle of historical cost as it is more reliable  and based on the company objectives. However, in present times, both the FASB and IASB (International Accounting Standard Board) is more reliable to information that can be obtained by fair value.

The benefits of the Historical Cost is that it is a simple and a user-friendly methodology. Therefore, market research is not neeed to be conducted to analyze the current market prices. In this system, the records are made at original cost of the financial items in financial reports. Thus, the financial reports are made more fast and easy than using other measurement bases, Therefore, HCA contribute in saving cost and time. In addition to this, the concept historical cost accounting is very easy bin understanding and interpreting (Wang, 2014). As a result, to that the Historical cost is verifiable and reliable. Moreover, the the conceot of historical cost heps in tracking the business assets. It helas in the easy comparison original and current cost of their items as the financial items are recorded on the basis of original cost items.

Measurement Issues in Accounting and Conceptual Frameworks

The limitation of Historical cost accounting:

The price level changes has not been considered:

The financial statements are made as per the accounting of historical accounting are the historical facts; the changes in the monetary value, which is due to the changes in the level of price, are not taken in hand.

The value unrealistic fixed asset:

The historical cost accounting does not considered the market value of the assets as the fixed assets are shown at the price at which they were bought.

The is insufficient provision for Depreciation:

The depreciation that is charged based on the historical cost of the fixed assets and not the current price, hence,  for replacement of assets the depreciation amount is not enough. (Macve 2015).

Unrealistic Profit:

The profit shown in the income statement as per the historical cost basis is not real. As the records of the revenues are done on the current value basis and the record of the expenses are done at historical cost as a result there overstatement of profits during the time of  inflation.

Alternatives to Historical cost accounting along with their analysis

After taking the Consideration of the various drawbacks of the Historical cost accountind  the various normative alternatives of the accounting process are:

Current purchasing power accounting: The development of CPPA is based on the preriod rise in price takes place, in case a business enterprise applies the accounting measurement of historical cost the real value of the business may fall (Zhang & Andrew, 2014). At the time of CPPA implementation, the adjustments are made at the period end which differs from the methodology of the historical cost.

Current cost accounting: The alternative to historical cost accounting lies the current cost accounting that has been successfully adapted by the users of the financial statements. In case of CCA the profits that are obtained from the trades and the profits from holding are differentiated. The historical cost calculated the original cost value of an asset, but the CCA measures the present value of the asset. This helps in overcoming the drawback of historical cost accounting.

Continuously contemporary accounting: In case of the historical cost accounting the it makes the assumptions that the purchasing power is constant to the users and therefore, they have to face a lot of difficulties. As a result the evolution of the accounting has been evolved. In this regard of accounting concept, the purchasing power money is not constant however they are continuous and current. This helps in getting used to the change in the business environment. As per this method the COCOA makes the financial users of the financial statement should take in consideration  the current selling price that are predictive to each of the assets as a result  the profit should be measured as the adaptive changes in environment of the business firm during the time span of the business.

As per the analysis, observations can be made although the method of historical cost is a quite user-friendly that has need to conduct a market research to know the current prices. The representation of the accounting data and the company profit and value is not always true and (Ji, 2017). The various trending normative alternative of historical cost that have been highlighted in the discussion has been evolved with objective to overcome the pointed out drawbacks of the measurement of the historical cost. Hence, the normative theories can be said to be quite successful and hence can be adapted by the uses to get a true and a fair value.


The arrangement of Conceptual framework links the global accounting concept and states that the accounting standard that are required to be more consistent and logical. It is equivalent to the conceptual frameworks that is explicit and is used by the International Accounting Standards Board (IASB) and other international standard setters of accounting. The main motive of the concept of accounting is to show the variety of users of financial statements. The financial reporting is under the conceptual framework, it is the method of representation of the financial position of the company with the help of the financial statements. This is done for the different stakeholders of the firm for investments purpose (Easterly & Levine, 2016). The reporting enterprise refers to the company who reports the financial information to the various stakeholders for their investment decisions. In the process of measurement, the framework part deals with the methodology and basis that are used in the financial reporting process. It includes the exploring relation between the different accounting objectives, concepts and general financial reporting objectives of financial reporting.

The diagram shown above shows the different conceptual framework blocks of  various levels. That includes reporting entity definition, financial reports users, financial reporting’s general purpose objectives , financial reports qualitative characteristics, Elements of financial reporting definitions, of financial reporting recognition  elements and the other principles of measurement. It has been acknowledged that the measurement is a accounting element that is critical. According to De Simone (2016) “Measurement is one of the most underdeveloped areas of the framework”. Yet, according to the literature, there is lack in cleare purpose of the priority demands.

The normative approach includes the process amd procedures  where the  things are to be done. The common theme that is included in thr feedback was disagreement that highlightd the  lack of definitive prescription of the IASB (Backof, Bamber & Carpenter, 2016).

It can be identified that in case there exists a huge description that there is also a lack of definite perception and without the of the particular standard development, the selection of a measurement base that is contextualized is a per the decision of the user(Pearce, 2014).

In the determination of whether the objectives have been achieved, various factors are to be taken in considered that are: standards inconsistencies, timeframe that is extended for development of standard, lack in the CF perception, and avoiding of the issues of accounting standards.


Backof, A. G., Bamber, E. M., & Carpenter, T. D. (2016). Do auditor judgment frameworks help in constraining aggressive reporting? Evidence under more precise and less precise accounting standards. Accounting, Organizations and Society, 51, 1-11.

De Simone, L. (2016). Does a common set of accounting standards affect tax-motivated income shifting for multinational firms?. Journal of Accounting and Economics, 61(1), 145-165.

Easterly, W., & Levine, R. (2016). The European origins of economic development. Journal of Economic Growth, 21(3), 225-257.

Ezzamel, M., & Xiao, J. Z. (2015). The development of accounting regulations for foreign invested firms in China: The role of Chinese characteristics. Accounting, Organizations and Society, 44, 60-84.

Francis, J. R., Huang, S. X., & Khurana, I. K. (2016). The role of similar accounting standards in cross?border mergers and acquisitions. Contemporary Accounting Research, 33(3), 1298-1330.

Gong, J. J. (2018). Complexity in Simplifying Accounting Standards: The Case of ASU 2016-09.

Hopper, T., & Tanima, F. (2017). Accounting in less developed countries retrospectively and prospectively.

Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.

Ji, X. D. (2017). Development of accounting and auditing systems in China. Routledge.

Kvaal, E. (2017). The role and current status of IFRS in the completion of national accounting rules–Evidence from Norway. Accounting in Europe, 14(1-2), 150-157.

Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services. McGraw-Hill Education.

Macve, R. (2015). A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

Pearce, D. (2014). Blueprint 3: Measuring sustainable development. Routledge.

Sidera, K., & Patsavoudi, E. (2014). HSP90 inhibitors: current development and potential in cancer therapy. Recent patents on anti-cancer drug discovery, 9(1), 1-20.

Wang, C. (2014). Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), 955-992.

Zhang, Y., & Andrew, J. (2014). Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), 17-26.

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