Journal of Accounting and Management Information Systems (JAMIS)

Difficulties of developing a new conceptual framework

19/2007 ,   p8..27

Maria Mădălina GÎRBINĂ

Keywords:   conceptual framework, convergence, controversies, inconsistencies

In 2004, IASB and FASB agreed to develop a common conceptual framework in order to converge and improve the existing frameworks of the two Boards. As standards setters declare (FASB, A new conceptual Framework Project, 2005), it is wanted to provide a sound foundation for developing future principles-based, internally consistent and internationally converged accounting standards. The project benefits the resources of the two most powerful standard setting bodies in the world and provides a unified approach, which increases the chances of the resulting framework to be accepted.

The adoption of the international standards in the European Union and many other countries has increased the importance of the IASB. It has also made standard setting more difficult as many parties are now concerned about the content of the international standards. While the Framework has an important role to play in future standard setting, the ability of the IASB to develop and apply a robust conceptual framework is uncertain.

The objective of this article is to discuss the inconsistencies of the international accounting framework in its current state and the difficulties of developing a converged conceptual framework. Dean & Clarke (2003) argued that the development of conceptual frameworks have been more a search for a reason for current practice than a re-affirmation of the legal, social and economic environment. So it will be difficult to obtain support for a framework that departs from existing practice and to build a framework to represent practice which differs between countries. The conceptual framework deals with challenging issues of the existing accounting practice, so gaining consensus at the international level will be difficult.
In order to trace an evolution path we propose to identify some cross-cutting issues and to assess if the provisional consensus expressed in the current projects of IASB and FASB corresponds to the stated objectives of standard setters. The analysis has as a premise the fact that the converged framework must be consistent with economic, social and legal environment, internally consistent and comprehensive as a guide for financial reporting. If it fails to fulfill these criteria it will not lead to consistent standards and will lack credibility.

The study inventorizes the controversies related to the objectives of the financial statements, the use of qualitative characteristics, the definitions of the financial position and of the financial performance,  inconsistencies related to the recognition, derecognition and measurement, the necessity of the reporting of risk having the new paradigm change in value management and highlights areas where current practice conflicts with proposals based on framework. The objective is to outline issues, not necessarily to solve them and to consider the implications they have for further developing the converged conceptual framework.