Summary for The FASB’s Conceptual Framework for Financial Reporting: A Critical Analysis
Summary
Issue: The FASB’s Conceptual Framework for Financial Reporting: A Critical Analysis
Author: American Accounting Association’s Financial Accounting Standards Committee George J. Benston (Primary author); Douglas R. Carmichael; Joel S. Demski; Bala G. Dharan; Karim Jamal; Robert Laux; Shiva Rajgopal; George Vrana.
Summary:
FASB organizes the discussion of these conditions: users of financial reports, primary use of financial statements- management and investment decisions, cash flow as the objective of financial reporting, limitations of external financial reporting, relevance and trustworthiness, auditing and trustworthy numbers, conservatism bias, balance-sheet and income-statement approach, and the function of the FASB/ IASB. For example, the use of financial statements, which is for investment decisions, is primary use of information in financial reports and stewardship is mentioned, but almost in passing. However, management is not only important, but also more essential for most companies than investment. Another example is cash flow as objective of financial reporting. FASB’s Conceptual Framework states: “The objective for financial reporting could have been stated as CASH or cash equivalents.” And cash flow information provides a perspective on the entity’s economic activates that is largely free from the measurement and related issues inherent in accrual accounting. However, it is more useful for investors if there is more unwieldy use in formulating the financial reporting’s objectives.
Conclusion:
Even though conceptual framework really reflects its core values, CF presently is the same with Preliminary View with emphasis on qualitative characteristics. CF is not an adequate foundation on that to base professional understandings, standards or professional aspirations. Actually, CF is so highly abstract that it is unlikely to be directly useful in setting accounting standards. Furthermore, the intermediate conceptual structure should be a
Issue: The FASB’s Conceptual Framework for Financial Reporting: A Critical Analysis
Author: American Accounting Association’s Financial Accounting Standards Committee George J. Benston (Primary author); Douglas R. Carmichael; Joel S. Demski; Bala G. Dharan; Karim Jamal; Robert Laux; Shiva Rajgopal; George Vrana.
Summary:
FASB organizes the discussion of these conditions: users of financial reports, primary use of financial statements- management and investment decisions, cash flow as the objective of financial reporting, limitations of external financial reporting, relevance and trustworthiness, auditing and trustworthy numbers, conservatism bias, balance-sheet and income-statement approach, and the function of the FASB/ IASB. For example, the use of financial statements, which is for investment decisions, is primary use of information in financial reports and stewardship is mentioned, but almost in passing. However, management is not only important, but also more essential for most companies than investment. Another example is cash flow as objective of financial reporting. FASB’s Conceptual Framework states: “The objective for financial reporting could have been stated as CASH or cash equivalents.” And cash flow information provides a perspective on the entity’s economic activates that is largely free from the measurement and related issues inherent in accrual accounting. However, it is more useful for investors if there is more unwieldy use in formulating the financial reporting’s objectives.
Conclusion:
Even though conceptual framework really reflects its core values, CF presently is the same with Preliminary View with emphasis on qualitative characteristics. CF is not an adequate foundation on that to base professional understandings, standards or professional aspirations. Actually, CF is so highly abstract that it is unlikely to be directly useful in setting accounting standards. Furthermore, the intermediate conceptual structure should be a