International Financial Reporting Framework




Question 1
Short Critical Essays
 Identify the main users of accounting referred to within the AASB/IASB conceptual framework. Does the
identification of particular users within the conceptual framework have implications for the future of
accounting measurement? In your response you will need to consider the implications of the identification
of particular users on the use of fair values and historical cost accounting.
Question 2 
 a) Outline the advantages for accounting that could result from the development of conceptual
b) Refer to the following journal article:
Hines, R (1989), "Financial accounting knowledge, conceptual framework projects and the social
construction of the Accounting profession". Accounting, Auditing and Accountability Journal, 2(2), pp. 72- 92.
Who does Hines believe has the most to gain from the development of conceptual frameworks? Compare
and contrast the views of Hines with the advantages you identified in part a)



Part A


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    With the emergence of the international financial reporting framework more and more individuals and organizations are focusing on its adoption. This framework provides a general guideline and procedures which are required by the accountants in order to present the financial information of the organization. This includes specific principles regarding the disclosure and presentation of different financial activities like the continuity of the values of assets and revenue recognition which will be accepted around the world (Kieso, et. al., 2010). the IFRS require more disclosure of the disclosure of the financial information in comparison of the former accounting standard deals with the goal of financial reporting, definitions, the financial information useful qualitative characteristics, measurement and acknowledgment of the element from which financial statements of the organization are prepared and the notion of capital maintenance and capital.  
    There are several advantages of the general accepted standards and principles which can helps the businesses to get a better understanding of proposed changes which could directly or indirectly affect the business financial reporting and the potential investor evaluation (Soderstrom & Sun, 2007). The global accounting standards are established to dictate the specific treatment of the investor and to resolve the conflict among the international financial reporting standard and the conceptual framework. Some of the advantages of the single set of international accounting standards are as follows:
Comparability- the major advantage of implementation of single set of global accounting standard is the enhancement of comparatively between the organizations of different countries. Presently, a lot of conflict arises because of the great difference in accounting standard of different countries. Currently, if the investors want to compare the financial statement of companies of more than one country then he has to reconcile it. The same problem is faced by the creditors of company. At the time of evaluation of creditworthiness of the company, the accounting standard differences make the different companies look very different, however which are actually very similar in economic shape. In addition to this, global accounting standards also make it easier for the small businesses to evaluate the international investing and cash management options. Currently, the small business owners do not have required resources the compare the international as well as the domestic options (Jeanjean & Stolowy, 2008). 
Central authoritative body- the global accounting standard rule will lead to the creation of one general body for the policy making decisions. This will help to reduce to reduce the disagreement between the international regulators and the countries which arises because currently, the accounting standards are set by each accounting and standard setting body of different countries as well as the by the international body. Switching to global accounting standard will help to reduce a high amount of cost as in many countries the businesses are required to pay the timely reporting fees which go into the find of standard setting bodies of different countries (Ahmed, et. al., 2013). 
International expansion- undoubtedly the adoption of global accounting standards and IFRS will reduce the barriers of expansion of companies into different countries to a very high extent. Currently, before the expansion on global scale, the companies are required to consider the global cost of compliance in order to meet the statutory requirements of that country. In many cases, these cost increases the accounting cost of the company to a very high extent. 
High flexibility- instead of rule based philosophy, the international financial reporting standards uses the principle based philosophy. This philosophy means that the objective of every standard is to arriving at the rational assessment and there are several ways in order to get there. This further provides the freedom to the companies for the acceptance of the international financial reporting standard for the particular situation which lead to the useful or easily read statements. 
    However, there are certain disadvantages of adoption of single standards such as the companies of different countries will have to adjust according to the requirements of new system and they will be forced to incur the extra accounting cost. Another conflict in relation to international financial reporting standard and global accounting standard is the different statutory requirements of different countries. Even if the accounting standards will get generalized in different countries, the other related statutory requirements and laws of countries are different which can significantly hamper the comparability of the financial statements across different countries. However, the benefits of single set of global accounting standard overcome its limitations. 


Part B


    The international financial reporting standards are encouraging the ASX listed organizations to use the fair value accounting for assessment of non-current assets. 
    As per Hines (1991), there are various conceptual frameworks undertaken in the countries of USA, U.K., Australia and Canada. There were many difficulties raised in the operationalization of CF. Initially there were many issues in the policy formulation. The choice among the “fair value accounting and the historical cost accounting” has been the area of research and debate from long time (Laux & Leuz, 2009). The market based evidences on this subject are very less. The fair value of accounting is applied only if the reliable fair value estimate is available at less cost and they provide necessary information about the working performance. We have found a limited use of this accounting method. The historical cost accounting method measures the asset original cost whereas mark to the market measures the asset current market value. In this method the asset which is listed on the financial statements of the company are recorded on the basis of the price at which the company’s asset is bought.  
    The international financial reporting standard is providing free choice among the “historical cost and fair value accounting” for the non financial asset. The other important advantage of the international financial reporting standard is that it requires the ex ante commitment to one of the two accounting policies. When examine under the prism of intersection among the financial organization risk management and capital, the standard setter and the regulators approach towards the purposes of the historical cost accounting and the fair value accounting is the fruitful area of research. The fair value accounting has a significant impact on the consistency. At the time of the declining of financial asset market and changes in the valuation inputs, it is not possible for the information to be consistent. This accounting method seems to result in the situation where the consistency and comparability are more compromised in comparison of the traditional accounting model. The objective of the businesses is to increase the revenue and grow the business, the method of accounting used by them in reporting the profits make the objective of business unrealistic during the inflationary period (Costa & Guzzo, 2013).  
    However there are several benefits of fair value of accounting against the historical cost of accounting. The fair value of accounting is considered as the clear construct and it provides up to date information about the company’s liabilities and fiscal assets, consistent with the business market whereas promoting the rapid disciplinary actions and increasing transparency. It also provides the comparison of the fiscal instruments value which is bought at the different time period. In addition to this it provides investors with the insight into predominating the market value and farther assisting to guarantee to fiscal studies utilities. The historical cost accounting method relies on past dealing monetary value as a result the accounting value is more sensitive to the recent monetary value signal. Some other advantages of fair value accounting are its accurate valuation, measurement of true income, it agreed upon the accounting standard, gives a method for the growth and survival in the difficult economy. However, the fair value accounting also has certain limitations as discussed above such as it creates huge swings of values which happen numerous times during the financial year. It also reduces the investor satisfaction and loses the historical perspective. Even though the current accounting is very important to measure, but tracking the historical cost is also important for better accuracy because as the asset of the organization have a down year and the low net profit, it can further lower the success of the business that they may have had. The problems regarding the fair value accounting method highlights during the global financial crises. At that time companies and banks were generally using the fair value accounting method which increases their performance metrics until those devastating financial crises. In historical cost accounting, the cost generally remains the same and they are helpful at the time of financial crises. In that situation the unpredictable fluctuations in the prices will not affect the business directly. 
    The fair value of accounting has several benefits and limitations which show that the businesses can have a precise and translucent method of tracking the organization’s profit and loss. But as long as the investors and other stakeholders of the company are kept in loop and they have a clear idea of financial functioning of the business, the benefits of the fair value accounting methods outweigh its risk in this matter. 




Ahmed, A. S., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), 1344-1372.
Costa, M., & Guzzo, G. (2013). Fair value accounting versus historical cost accounting: A theoretical framework for judgement in financial crisis. Corporate Ownership & Control, 11(1), 146-152.
Greenberg, M. D., Helland, E., Clancy, N., & Dertouzos, J. N. (2013). Fair Value Accounting, Historical Cost Accounting, and Systemic Risk. Rand Corporation.
Hines, R. D. (1991). The FASB's conceptual framework, financial accounting and the maintenance of the social world. Accounting, Organizations and Society, 16(4), 313-331.
Jeanjean, T., & Stolowy, H. (2008). Do accounting standards matter? An exploratory analysis of earnings management before and after IFRS adoption. Journal of accounting and public policy, 27(6), 480-494.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2010). Intermediate accounting: IFRS edition (Vol. 2). John Wiley & Sons.
Laux, C., & Leuz, C. (2009). The crisis of fair-value accounting: Making sense of the recent debate. Accounting, organizations and society, 34(6-7), 826-834.
Soderstrom, N. S., & Sun, K. J. (2007). IFRS adoption and accounting quality: a review. European Accounting Review, 16(4), 675-702.

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