7101AFE Financial Accounting Theory And Practice Essay
970 WordsApr 30th, 20154 Pages
7101AFE Financial Accounting Theory and Practice
Tutorial Questions for Tutorials 1- 6: Semester 1 2015
TUTORIAL 1 - Semester 1 2015
Deegan Topic 1: Introduction to financial accounting theory
QUESTION 1 – Question 1.2:
If you developed a theory to explain how a person’s cultural background influences how they prepare financial statements, would you have developed a positive theory or a normative theory?
The first of all, it is important to understand the mean by a ‘theory’. According to Contemporary Accounting Theory 4e,
Oxford English Dictionary provides various definitions, including:
A scheme or system of ideas or statements held as an explanation or account of a group of facts or phenomena
A positive theory based on some…show more content…
In term of accounting, the conceptual framework of accounting should be considered as a normative theory of accounting. Because of a normative theory based on the norms (or values or beliefs) held by the researchers proposing the theories.
QUESTION 3 – Question 1.27 (NEW):
The International Accounting Standards Board has a number of roles, including formulating accounting standards and developing a conceptual framework. Is the work they do in developing an accounting standard or the conceptual framework normative or positive in nature?
In the given circumstance, the conceptual framework of accounting is an example of a normative theory of accounting. Relying on various assumptions about the types or attributes of information useful for decision-making, The CFA provides guidance on how assets, liabilities, expenses, income and equity should be defined, when they should be recognized, and ultimately how they should be measured.
It also shows in Australia Accounting Standards Board (AASB) website,
The original framework document and any previous compiled version can be found using the Browse for pronouncements page
In the table below, the Notes column identifies when the framework document listed is a compiled version. “Extra” identifies when additional IASB supporting material (e.g. Basis for Conclusions) is available.
(Word count: 117)
QUESTION 4 - Question 1.33 (NEW):
In this chapter
In financial reporting, a conceptual framework is a theory of accounting prepared by a standard-setting body against which practical problems can be tested objectively. A conceptual framework deals with fundamental financial reporting issues such as the objectives and users of financial statements, the characteristics that make accounting information useful, the basic elements of financial statements (e.g., assets, liabilities, equity, income, and expenses), and the concepts for recognising and measuring these elements in the financial statements.
Benefits of a conceptual framework for financial reporting include: establishing precise definitions that facilitate discussion of accounting issues; providing guidance to accounting standard setters when developing and reviewing financial reporting rules; helping to ensure that accounting standards are internally consistent; helping preparers and auditors to resolve financial reporting problems in the absence of an accounting standard; and helping to limit the volume of accounting standards by providing an overarching theory of accounting that can be applied to specific reporting problems.
The first conceptual framework for financial reporting was developed in the 1970s by the Financial Accounting Standards Board (FASB) in the US. Since then, most standard-setting bodies in developed economies have sought to develop their own conceptual framework to help guide the standard-setting process. Accordingly, the International Accounting Standards Board (IASB) developed its own conceptual framework that describes the basic concepts underlying financial statements prepared in conformity with International Financial Reporting Standards (IFRS). Preparers and auditors cannot ignore the IASB’s framework when applying IFRS (see IAS 8 Revised).
In September 2010, after working closely with the FASB, the IASB issued a revised version of its conceptual framework (Conceptual Framework for Financial Reporting 2010). According to this revised document, the two primary objectives of financial statements prepared under IFRS are economic decision-making and stewardship. The main users of financial statements are considered to be equity investors, lenders and other creditors, while the primary characteristics that make financial reporting information useful to these groups are relevance and faithful representation.