2. Some people argue that there is no need for a general theory of accounting,as
established in a conceptual framework. They argue that there is no overalltheory of
physics, biology, botany or psychology, so there is no need for anoverall theory of
accounting. Furthermore, attempts to develop an overalltheory of accounting are
futile and unnecessary, since accounting has notneeded a conceptual framework so
far. Debate this view.
It is true that in the physical sciences, there is no overall theory of a given field of
study.There is no theory of chemistry, or biology, etc. Some scientists have
attempted toformulate such theories, but have failed. It is generally agreed that such
theories wouldbe beneficial because they would provide an integrated explanation of
all aspects of thegiven field of study. At present, different theories in a given
discipline — for example,in biology — remain as separate categories, and often the
connection of one theory toanother is not known.
3.What d o e s t h e I A S B Frameworkd e s c r i b e a s t h e b a s i c o b j e c t i v e
o f accounting? What are its implications?
Stewardship looks primarily to the past, asking the question: What
happened?Decision making looks to consequences in the future, asking the
question: What willhappen? A decision-making approach sees accounting
information as inputs for thedecision-making prediction models of users. If so, then
we are concerned about whatkind of accounting information is relevant to
decision makers. Some believe thatcurrent value is implied. Also that statement
of financial position accounts and theiramounts are as important as those in the
income statement. Traditional accountingemphasises income.
4.What type of information do you think is useful for shareholders, lenders andcreditors?
Is this the type of information that is currently provided?
Useful information is both relevant and reliable. Presumably, it is also ‘fair’.Adopting a
narrow perspective, useful information provides a basis for investors andcreditors
to assess the amount, timing and uncertainty of future cash flows
forthemselves based on the expected cash flows of the firm. Such a basis is provided
byinformation concerning the profitability and financial condition of the firm. In
turn,this information is presently reported in the statement of financial performance
or thestatement of financial position, and the statement of changes in financial
position. Forthe latter, many believe a cash flow statement is especially
pertinent.Taking a broader view, useful information helps to efficiently allocate
capital in theeconomy.
5. The expressions ‘truth’, ‘justice’ and ‘fairness’ have all been applied
todescribe desirable characteristics of accounting information. What role doyou
think they play in practice? Are they included in the IASB Framework?If so, how? If
not, why not?
Truth, justice and fairness are socially desirable goals. Accountants should be
concernedthat the information they report is true, just and fair. The audit
opinion indicates aconcern for the above-stated goals. Useful information is relevant
and reliable, and theselatter terms encompass the broader ones of truth, justice
and fairness. However, weshould understand that what is true, just and fair often
depends on who is making thejudgement. The company may believe that its
financial statements meet the criteria oftruth, justness and fairness, but the
shareholders may not think so. Accountants are oftencaught in the middle. This is all
the more reason why a general theory of accounting,especially one that is
supported by evidence, is important to accountants.Students should be asked if the
following procedures cause information to be ‘true, justand fair’: LIFO inventory
valuation; historical cost of land purchased 20 years ago.
6. Explain the role of accounting in relation to:
(a) individuals
(b) firms
(c) the Australian economy.
Q7.Can accounting ever provide an unbiased map of economic reality? Why orwhy
not?
Yes. Criticisms of neutrality or freedom from bias take two forms. First, some argue it
isa state of mind that is not attainable, because all of us are affected by personal
valuesthat have been shaped by our particular beliefs, traditions, environment,
background andpersonality. Granted that this is true, it is still meaningful to
speak of neutrality or
YES
Preparers has to represent the statement faithfully (Framework 33-34)
Financial statements has to be neutral (Framework 36)
FR is audited by independent auditors.
NO
Judgement , assumptions, estimations involved. Different people have different
judgement.
Accounting could NOT capture every need of different people. Some people love to
take a close look on profits, while some people prefer dividends. There are multiple
economic realities.
The role of standard and qualitative characteristics in accounting choices.
Framework establishes the objective of general purpose financial statements, that is
to provide useful info to a wide range of users in making economic decision(Framework
para12). Assumption about users and their information needs underlie this objective
(Framework, para. 9).
Qualitative characteristics are derived from these assumptions and assist preparer to
achieve the objective.
Definitions and recognition criteria follow the qualitative characteristics.
Measurement rules or principles that should be used in accounting should, then, be
those that are most consistent with the objectives, qualitative characteristics (e.g., what
is more relevant, what is morereliable) and definitions and recognition criteria.
9.What is the difference between art and science? Is accounting an art or a science? Does
it matter? Why or why not?
The difference between art and science
The criterion is that art is drawn to the sensory side of human perception. It gives the
author an opportunity to express his moods, manifestations of individuality and
creativity. The artist is guided by inspiration. He is interested in the emotions of the
soul, pleasure, anticipation, and not strict limits and norms.
The product of art is a unique work, which has a figurative character. In terms of skill, it
is at the highest level. The artistic power of this work is such that it makes those who
perceive it experience strong emotions and rethink their lives. The difference between
art and science is that it appeals to the heart.
Science is strict and objective. It forms knowledge about reality, which take the form of
axioms, formulas, descriptions of phenomena. Scientific knowledge is always reliable,
since all the researched passes through a critical analysis, is confirmed by facts and
experiments. Science relies on logic, leaving behind feelings and emotions
Accounting can be considered an art because it requires creative judgment and skills. In
order to perform accounting functions well, discipline and training is required.
Accounting can also be considered a science because it is a body of knowledge, but since
the rules and principles are constantly changing and improving, it is not considered an
exact science. The American Institute of Certified Public Accountants (AICPA) defines
accounting as: "the art of recording, classifying, and summarizing in a significant
manner and in terms of money, transactions and events which are, in part at least of
financial character, and interpreting the results thereof".
10. The development of a SME standard by the IASB will defeat the purpose of
international harmonisation.’ Explain why you agree or disagree with this statement.
✘How important is it that standard setters agree on objectives, concepts and definitions
before they develop a conceptual framework of accounting?
✘How important is it that the conceptual framework is generally accepted by the
business community before it is applied to develop accounting standards?
✘Penting bagi kerangka konseptual untuk diterima oleh setiap perusahaan agar nantinya
tidak ada perusahaan yang merasa dirugikan dengan adanya kerangka konseptual
tersebut
✘FASB dan IASB telah memulai sebuah proyek konvergensi, untuk menghilangkan
perbedaan antara standar masing-masing dan untuk menyesuaikan agenda pekerjaan
mereka. Standar yang dihasilkan oleh kedua badan tersebut harus mencerminkan
prinsip-prinsip dasar yang terkandung dalam kerangka konseptual mereka.
14. Why has the FASB been directed to produce more principle based standards? Do you
consider this to be a realistic standard setting objective?
FASB semakin diarahkan ke principle based dan meninggalkan rule based karena
beberapa alasan. Penekanan betapa pentingnya principle based dibandingkan ruled
based timbul dari kejadian di tahun 2001-2002 di US. Rule based yang cenderung
berisikan syarat-syarat mendetil yang harus diikuti oleh pengguna standar akuntansi,
malahan dijadikan tameng atas pencatatan akuntansi yang tidak benar seperti yang
terjadi pada Enron. Jatuhnya Enron karena menggunakan SPE (special purpose entities)
sebagai celah untuk menyembunyikan penyimpangan yang dilakukan oleh manajemen.
Penyalahgunaan akuntasi yang mencari-cari celah lewat aturan ini, menimbulkan
keprihatinan dalam penggunaan rule based. Oleh karena itu, FASB mulai
memperkenalkan standar yang berbasis principle based.
Walaupun principle based tidak memberi petunjuk terperinci seperti rule based dan
dapat menyebabkan interpretasi yang berbeda-beda, tetapi secara teori penerapan
principle based lebih realistis. Dengan principle based, akuntan akan membuat berbagai
professional judgement dan membuat estimasi yang harus dipertanggungjawabkannya.
Pada akhirnya, professional judgement yang harus dipertanggungjawabkannya
menyebabkan akuntan lebih hati-hati dalam praktik akuntansi.
15. Discuss whether the Australian conceptual framework is merely a policy document
based on professional values and self-interest, without scientific foundation. In your
discussion, state your opinion on whether the conceptualframework should serve as a
policy document in this manner.
hiss question covers the last part of the chapter under the heading ‘Professionalvalues
and self-preservation’. Students can expand on the following major points:
Accountants have a special status in the society. In Australia this is witnessed by the
Royal Charter endowed on the Institute of Chartered Accountants, the profile associated
with the CPA program of CPA Australia (formally the Australian Society of CPAs), and the
professional monopoly by the two major accounting bodies.
The ability of the accounting profession to retain legitimacy as a profession will be
judged by society, in terms of the apparent coherence and theoretical defensibility of
the profession’s body of knowledge; hence the need for a conceptual framework (Hines,
1989)
.The conceptual framework plays a vital political role in maintaining self-regulation
and in lobbying against increased regulation by government bodies.
A conceptual framework program alleviates the criticism of the diversity of accounting
standards — a major threat to the profession’s loss of control of the standard-setting
process.
The conceptual framework project is not about setting rules for accounting practice;
rather, it is about legitimising the process of accounting practice
.16. Assume that you have been contracted by the Australian Accounting Standards Board
to develop a proposal regarding whether to issue an accounting standard on accounting
for the costs of environmental damage. Draft a proposal of 1500 words or less outlining
why you think it is appropriate, or inappropriate, to develop an accounting standard on
this issue. Also outline the key issues that would need to be covered by the standard and
how the conceptual framework cancontribute to resolution of those issues.
The purpose of this question is that the students should be able to apply what they have
learnt from the conceptual framework project and other readings to the general issue of
standard setting. The best way to approach the question is to address the following key
points:
17.Write a report of 1500 words or less to the chairpersons of the Financial Reporting
Council and the Australian Accounting Standards Board, commenting on the following
argument: Attempts to bring about radical change through the introduction of a conceptual
framework have failed. When it appeared as though SAC 4 would require firms to report a
greater number of liabilities, lobbying began in earnest and business ensured that any
innovation was quashed. As such, the best that can be hoped for from a conceptual
framework is that it legitimises current practice, maintains existing social and economic
status, and staves off public sector attempts to control accounting standard setting.
Salah satu tujuan adanya conceptual framework adalah adanya panduan sehari-hari bagi
praktik akuntansi. Sebuah pandangan yang dangkal menyatakan bahwa conceptual
framework mengindikasikan bahwa akuntan setidak-tidaknya mengikuti satu jalur ilmiah
dalam praktik akuntansi yang digeneralisir. Artinya conceptual framework diharapkan
disusun berdasarkan pendekatan ilmiah yang memiliki bukti empiris atas praktik
akuntansi terbaik sehingga dapat mengurangi inkonsistensi dalam praktiknya akuntansi
Meskipun demikian, apabila dikaitkan dengan SFAC 5 tentang pengakuan dan
pengukuran, tujuan awal conceptual framework ini seolah dilupakan. SFAC 5 menjelaskan
elemen laporan akuntansi berdasarkan observasi atas praktik akuntansi terkini semata
bukan hasil dari studi ilmiah. SFAC No 5 menyatakan di paragraf 35, 51, 108 bahwa
konsep akan terus
18. What is business risk auditing? How does it differ from traditional substantive auditing? Why do
critics believe it is used to justify selling more consulting services to audit clients? How could business
risk auditing be blamed for failures such as Enron?