Research Question
The preset report is developed for undertaking a research into a selected area related to financial accounting and reporting. The area of research selected to be explored in this report is examining the importance of conceptual framework for standardization of global financial reporting process. This has been carried out through presenting a critical review of the 8 academic articles selected that has presented an in-depth insight into their research area. The main findings deduced from the critical review have been presented in the findings section followed by providing an explanation of the research area with the selected accounting theories.
This research report aims to present an insight into the issue of importance of developing conceptual framework for attaining standardization in the global financial reporting process. The research area selected is highly significant for developing an understanding of the reasons for developing conceptual accounting framework by the IASB (International Accounting Standards Board). The research report will highlight the contribution of the conceptual accounting framework for promoting harmonization of global accounting standards. The need for attaining standardized global accounting standards for business entities will also be understood through this research report. In addition to this, the research area will help to analyze the need for developing global accounting standards for IASB that ahs lead to the establishment of conceptual framework of accounting. As such, the purpose of this research report is to highlight the significance of general accounting framework of IASB for attaining convergence and standardization of the accounting standards at a global level (Mirza and Ankarath, 2012).
On the basis areas of research, following is the research question:
“How the conceptual framework has promoted the standardization of the global financial reporting process?”
The research article developed by the Fosbre (2009) has cited the reason of the need of businesses to move towards a global economy for adopting the global accounting standards. The article selected is highly important in context of the research area as it has provided an in-depth discussion relation to the need and benefits those businesses worldwide are likely to receive with the development of global accounting standards. In the context of the research area, the article has provided discussion about the need for converging US GAAP (Generally Accepted Accounting Principles) with the IFRS adoption for facilitating the decisions of investors based on improved comparability of financial information and attaining uniformity in the financial statements. The research has provided insight into the need for SEC to mandate the adoption of IFRS to facilitate the US to become a global regulating power (Fosbre, 2009).
Critical Review of Articles
In the area of present research work, the article of Shang (2015) has stated that the adoption of the Conceptual Framework (CF) of accounting is essential for attaining consistency within the accounting standards at a global level. The establishment of the CF by IASB can be regarded as a major step for reducing the friction in the international economic trading and restrictions faced by accountant’s indifferent countries for presenting comparable financial statements. The article is highly important in relation to the research area selected as it has considered and described the factors that are causing the need for IASB to revise the CF of financial reporting for addressing effectively the environment changes (Shang, 2015).
The article developed by Leventi (2009) has discussed and explored the benefits that business entities around the world are realizing with the adoption of the International Accounting Standards. The article developed is highly significant in the context of the research area selected as it has provided a detailed insight into the positive and negative effects that could eventually results from the adoption of international accounting standards based on the principles stated by the CF. It has analyzed and examined the impacts of factors such as financial, social, legal, cultural, political and others that could impede the standardization of global financial reporting process based on the adoption of the CF. The insights provided by the article would helps IASB to overcome the issues that negatively impact the implementation of the CF qualitative characteristics in the financial reporting system of different countries worldwide (Leventi, 2009).
Gaffikin (2006) has conducted the research that has stated the CF is a building block of the financial reporting process across many countries worldwide. The research article has presented a description regarding the benefits that the countries such as Australia and the UK are realizing after the adoption of IFRS. The compliance with the conceptual accounting framework principles has enabled these entities to improve the reliability and relevance of financial information for investors. As such, their global competitiveness has improved which in turn is helping these countries to gain accesses to increased capital funds. Moreover, the article has also discussed the building blocks of the conceptual framework for widening the understanding of the present research area (Gaffikin, 2006).
In the views of Bran, Margarit, and Eftene (2011), conceptual framework has played very important role in harmonization of the financial reporting to ensure the overall economic and social development. This research paper is very important from the point of research topic as it explores the importance of conceptual framework (CF) in harmonization of accounting polices and rules at international level. This research article has provided that after the introduction of the conceptual framework it is easy to lead the countries in accepting the accounting standards developed internationally either through convergence or through direct acceptance. It will help in making the accounting standards same at global level in order to increase the standardization of accounting standards (Bran, Margarit and Eftene, 2011).
Stakeholder Theory and Stewardship Theory
According to Gerber (M), Gerber (A) and Merwe (2015), conceptual framework has contributed a lot in financial reporting through providing a proper guidance to users and prepares of financial report. This research article is significant to the current research proposal as it guides how a conceptual framework contributed in developing the standardized accounting policies and rules to promote the harmonization of accounting standards. This research article has indicated that CF has served as the base for many countries for interpretation and developing the standards of accounting. It means there is huge role of CF in promoting the standardization of accounting procedure at global level (Gerber, Gerber and Merwe, 2015).
As per the thoughts of Merwe and Gerber (2014), conceptual framework is used as the base to draft and interpret the accounting policies, rules and regulations by almost many of the countries around the world. The research article provided by Merwe and Gerber has sufficient information on how conceptual framework has been developed and what role it plays it for promoting and development the accounting standard at global level. The conceptual framework has been developed by the IASB and it contain all the information needed by accounting boards of different countries to produce the set of accounting standards that are globally accepted (Merwe and Gerber, 2014).
According to Kovacs (2015), the main aim of conceptual framework is to provide the financial information that can be useful for the users of the financial statements. In this context it is important that financial data provided in the annual report must be comparable and it is possible only when there are global accounting rules and regulations. CF of financial reporting has played major role in providing a base upon which major of countries around the world has developed their own set of accounting standards that are globally accepted. This research article is highly important from the view point of this research proposal as it provide information regarding the objectives of conceptual framework and guidelines provided by the conceptual framework (Kovacs, 2015).
The critical review of the academic articles in the context of the research has inferred that IASB has undertaken the project of standardizing the global accounting standards for reducing the inconsistencies in the financial reporting process. The development of uniform accounting standards would help the investors and other stakeholders to easily analyze and interpret the financial information. This in turn would help the business entities to strengthen their position within the global financial market by seeking funds from foreign investors. IASB has developed the conceptual accounting framework for achieving its objective of globalizing the accounting rules and policies so that financial information disclosed adequately meets all the significant needs and requirements of foreign investors. The CF building blocks need to be integrated by the business entities within its financial reporting process to comply effectively with the IFRS.
Conclusion
The selected area of research can be analyzed adequately with the use of stakeholder theory of accounting. The stakeholder theory has stated that business entities need to take the actions and strategies that help them to maximize the value created for the stakeholders. As such, the need for adopting CF of financial reporting will help in meeting effectively the varying needs of stakeholders. The financial information developed on the basis of qualitative characteristics of CF such as reliability, faithful presentation, relevance, comparability, timeliness, understandability will help in protecting the interests of investors. In context of this, the stewardship theory of accounting has also stated that managers need to act as responsible stewards of the assets under their control. The goal of stewardship theory can be successfully achieved by the managers through standardization of accounting standards by implementation of the CF of financial reporting as it will help in improving the reliability of financial information disclosed (Wasieleski and Weber, 2017).
Conclusion
It has been found there is requirement to conduct research on the role of conceptual framework in encouraging the standardization of the accounting rules, regulations, polices and standards. There has been huge amount of research conducted on this research topic that will act as the base for this research study.
References
Bran, N.C., Margarit, S.G., and Eftene, N. 2011. Iasb framework regarding the harmonization of financial statements. Journals of the University of Petrosani, Economics 11(4), pp. 53-60.
Fosbre, A. 2009. The Globalization of Accounting Standards: IFRS versus US GAAP. Global Journal of Business Research 3(1), pp. 61-71.
Gaffikin, M. 2006. Regulation: Standardizing Accounting Practice. Accounting & Finance 6(22), pp. 2-17.
Gerber, M.C., Gerber, A.J. and Merwe, A. 2015. The Conceptual Framework for Financial Reporting as Domain Ontology. Twenty-first Americas Conference on Information Systems 4, pp. 1-18.
Kovacs, Z.I. 2015. Reforming the Conceptual Framework for Financial Reporting. Journal of international accounting 2, pp. 186-193.
Leventi, T. 2009. The impacts of the implementation of International Accounting Standards. MIBES, pp.423-429.
Merwe, A., and Gerber, A.J. 2014. An Analysis of fundamental concepts in the conceptual framework using ontology technologies. Journal of Accounting 4, pp. 396-411.
Mirza, A.A. and Ankarath, N. 2012. Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, China GAAP, and India Accounting Standards. John Wiley & Sons.
Shang, T. 2015. The Latest Progress of the Conceptual Framework. Modern Economy 6, pp. 694-699.
Wasieleski, D.M. and Weber, J. 2017. Stakeholder Management. Emerald Group Publishing.
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