The accounting framework is a constitution for accountants around the world.
Standards issued by professional accounting organizations should be based on this framework.
The framework consists of basic assumptions such as the economic entity assumption and the monetary unit assumption, basic principles such as the correspondence principle and the historical cost principle, and also constraints such as conservatism. Certain aspects are incomplete, inaccurate and divergent.
The following are some of the deficiencies in the accounting framework:
1. The definition of Assets:
The definition of an asset as resources that have future economic benefits owned by an entity is incomplete and inaccurate since this definition did not clarify tangible or intangible assets and practically all expenditures are expected to generate future benefits.
2. International Accounting Standard 14 (IAS14) and Financial Accounting Standard 14 (FAS14):
The current standards of IAS 14 and FAS 14, which deal with segment reporting, also distort the conceptual framework of accounting, as these standards contradict the unit of account, since it is not necessary to report on segments independently. , since we treat the totality of the segments as a single unit. .
3. Use of fair value in measurement:
Another deviation is the use of fair value in the measurement. In accordance with IAS 36 impairment of long-lived assets, an asset is said to be impaired when its cost is less than its fair value. Applying the concept of fair value contradicts the principle of historical cost. Fair value requires the accountant’s judgment to determine this value, which will be messy, as this will allow the accountant to be biased toward management in determining value, which will affect the fairness of financial reporting.
The accounting profession is in dire need of adjusting the accounting framework to cope with current and future IAS and FAS standards. We hope that the new IFRS (International Financial Reporting Standards) standards will realize the need for adjustment.
