Conceptual Framework Paper

The FASB and IASBs first efforts to create what is known as the conceptual framework began in 2004. The main purpose of the conceptual framework is to create a solid core that combines the existing FASB and IASBs frameworks. They have made progress in many areas and the first that I am going to discuss is qualitative characteristics. Qualitative characteristics are essential because they help describe information that is used for decision making. Relevance and faithful representation are considered to be fundamental qualitative characteristics. Financial information is considered relevant if it has predictive value or confirmatory value. Financial information is considered faithfully represented if it is complete, neutral, and free from material error. Comparability, verifiability, timeliness, and understandability are also qualitative characteristics that influence decision making with respect to financial information. Another issue FASB and IASB wanted to address was the definitions of assets, liabilities, and equity. There were issues with both sets of definitions that needed to be addressed. This prompted the boards to create a single, clear definition for each term. The definition of an asset is a present economic resource to which the entity has a right or other access that others do not have. A liability is defined as a present economic obligation for which the entity is the obligor. Equity is the residual interest in the assets of the company that remains after deducting its liabilities. Recognition and measurement in the financial statements is an area where there are some differences between FASB and IASB. Accrual basis accounting and going concern are the only main assumptions for IASB. This is quite the contrast compared to FASB which recognizes

accrual accounting, going concern, entity, monetary unit, periodicity, historical cost, revenue recognition, matching, full disclosure, and conservatism. Although the United States has many more assumptions, this will be resolved once the conceptual framework is finished. Another difference between the frameworks is capital maintenance adjustments. These adjustments are increases and decreases in equity that arise from revaluation or restatement of assets and liabilities. This process is accounted for under IASB and not under FASB. Overall, there has been decent progress in the convergence of the two frameworks; however, there are still many differences that need to be addressed. It is a difficult process to take two different sets of rules and definitions and combine them into one. Nonetheless, the convergence of the frameworks is something that needs to be done for the sake of everyone. One universal, conceptual framework will be beneficial to everyone by eliminating confusion and allowing people to reference one single set of accounting standards.