Case Study 4.

Revisiting the conceptual framework

The FASB and IASB began a joint agenda project to revisit their conceptual
frameworks for financial accounting and reporting in 2002. Each board bases its accounting
standards decisions in large part on the foundation of objectives, characteristics, definitions,
and criteria set forth in their existing conceptual frameworks. The goals of the new project are
to build on the two boards' existing frameworks by refining, updating, completing, and
converging them into a common framework that both Boards can use in developing new and
revised accounting standards. A common goal of the FASB and IASB, shared by their
constituents, is for their standards to be 'principles-based'. To be principlesbased, standards
cannot be a collection of conventions but rather must be rooted in fundamental concepts. For
standards on various issues to result in coherent financial accounting and reporting, the
fundamental concepts need to constitute a framework that is sound, comprehensive, and
internally consistent.

Without the guidance provided by an agreed-upon framework, standard setting ends up

being based on the individual concepts developed by each member of the standard setting body.
Standard setting that is based on the personal conceptual frameworks of individual standard
setters can produce agreement on specific standard-setting issues only when enough of those
personal frameworks happen to intersect on that issue. However, even those agreements may
prove transitory because, as the membership of the standard-setting body changes over time,
the mix of personal conceptual frameworks changes as well. As a result, that standard-setting
body may reach significantly different conclusions about similar (or even identical) issues than
it did previously, with standards not being consistent with one another and past decisions not
being indicative of future ones. That concern is not merely hypothetical: substantial difficulties
in reaching agreement in its first standards projects was a major reason that the original FASB
members decided to devote substantial effort to develop a conceptual framework.

The lASB Framework is intended to assist not only standard setters but also preparers
of financial statements (in applying international financial reporting standards and in dealing
with topics on which standards have not yet been developed), auditors (in forming opinions
about financial statements), and users (in interpreting information contained in financial
statements). Those purposes also are better served by concepts that are sound, comprehensive,
and internally consistent. (In contrast, the FASB Concepts Statements state that they do not
justify changing generally accepted accounting and reporting practices or interpreting existing
standards based on personal interpretations of the concepts, one of a number of differences
between the two frameworks.)

Another common goal of the FASB and IASB is to converge their standards. The
Boards have been pursuing a number of projects that are aimed at achieving short-term
convergence on specific issues, as well as several major projects that are being conducted
jointly or in tandem. Moreover, the Boards have aligned their agendas more closely to achieve
convergence in future standards. The Boards will encounter difficulties converging their
standards if they base their decisions on different frameworks.

The FASB's current Concepts Statements and the IASB's Framework, developed
mainly during the 1970s and 1980~~ articulate concepts that go a long way toward being an
adequate foundation for principles-based standards. Some constituents accept those concepts,
but others do not. Although the current concepts have been helpful, the IASB and FASB will
not be able to realise fully their goal of issuing a common set of principles-based standards if
those standards are based on the current FASB Concepts Statements and IASB Framework.
That is because those documents are in need of refinement, updating, completion, and
convergence.

The planned approach in the joint project will identify troublesome issues that seem to
reappear time and time again in a variety of standard-setting projects and often in a variety of
guises. That is, the focus will be on issues that cut across a number of different projects.
Because it is not possible to address those cross-cutting issues comprehensively in the context
of any one standards-level project, the conceptual framework project provides a better way to
consider their broader implications, thereby assisting the boards in developing standards-level
guidance.

As noted in the chapter, the boards have issued and received comments on an exposure
draft relating to Phase A Objectives and Qualitative Characteristics. A discussion paper relating
to Phase D Reporting Entity had been issued and work is continuing on Phase B Elements and
Recognition and Phase C Measurement.

Questions

1. Explain why principles-based standards require a conceptual framework.

2. Why is it important that the IASB and FASB share a common conceptual framework?
 3. It is suggested that several parties can benefit from a conceptual framework. Do you
consider that a conceptual framework is more important for some parties than others?
Explain your reasoning.
4. What is meant by a 'cross-cutting' issue? Suggest some possible examples of
crosscutting issues

Answers

1. Istilah principle-based standards mengacu pada standar yang didasarkan pada prinsip-
prinsip tertentu yang ditetapkan oleh standard setter dengan berpedoman pada
conceptual framework. Conceptual merupakan hal mendasar dalam segala aspek
pekerjaan, termasuk penetapan standar. Jika tidak ada pemahaman atas conceptual
framework, bahkan jika prinsip-prinsip ditetapkan, orang yang bekerja mungkin
berakhir menjadi robot dan melakukan apa yang tertulis pada prinsipnya tidak memiliki
pemahaman tentang apa yang dia lakukan. Selain itu, Principle-based standards
memerlukan adanya conceptual framework untuk beberapa alasan:
a. Conceptual Framework membuat standar menjadi berakar pada konsep
fundamental bukan berasal dari konvensi semata.
b. Conceptual framework membantu menghasilkan akuntansi dan pelaporan
keuangan yang koheren dan komprehensif.
c. Conceptual Framework memastikan konsistensi dengan standar yang lain dan
keputusan masa lalu dan menjadi pedoman pengambilan keputusan masa depan.
d. Conceptual Framework memastikan bahwa standar tidak dihasilkan dari konsep
yang dikembangkan melalui pemahaman individual.

2. The FASB's current Concepts Statements dan the IASB's Framework, dikembangkan
sudah sangat lama yaitu pada tahun 1970-an and 1980. Meskipun konsep yang ada saat
ini sudah membantu, IASB dan FASB tidak akan dapat mewujudkan sepenuhnya tujuan
mereka dalam menerbitkan seperangkat principle-based standards jika standar tersebut
masih didasarkan pada current FASB Concepts Statements and IASB Framework. Oleh
karena itu, Penting bagi IASB dan FASB untuk berbagi kerangka konseptual umum
dengan tujuan untuk memperbaiki, memperbarui, menyelesaikan, dan menyatukannya
ke dalam kerangka umum yang dapat mereka gunakan dalam mengembangkan standar
akuntansi.
3. Sebagaimana disebutkan dalam artikel bahwa Kerangka konseptual memiliki peran
penting dalam proses penetapan standar karena menyediakan kerangka kerja untuk
pengembangan standar yang koheren berdasarkan prinsip konsistensi. Oleh karena itu,
standard setter merupakan pihak utama yang mendapatkan manfaat dengan adanya
kerangka konseptual. Kerangka konseptual memungkinkan standard setter untuk
mengembangkan standar berdasarkan prinsip-prinsip yang disepakati, bukan
berdasarkan individual konsep yang memiliki risiko inkonsistensi dengan standar lain.
Meskipun begitu, kerangka konseptual yang komprehensif dan konsisten juga
memberikan manfaat bagi pihak-pihak selain standar setter dalam mencapai tujuannya
masing-masing. Pihak-pihak selain standard setter tersebut antara lain:
 Penyusun laporan keuangan dalam menerapkan standar pelaporan keuangan
dan dalam menghadapi berbagai permasalahan yang belum diatur dalam standar
 Auditor dalam merumuskan opini terkait laporan keuangan
 Pengguna laporan keuangan dalam menginterpretasikan informasi dalam
laporan keuangan

4. Cross-Cutting Issue?
solution manual
Cross cutting issues are those which relate to more than one standard. That is, the issue
comes up when various standards are being considered. Examples are the definition and
recognition criteria for assets, liabilities and equity. Revenue recognition matters and
financial instruments are other examples. In addition, measurement is a problem area.
For example, standard setters have not found an obvious way to decide when to value
items at historical cost and when fair or market value should be used.