Content area
Full Text
SYNOPSIS: This paper addresses the issues that confront the FASB and IASB in developing a new conceptual framework document. First, we suggest characteristics that a conceptual framework ought to exhibit. Most of these suggestions are based on our critique of the existing framework and the FASB-IASB work in progress. Second, we present a model framework that exhibits these characteristics. We emphasize up front that this framework is quite explicit. It goes to the heart of what a framework document should do: it places specific restrictions on what constitutes admissible accounting standards. The purpose of our effort is to stimulate broad discussion of alternative approaches to foundational documents and to offer a specific example of such an alternative approach.
Keywords: FASB; IASB; conceptual framework; accounting standards; financial reporting.
JEL Classifications: M40.
INTRODUCTION
Standard setters and most academics maintain that accounting standards should be guided by a set of precepts and principles spelled out in a "conceptual framework" document. To that effect, the FASB and IASB are currently involved in a comprehensive project to replace existing documents. The project is ongoing so, at this point, one can only surmise what the defining features will be and what the final product will look like. The task at hand is arguably as challenging as it is intriguing. It is, of course, of great policy significance. This paper takes on the issues that confront the FASB and IASB, albeit in a condensed format.
There are two parts to the paper. First, we suggest characteristics that should define a conceptual framework. Most of these suggestions are based on our critique of the existing framework and the FASB-IASB work in progress. Second, we present a model framework that meets our criteria. We emphasize up front that this framework is quite explicit. It goes to the heart of what a framework document should do: it places specific restrictions on what constitutes admissible accounting standards.
ISSUES WITH THE EXISTING CONCEPTUAL FRAMEWORK
The current conceptual framework in the United States, laid down in Concept Statements Nos. 1 through 7 (hereafter, CON 1-7), has been with us for over 25 years. These documents have been quite limited in their influence. Though the FASB occasionally refers to CON 1-7, from what we can tell individuals familiar...