Using a conceptual framework in setting accounting standards

Ian Dennis

Business School
Oxford Brookes University

Abstract

The paper examines the nature and role of a conceptual framework for financial reporting. Although much has been written about such frameworks and their purported role and the FASB and IASB are currently revising and converging their frameworks there are still questions about the kind of thing it is and how it is used in setting accounting standards. Using insights from the philosophical literature this paper considers the nature of the statements that appear in the chapters of the conceptual framework on objectives and qualitative characteristics. It then considers how these statements are used by standard setters in reasoning towards accounting standards. The kind of reasoning involved and the type of statements that are used in such reasoning is examined. The idea that some of the statements in the conceptual framework express desires that are to be fulfilled by financial reporting regulated by accounting standards is explored. These should be conceived as expressing general desires that are used in practical or instrumental reasoning towards accounting standards rather than as universal desires that enable the deduction of such standards. The need for the exercise of judgement in such reasoning is explored. The nature of the other statements in the conceptual framework is ambiguous. They are sometimes taken to be empirical statements about how the desires are to be fulfilled and sometimes taken as statements about the meaning of expressions used to express these desires. The paper suggests that the development of the conceptual framework would be easier and the final product would have more credibility if its nature and role was more clearly understood.

Key words: Conceptual framework; instrumental reasoning; judgement;