It is suggested that several parties can benefit from a conceptual framework. Do you consider that a conceptual framework is more important for some stakeholder groups than others? Explain your reasoning.
Conceptual Framework: In the words of Duska, Duska & Ragatz (2011, p.11) “The conceptual framework is a coherent system of interrelated objectives and fundamentals that is expected to lead to consistent standards and that prescribes the nature function and limits of financial accounting and reporting”. In the light of the above definition it is clear that the main areas of concerns related to financial accounting and reporting that are addressed by a conceptual framework are serving clear objectives of financial reporting, presenting true accounting statements and taking into consideration the relevant assumptions in relation to the environmental and other external factors that have a bearing on the financial reporting and accounting standards.
Having understood the meaning of a conceptual framework, it is sensible to recognize the beneficiaries as the government, stakeholders, creditors and the organization itself. When a conceptual framework is adopted to accomplish the financial reporting and accounting, reliable and consistent financial information is made available to all the relevant parties associated with the organization. With the availability of such resourceful information, the government can very well fulfill its duties towards the society while setting relevant regulatory framework that ensures the protection of interests of the related parties. At the time of need, government can also work out towards providing subsidy grants to the organization. The investors and creditors would also benefit from the truthful financial reporting done on the basis of the conceptual framework. Timely withdrawal of their investments or timely multiplication of their investments can be facilitated by the financial statements that project the true financial picture of the company.
Finally, the organization itself can also benefit from various sources by presenting the correct financial statements pertaining to the business of the company. A company that presents the accurate financial picture wins the confidence of its customers, creditors and shareholders. A bad phase is definite to pass, but a bad experience faced by a customer or shareholder or creditor shall never fade away from the memories of the people. Also, the company by coming out clear on its financial details on its business fulfills the ethical responsibility that it shoulders towards the society.
Conclusion: In my opinion, every beneficiary has his own share of issues that are relevant to his circumstances. Consequently, a conceptual framework thus cannot be more beneficial to one party and less beneficial to another party. In fact, all the parties together form an essential framework within which the company functions and makes efforts to prosper. There can be no such situation where the conceptual framework causes profit to shareholders and cause less profit to the society or government. The point to be noted here is that shareholders form an integral part of society and government. Since, society and government strive towards the prosperity of the customers; a loss to the customers cannot record a benefit for the society. Following a conceptual framework for the purpose of financial accounting and reporting ensure enough control in the hands of the government. Such control in the hands of the government empowers it to take all the necessary measures in order to avoid any fraudulent cases such as Enron and WorldCom.
Similar is the case with the organization. Organization also forms an integral part of the society. Organization alone can never get benefitted by any of the actions that it undertakes. Whatever it performs during its existence reflects clearly on the society, its customers, its stakeholders and the government.
References
1. Alali, F. and L. Cao. 2010. International financial reporting standards - credible and reliable? An overview. Advances in Accounting: Incorporating Advances in International Accounting 26(1): 79-86.
2. Arnold, S. 2009. IFRS risk planning and controls execution. Journal of Accountancy (September): 34-37.
3. Bragg, S. M. 2012. Wiley GAAP 2012: Interpretation and Application of Generally Accepted Accounting Principles. New Jersey: Wiley Publishers.
4. Duska, R., Duska, B. S., Ragatz, J. A. ed., 2011. Accounting Ethics. West Sussex: Wiley Blackwell Publishing.
5. Dean, G. and F. Clarke. 2004. Principles vs rules: True and fair view and IFRSS. Abacus 40(2): i-iv
6. Epstein, B. J., Jermakowicz, E. K. 2010. WILEY Interpretation and Application of International Financial Reporting Standards. New Jersey: John Wiley & Sons.
