This essay presents the evaluation that developing conceptual frameworks are a time wasting activity. In essence, it elaborates the notion that the perfect description of managerial accounting as referenced by internationally recognized best practices is a mere waste of time. Conceptual frameworks of accounting can on the other hand serve as route map for the evaluation of management accounting, more so in an organization’s operations.
A conceptual framework is simply an intermediate theory which strives to interrelate to all features of inquiry under study. It is indeed a collection of various concepts which categorically illustrated and analytically organized so as to present a focus, a justification, as well as a way for interpretation and integration of information. Quite often, theoretical systems are part and parcel of conceptual frameworks. It assumes the role of a map offers rationality to pragmatic inquiry. Conceptual frameworks of accounting are thus theories which strive to explain the accounting concepts, knowledge, and process of induction, social construction, accounting users as well as various accounting theories.
The history of conceptual framework of accounting is referenced to Paton. The earliest attempts to develop a conceptual framework in the U.S. accounting literature were by William A. Paton and John B. Canning. In his Accounting Theory (1922), Paton presented a restatement of the theory of accounting consistent with the conditions and needs of the business enterprise for an excellence performance of the large corporation. The first person to develop and present a conceptual framework for asset valuation and measurement was Canning. The valuation and measurement of assets founded vividly on the future anticipations. During the 40 years since the Paton and Littleton monograph, accounting practice has developed substantially along the lines specified in the monograph, and rationalization and theory consistent with the monograph have been widely used and have been common in authoritative pronouncements. Its establishment was majorly focused on the preparation of financial statements whose main function was to communicate information concerning the nature and value of the economic resources of a business enterprise, the interests of creditors and the equity of owners in the economic resources, and the changes in the nature and value of those resources from period to period. This information was then to be used by the accounting users. But before an individual makes use of any information, knowledge must be gathered and constitutes the process of induction (POI) by individuals, organization as well the government who are interested in accounting information.
It is true that basic sources of knowledge may stem from memory, faith or reason in that without either of these, meaning may not be comprehended. The knowledge gathering approaches or the processes of induction (POI) can generally be the inductive process or the deductive process. I tend to believe that the inductive approach typically depends on the information of the practical world, which is essentially employed to make illustrations and theories concerning what is already visualized. This was also asserted by Hines, (1988). Facts derived from induction are usually hypothetical. Nevertheless, the deductive process entails the development of theoretical and conceptual structure before carrying out testing via practical observation and measurement. Hypothesis is rejected or accepted after a thorough study of the theoretical consequences. After studying the consequences, the facts for either accepting or for disapproval of hypothesis are gathered. Acceptance or rejection facilitates hypothesis testing. This method therefore studies the consequences of the established hypotheses. After in depth analysis, an individual accepts or disapproves relationships of hypothesis among the variables inferred from the earlier theories. This way, an individual is believed to have gathered knowledge.
The preparation of financial statements is governed by the practices of standard accounting. However, unavailability of transparency in accounting standards may basically be experienced in some countries. Some countries, specifically in Asia still contravene accounting standards.
Usually, organizations continuously need to report their financial position to the various concerned parties. It is worth pointing out that accounting happens in the society and is conducted by the people. Accounting is a language that is often used to speak financial as well other pertinent information to interested people, government as well as to other organizations. According to Davis, Menon and Morgan, (1982), the understanding of the connection between the society and accounting constitutes social construction of accounting. It is therefore factual to say that the interrelationship of individuals who work together constitutes a society. As a form of communication, I believe accounting is basically employed in communicating an organization’s financial information to people, to the government as well as to the interested organizations. This needed information is helpful as it assists interested parties make wise decisions thereby minimizing uncertainty. This is a major benefit that accounting information provides to its users--reduction of uncertainty as wiser decisions can be easily made.
In fact, different interested organizations, various people as well as various countries’ governments are the major parties and users of accounting information. Since accounting communicates financial information, users are privileged to effectively mitigate problems relating to allocation of the scarce available resources, what to purchase or offer for sale. This is beneficial in the day to day resource allocation. Alternatives are easily made by the users thereby minimizing uncertainty. The states or governments have stakes in accounting information merely for taxation purposes. There is unique coexistence between accounting and the state. Traditionally, accounting profession is in existence simply because it was created by the government. A slight mess up of any government in scandalous activities sends disaster.
The Conceptual Framework of Accounting is a coherent system of interrelated objectives and fundamentals. Financial framework of accounting serves various purposes. It essence, it defines the boundaries of accounting by providing; the basic objectives and users, definitions of key terms as well as the establishment of fundamental concepts in accounting. Another significant purpose of conceptual framework of accounting is the provision of a description of current practice and frame of reference for the merging accounting issues as well as the provision of assistance to accountants and other relevant authorities in selecting between up to standard available accounting alternatives. Accounting as artifact, i.e. as a collection of specific theories, conventions, and practices, is a tangible product of this sense-making process.
Solomons (1991), states that a core function of an accountant is not to make a financial report of an organization but rather to report the financial performance of an organization. Marginalism has practically monopolized all accounting reflection about value theory, notwithstanding the fact that in order to resolve technical problems of concept of operationalization and measurement, accountants have deviated from the marginalist model. These deviations and compromises have all been in terms of the fine print, however; even the much vaunted area of social accounting is nothing more than marginalism with externalities, (Tinker, 1985). This remains to be a fact in my opinion.
In my understanding, accounting theory, like any social belief, is not merely a passive representation of reality, but it is an agent in changing (or perpetuating) a reality. Tinker, (1985), had a similar opinion. In reality, marginalism provides accounting with a slanted picture of reality that affects both how the latter misperceives, and how it acts on, reality. This slant is ideological insofar as it misconstrues circumstances and events in order to promote certain partisan interests. Accountants often see themselves as objective appraisers of reality, representing reality "as is", (Tinker, 1985). I have the same opinion due to the fact that the information presented to the users to a greater extent presents the reality of an entity’s financial health.
I tend to perceive the accounting theory as both a product of context and also a means of shaping and changing context. It is a social construction which articulates and makes sense of a particular social situation in a way that serves a set of structural requirements which stem from the nature of that situation. This opinion is as well supported by Davis, Menon and Morgan, (1982).
According to Tinker (1985), the malign influence of accounting on society stems from the values that are attached to goods and services and resources by the marginalist theory of value in accordance with which a capitalist economy is regulated or self-regulated. He asserts that the values accountants could use are un-understandable. Social construction theory of accounting on the other hand purports that accounting is a form of communication and therefore judged as an influence of the existing societal relationships basically via the information it prioritizes to report on.
Social construction of accounting tests the usual financial accounting for failure to present wider image of the interface between the organizations and society. This social construction is in essence normative in nature and strives to make broader the accounting scope. In my opinion, I believe that for accounting to be socially constructed, it should among other factors; it should not be inclusively be presented in terms of finances, it should as well value the events which are past economic events, accountability should be extended to a larger set of stakeholders and that it should not only report the organization’s financial success. This has quite often not been the case as most accountants report their fair view and majorly report an entity’s success without a mere mention of failure. Social construction thus is more of an external affair or what is termed by Tinker, (1985) as the economic notion of externality. The corporate accountability should be at all times put at the forefront of any business undertaking. This leads me to the accounting images.
In essence, there are four basic images that have shaped financial accounting’s development. These are those images that have regarded financial accounting as either an information system, as a historical record, as a modern economic reality descriptor or as a commodity. These images reveal the nature of controversies in surface of accounting without apparent resolution. Accounting as a current economic reality stresses that accounting should concern with depicting modern economic reality. This image is drawn from the notion that future and current price changes influences an organization’s behavior. Therefore, there should be need for developing accounting statements like the profit and loss account and the balance sheet; which shows the prices as opposed to the historical prices. On the other hand, historical image of accounting lay emphasis on the maintenance of faithful record of the actual exchange events of an organization. In addition, I concur with this image since it lays emphasis on the information’s reliability, verifiability as well as how well it can be quantified. An information system’s accounting image questions the importance of usefulness--a basis that accounting data is basically for the users and that accounting is in existence due to the fact that users need valid and up to date information. This notion is as well supported by (Davis, Menon and Morgan, 1982). So long as there is existence of demand and supply, accounting information must be produced. I understand the information from accounting as an economic commodity created as a result of the existence of demand and supply. Davis, Menon and Morgan, (1982), classify this notion as accounting as a commodity.
Before I conclude, the most basic accounting principle is the true and fair vision. I believe that organizations should at all times offer truthful as well as fair view of the financial health and results of its operation. However, it doesn’t need to be the absolute truth but a relative truth of an organization’s picture. An organization can only accomplish this truthfulness only when it complies with the general principles of accounting.
Over the whole, it evident from the essay that accounting happens in the society and that is conducted by the people and for the people. Major accounting users recognized is the government, organizations and the people who use the information for resource allocation. In the process of reporting the matching concepts, historical concepts and the going concern concepts must be adhered to. Be it as it may, the accounting images; accounting as historical event, as a modern economic event and as an information system have been handled. It is noticed from the essay that social construction is basically normative in nature and strives to make broader the scopes of accounting and thus advocates for the economic concept of externality.
References
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