The joint FASB/IASB Conceptual Framework project is made of six different parts covering the total range of financial reporting including (i) objectives of financial reporting, (ii) underlying assumptions, (iii) characteristics of financial reports, (iv) definition of the elements, (v) recognition and measurement of the elements and (vi) form and content of financial reports (Gore & Zimmerman, 2007).
According to the decision of the Boards the Conceptual Framework project will be divided into phases. The objective of the first phase is to get the convergence of the frameworks and improving the Framework with respect to its different parts. The Boards envisage that the converged Framework should be presented in a single document that contains a summary and a basis for arriving at conclusions (Deloitte, 2008). (ii) Success of the Conceptual Framework
While corporate reporting more or less empowers the investors who drive the growth of capital markets in the country, the new accounting and financial reporting models have been found t have achieved limited success in bringing coherent and workable reporting models in to practice. It has been a long time issue that remains unsolved that there should be an improved corporate reporting framework since it is felt that the current national and international reporting models suffer from basic inadequacies.
The underlying need for changed reporting ranges from providing more user-friendly information as well as to provide for greater regulatory requirement. Since cohesion in these varied requirements is not possible the adoption or formulation of a universally accepted framework has not progressed much. Despite the research being conducted by the international accounting standard setting bodies and the concern over the inadequacy of the existing models there is no development in the right direction to provide a comprehensive framework.
The basic problem with all new reporting models prescribed is that they generally revolve around the concept of more non-financial narrative reporting that does not really meet the expectations of the utility of the financial reports as perceived by the actual users. In the frameworks developed so far there has been a constant thrust on non-financial narrative reporting which is evident from the examples of ‘forward looking information and value drivers’, reporting on ‘intangibles’ and ‘digital reporting’.
In the case of forward looking information the reporting models underpin the idea that stakeholders would like to have more information which are forward looking despite the fact that such information may be historical in effect. With the thrust on this the frameworks focus on non-financial measures which have a bearing on the financial performance and their impact on the future course of the business of the entity. Examples of such information include success on innovations, customer satisfactions, awards, staff turnover and the like.
These types of information make the reporting more narrative. Similarly there has been a continuing shift in the valuation and reporting on the intangibles like goodwill. It is not quite possible to show much of the value of the company under this head financially and therefore it entails including them as more of non-financial reporting. Apart from the basic financial reporting there is an increasing trend and demand for the corporate and social responsibility reporting to enhance the transparency in the operations of the organizations.
‘Triple Bottom Line’ (TBL) encompassing the reporting on social, environmental and financial performance and accountability is another notable development in the corporate reporting domain. Nevertheless the problem remains as to the development of a comprehensive and convergent reporting model that encompasses preset standards for all the non-financial narrative reporting. Despite the limitations on evolving common standards there has been continuous efforts being put by the standard setting bodies in this direction but with limited success.
One of the major criticisms against the developed accounting and financial reporting conceptual framework is that it does not take into account the use of the financial accounting information by the owners and managers of the company. The standards and reporting models always aim to meet the requirements of potential investors and creditors ignoring the use of financial reports for running day-to-day business of the companies by the owners and managers.
The financial and accounting information is required by the owners and managers for several purposes like for protecting the assets of the company, for evaluation of employee performance and provide them pay rise and bonuses or for judging the worth of a prospective investment in a new project. The preliminary views statement of FASB has clearly omitted this set of users by referring only to potential investors and creditors in paragraphs S2, S3 and S4 (Flegm, 2006).
The limited success of the financial and accounting frameworks has been identified as being due to the recognition that the present financial reporting does not provide the actual information needed to understand the happenings within a company (ACCA, 2006). Though a consensus has been evolved among the standard setters that the reporting needs to be pruned further there is no clarity regarding how the new reporting should take shape so that it satisfies all the requirements.