A strategic manoeuvre for providing legitimacy : Advanced Accounting Essay

Question For Advanced Accounting Essay : A Strategic Manoeuvre For Providing Legitimacy To Standard-Setting Boards During Periods Of Competition Or Threatened Government Intervention

Answer:

Conceptual framework in Advanced Accounting standards can be considered as a guideline for developing a financial report (Deegan and Unerman, 2006). In Advanced Accountingpractices, conceptual framework provides guideline for measuring financial information by setting objectives and determining characteristics of financial statements. Although conceptual framework standardises the Advanced Accounting practices by providing the Advanced Accounting bodies with well-defined financial standards, often it fails to meet the requirements of different users. Adaptation of standardised financial statements enables the standard setting boards to enhance suitability of the financial standards according to competition in market without creating any legal issues (Beasley, 2010). On other hand, implementation of conceptual framework also reduces government control on financial bodies. However, Hines (1989) opined that conceptual framework can be used by financial bodies as a strategic tool for reducing the impacts of government intervention and also for modifying the financial standards legally during competition. The current essay deals with analysis of the significant of Hines’s view on conceptual framework.

Advanced Accounting

2. Role of conceptual framework (CF) in Advanced Accounting:

Jia-shu (2004) opined that adaptation of conceptual framework reduces effectiveness of financial standards   as the Advanced Accounting requirements of different users are different. Development of standardised policies increases complexity in Advanced Accounting for different users. However, Kalbers (2009) stated that development of CF enables the financial entities to modify their financial standards easily.  Implementation of conceptual framework also enhances flexibility for standard setting bodies as it is developed on basis of Advanced Accounting principles (ZHU and SHEN, 2005). As a result, conceptual framework provides the accounting bodies with guidelines instead of providing with strict regulations. As conceptual framework emphasises more on implementation of Advanced Accounting principles in financial practices, chances of arising legal issues due to modification of  existing standards, reduce significantly.

2.1 Role of CF in competition:

As stated by Wolk et al. (2008), financial reports in provide the creditors and investors with information related to the capability of an organisation. It indicates that the information contained in financial report   impacts on the decision making process of investors and creditors.  It further impacts on the capital formation and growth of the organization. However, adaptation of CF provides the organizations with information required for developing the financial report inefficient manner. Financial report also enables management of an organization to understand whether the adopted strategies of an organization are effective for future growth or not. As CF is developed on basis of the past and present market and financial policy analyses of a country, the guidelines can be modified according to the current need of an organization. The current analysis reflects that CF is not only used for providing the users with guidelines for developing financial reports, it is also used for modifying the existing financial strategies in efficient manner so that an organization can obtain competitive advantage. It supports Hine’s view on CF.

2.2 Role of CF during government intervention:

In those countries where CF is developed, government shows fewer tendencies to control financial policies (Beasley, 2010). It is observed that CF is developed in countries such as USA, UK, and Canada where the financial institutions are not regulated by government. Government regulation on financial policies provides the users with financial rules, organisations often face problem while implementing these rules during competition. According to Campbell and McDonald (2009), government intervention on financial issues restricts the users to modify these issues as per their requirement.

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As a result, legal complexities increase due to any modification in the existing financial standards of an organization.  However, execution of CF projects enables the   financial entities to reduce the control of government over them (Deegan and Unerman, 2006). The current analysis indicates that the development of CF is used as a strategy taken by financial bodies to set financial policies with freedom. The current analysis of use of CF by Advanced Accounting organizations in different countries indicates that the organizations undertake CF projects not only for reducing complexity in financial standard modification project but also for obtaining self regulation in financial policy development process.  Findings of this analysis also support Hine’s view on role of CF.

2.3 History of CF:

Several CFs are developed in some countries to increase flexibility in financial and Advanced Accounting activities.  Impacts of these CF activities can be used to analyse the view of Hines on impacts of CF activities.

First CF project: Formation of APB

Formation of APB (Accounting Principles Board) can be considered as the first CF project. It was undertaken by AICPA (American Institute of Certified Public Accountants) in 1959 to make the financial standards of USA more flexible (Wolk et al.2008). Formation of APB aimed at modification of modification of the Advanced Accounting practices.APB also tried to provide solutions for the problems faced by AICPA. However, The USA government criticised that project .Apart from this APB also failed to meet the requirements of industry (Deegan and Unerman, 2006). After few years, APB started providing the business enterprises with guidelines and working principles for Advanced Accounting. Analysis on APB indicates that the organization primarily failed to attain its objectives. However it brought changes in the Advanced Accounting practices of business organizations in USA and also reduced government regulations on Advanced Accounting activities of these organisations. Findings of the performance analysis of APB support Hines statement.

Second CF project: Formation of FASB

Failure of APB led to development of FASB (Financial Accounting Standard Board) by AICPA (www.fasb.org, 2014). However FASB also failed to meet the requirements of industry. As a result, USA government again criticised the activities of FASB. Although FASB failed to provide the industry with effective guidelines for Advanced Accounting activities, it enabled the financial standard setting boards to obtain freedom (ZHU and SHEN, 2005). Analysis on the performance of FASB indicates that the objectives for its formation were not attained by the organization.

Third CF project: CF project undertaken by FASB:

After being failed, FASB undertook another CF project for setting financial standards and also for reducing the legal issues related with implementation of these standards. In USA, the Business organisations realized that the financial standards impact on the future growth of an organisation (www.fasb.org, 2014). As growth of industrialization depends on the prosperity of a nation, development of financial standards also impact on the future growth of a country (Benston et al. 2006). The CF project was undertaken by FASB to   set the financial standards of USA more effectively so that the growth rate of USA based industries enhances. The current analysis indicates that FASB attempted to reduce the negative impacts of competition on USA based industries. The current analysis also supports the statement of Hines.

Fourth CF project: Development of ‘The Corporate Report’

The project ‘The Corporate Report’ was undertaken by Advanced Accounting Standards Committee in UK. This project was undertaken for guiding the business organizations to conduct their Advanced Accounting activities effectively (Kalbers, 2009). Any changes in social and political structure of a country also bring changes in corporate activities. However, like other CF projects this project was also failed to meet the requirements of business organizations. Although the business organizations of UK   showed reluctance to adopt the guidelines provided by ‘The Corporate Report’, execution of this project can be considered as a strategic attempt by Advanced Accounting Standards Committee to get control over the activities for financial standards setting (Ball, 2006). Performance analysis of ‘The Corporate Report’ supports Hines’s statement that CF projects are undertaken to obtain advantage in competition.

Fifth CF project: Project undertaken by CICA

CICA (Canadian Institute of Chartered Accountants) undertook a CF project to bring changes in the existing Advanced Accounting practices (Bhattacharya and Tinkelman, 2009). The financial standards developed by CICA were not effective and implementation of these standards restricted the business organizations of Canada.  However, the project was undertaken by CICA to enhance the growth rate of business organizations in Canada (Dan, 2009). The revised financial standards of CICA aimed at changing the nature of market. Previously, the Canadian organisations were dominated as few enterprises had created monopolistic environment in the market. The financial standards developed by CICA restricted the organisations from creating monopolistic nature in the market (Benston et al. 2006). As a result, growth rate of the business organizations of Canada increased significantly. As the revised policies were developed on basis of market trend analysis, these standards provided the business organizations with opportunities for attaining sustainable development.

Current analysis on the CF project undertaken by CICA indicates that primary aim for   undertaking the project was revising the financial policies of Canadian organizations. It supports the statement of Hines.

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Conclusion:

Analysis made in the current essay supports the statement of Hines. Adaptation of conceptual framework in Advanced Accounting makes implementation of the financial standards easier as the users can use a standardised format. On other hand, it also reduces the suitability of financial standards for being used by different users. Analysis of the outcomes obtained by developing a CF   indicates that often the CFs fail to meet requirements of industry as these frameworks use standardised guidelines for every user. Although the CFs fail to enhance effectiveness of financial activities, CFs impact on activities of financial standard setting organisations in a country. Government intervention on financial activities not only increase legal issues in the business but also   restricts the organizations from increasing their growth rate.  Increase in growth rate of industries also enhances the prosperity of a country. However, analysis of CF projects activities mainly benefited the financial organisations by reducing government control   and also enabling them to  modify the standards according to financial condition of a country.