Regulasi Akuntansi & Conceptual Framework

- Pro kontra apakah praktik pelaporan keuangan perlu diregulasi atau tidak
- Pemikiran yang ada dibalik perlu atau tidaknya regulasi tersebut
- Perlunya conceptual framework dalam konteks regulasi akuntansi
- Pengembangan CF di US
- Latar belakang dibentuknya Joint Project FASB & IASB untuk menyusun kembali CF, dibahas
masukan dan kritikan yang diberikan para akademisi.

Materi :
- Schroeder chapter 2 : The Pursuit of Conceptual Framework
- Scott chapter 1 ( 1.8 only)
- Pro cons regulating corporate reporting_must read.pdf
- Determining consistent set of accounting financial reposting standard.pdf
- Conceptual framework, pengembangan akuntansi Zaki Ridwan.pdf
- MOU the netwalk agreement : http://www.fasb.org/resources/ccurl/443/883/memorandum.pdf
- IASB review of conceptual framework for financial reporting.pdf
- Conceptual framework revisiting the basics, 2014
- IASB & FASB face challenges in pursuit of joint conceptual framework, Warreng Mcgregor & Donna
L Street
- A New Conceptual Framework Project, Halsey G. Bullen and Kimberley Crook.

Schroeder Chapter 2
Accounting practices were initially developed in response to changing economic decisions & no
attempts were to establish a ‘theory of accounting’ prior to 20 century.
 The Early Theorist
1st accounting theory
a. William A Paton & All Changes in the value of
Jhon B Canning assets & liabilities should be
(1922) reflected in the F/S, & such
changes must be measured on
current value basis
Support entity concept
Viewed as 1st step in the development
of the conceptual framework of
accounting
- At this time B/S was viewed as
the principal F/S,
- The concept of capital
maintenance was just emerging
b. DR. Scott (1932) The industrial revolution
caused managers to look for
new methods of maintaining
organizational control, such as
 accounting & statistic
“Recognizing the need for a
normative theory of
accounting OR Basic of
Accounting Principle”
Alluded that industrial revolution is a changing economy & Accounting is a process of
it requiring improved financial reporting to meet the needs continually adapting to an
of all investors evoluting environment
(Sociological Perspective)
Supported paton’s entity
theory & emphasize that
accounting must meet the
needs of external users
Scott was considered as
outsider, because the
prevaiting view was that
accounting should be
designed to benefit the firm’s
management/proprietor.

In 1941, Scott Unveiled his conceptual framework “The basis for accounting principle”
1. Orientation postulate Accounting is based on a broad consideration of the
current social, political & economic environment
2. The pervasive principle Accounting rules offer equitable treatment to all users of
of justice financial statement
3. The principles of truth & Truth as accurate portayol of the information presented
fairness fairness as containing the attributes of objectivity,
freedom from bias, impartiality
4. The principle of
adaptibiilty & Adaptability viewed as necessary because society &
concictency economic conditions changed, consequently accounting
mus also change
Consistency : acc rules should not be changed to sense
the temporary purpose of management

Early Authoritative & Semi authoritative Organizational

Attempts to Develop the Conceptual Framework of Accounting
The Mid of 1930s professional organizations became interested in formulatins a theory of accounting

1936 AAA (American Accounting Association) released ‘A Tentative Statement of Accounting

Principles Affecting Annual Corporate Reports’ to provide guidance to the recently established
SEC was criticized by academics ad relying to heavility on the historic cost model & convention of
conservatism.

1938 AICPA (American Institute od Accountant) published ‘ A Statement of Accounting Principle’

to provide guidance to SEC & best accounting practice, but viewed as defense of accepted practice.

1940 AAA published ‘ An Introduction to Corporate Accounting Standards’ describe matching

concept, embrace the use of historical cost.

1958 AICPA Voice the belief that additional research was needed to examine accounting assumptions
& develop authoritative pronouncement.
AICPA established the special committee on Research program to review & make recommendations
in estsablishing accounting principles.
The Special Committee report:
a. Proposed the establishment of PB (Accounting Principle Board) to replace CAP (Committee on
Accounting Procedure) accurated in 1959
b. Proposed the establishment of research division to assist the APB
c. Report 4 broad levels that development of financial accounting should adress:
- Postulates, are the basic assumption on which principles rest. Postulates are devined
from economic & political environment ot the business community
- Principles
- Rules fot application of principles to specific situations
- Research
d. A fairly broad set of coordinated accounting principles should be formulated on the basic of
postulate
The committ first charge to the APB research division was to : Commision studies on postulates &
principles that would serve the foundation for future authorative pronouncement.
Viewed as the 1st real attempt to establish a conceptual framework of accounting by an authoritative
body

1961. The postulate study, published as “Accounting Research Study No.1” titled The Basic of
Accounting Consisted of Hierarchy of Postulate the Environment, Accounting & The imperatives as
follows:
Group A Economic & Political Environment Postulates
1. Quantification 2. Exchange
3. Entities 4. Time Periode
5. Unit of Measure
Group B Accounting Postulates
1. F/S 2. Market Prices
3. Entities 4. Tentativeness
Group C Imperative Postulates ( Set of normative
statement)
1. Continuity 2. Objectivity
3. Consistency 4. Stable Unit
5. Disclosure

1962, Accounting Research Study No. 3 “A Tentative Set of Broad Accounting Priciple for Business
Enterprices” Argued for the use of current value in accounting measurement.
However, this concept was foreign to most accountant in the early 1960s, Therefore the APB
 dismisssed these 2 studies as too radically different from GAAP for acceptance at that time.

And then APB commisioned another study by retired practitioner. The result, APB announce
“Inventory of GAAP for business enterprises as Accounting Research No.7”

In the mid 1960s, the APB formed a committee with charged given enumerate & describe the basic
concepts to which accounitng principles should be oriented & state the accounting principle to which
practices & procedures should conform OR SIMPLY SAY to develop a crupherensice theory of
accounting

1965, the APB statement No.4

“Basic Concepts & Accounting principles Underlying F/S of business enterprises” &
Conlude that users of financial statements should be knowledge & understand the characterisitics &
limitation of F/S

1966, the AAA publised ASOBAT /A statement of basic accounting theory:

- Defined accounting as : the process of identifying, measuring & communicating economic
information to premit infomed judgements & decisions by wers of the information.
- Embrace the entity concept by indicating that the puspose of accounting was to allow users to
make decisions (decisions usefullness)
- 4 standards to be used in evaluating acccounting information : relevance, verifiability, freedom
from bias & quantibility.
This Publication resulted in diverse opinion, but many critical.

AICPA established the Trueblood Committee with change to propose fundamental objectives of F/S to
guide the improvement of financial reporting or to answer these 4 questions:
a. Who needs F/S?
b. What information do they need?
c. How much of the needed information can be provided by accountants?
d. What framework is needed to provide to provide the needed information?

Trueblood Committee report addresed the issue of current cost, indicated that the stated objectives
of financial reporting could not be achieved by using single valuation such as historical cost. It
conclude that different valuation bases should be used for different assets.

The objectives enumerated by the Trueblood Committee became the basis of the first release in the
FASB conceptual framework project, Statement of Financial Accounting Concepts, No.1.

Statement of Accounting Theory & Theory Acceptance

In 1973, AAA Committee on Concepts Standards for External Financial Report was charged to
update ASOBAT. However its report turn out to be an update of ASOBAT, but rather a reviews of the
status of accounting theory & its acceptance its report was “Statement on Accounting Theory & Theory
Acceptance/SAT.TA”, which conclude that:
- Universally accepted basic accounting theory did not exist
- Divergent theories had emerged because of the way different theorists specified users of
accounting data & the environment eg, users might be owners, creditors, employees, regulatory &
general public, and the environment might be specified as single source of information & on of
several sources of financial information.

Therefore the various approaches to accounting theory were considered into classical, decision
usefulness, and information economics.
a. Classical Approach
Covered period from 1922 to 1962, with the exception of one monograph from 1975. This
category were influenced by the Neoclassical economic “theory of the firm” which ignores historical
costs & generally advocates the use of current values. SATTA classified this classical approach into 2
categories:
1. Deductive School : Income measuring a single valuation base would meet the need of all
users. theorists : Pato, Monitz, Sprouse
2. Inductive School : Attempting to justify existing accounting practice . theorists : Hotfield &
Littleton
b. Information Usefulness Approach
Is ASOBAT & Trueblood Report focus on the recognition that usefulness is a basic objective of
accounting. This approach strest on:
1. The use of decision models. Once a particular decision model is chosen, information
relevant to the model is specified & accounting alternatives are compared to the data
necessary for implementing the model, eg : the trueblood stated that the basic objective of
financial accounting is to provide information useful for making decision.
2. The reactions by decision to reporting alternatives, eg : behavioral accounting studies.
c. Information Economics
Use the economic theory to specify the information necessary to make economic decisions. The
treat information as a commodity that has costs & prices and examine wheter regulation of
external financial reporting is desirable.

Then SATTA embarked a discussion of why none of the approaches to theory had gained
general acceptance. SATTA raised by issues.

Evaluation of SATTA
Peasnel (1978) concluded that SATTA’s theory approaches do not constitute paradigms the also
doubted the appropriateness od applying Kuhn’s theory to accounting.
He suggested that the inability of SATTA to reach a consensus was influenced by the committee
that wrote SATTA.
The FASB’s conceptual framework project:
FASB develop the CFP ‘Conceptual Framework Project’ to develop principles or broad qualitative
standards to permit the making of systematic rational choices among alternative methods of financial
reporting. Simply, CFP is a body of interrelated objectives & fundamentals:
- Objectives : identify goals & purposes of financial accounting
- Fundamentals : underlying concepts that help achieve those objectives

In 2004, FASB & IASB announced a joint project aimed at developing an improved common
conceptual framework that builds on their existing framework. The project work plan consist of 8
phase:
1. Objective & Qualitative characteristics conceptual framework for financial reporting
2. Definitions of elements, recognition & derecognition
3. Measurement
4. Reporting entity concept
5. Boundaries of financial reporting, presentation & disclosure
6. Purpose & status of the framework
7. Application of the framework to not-for-profit entities
8. Remaining issue if, any.

In 2010, the FASB & IAS issued 2 chapters as part of this joint project to develop an improved
converged conceptual framework for financial accounting & reporting.

The initial & joint CFPs hace resulted in the issuance of 8 statement of financial accounting
concepts (SFAC):

1. Objective of financial reporting by business enterprise

2. Qualitative characteristics of accounting information
3. Elements of F/S of business enterprise
4. Objectives of financial reporting by non business organization
5. Recognition & measurement in F/S of business enterprise
6. Elements of financial statement
7. Using cash flow information & present value in accounting measurement
8. Conceptual framework for financial reporting, replace SFAC No 1 & 2

The CFP doesn’t directly affect practice & the SFACs affect practice only by means of their influence
on the development of new accouting standards.

Overview of FASB’s Conceptual Framework for Financial Accounting & Reporting

Objectives Objective (of financial reporting)

SFAC No. 8
Fundamentals Elements Qualitative characteristic
SFAC No. 8 SFAC No. 5 & 8
- Revenue - Relevance
- Expense - Faithful Representation
- Gain
- Loss
- Asset
- Liability
 - Equity
Recognition, measurement and disclosure concepts
Assumptions Principles Constraints
- Economic entity - Measurement - Cost
- Going concern - Revenue Recognition - Industy
- Monetary Unit - Expense Practices
- Periodicity - Full Disclosure

SFAC No. 8, state that The objective of general-purpose financial reporting is to

provide financial information about the reporting entity
that is useful to current & potential equity investors,
lenders & other creditors in making decisions about
providing resources to the entity.
The decision involve buying, selling or holding equity &
debt instruments and providing or setting loans & other
forms of credit.
 Cost Contraint

Companies must decide whether the benefits of providing financial information outweight the cost
individued in collecting, processing, verifying & deseminating that information. Users must decide
whether the benefits of analyzing & interpreting the information provided outweight their costs.

Qualitative Characteristics

2 fundamental qualities that make accouting information useful for decision making:

1. Relevance, capable of making a difference in user’s decision, if the information has:

a. Predictive Value, can be use as input to process employed y users to predict future
outcomes
b. Confirmatory Value, provides feedback ( confirm or changes) about previous evaluations
c. Material, if omitting it or misstating it could influence decisions that users make on the
basis of the financial information if a specific reporting entity.
2. Faithful Representation, faithfully represent the phenomena that it purports to
represent. Has 3 characteristics:
a. Completeness
b. Neutrality
c. Freedom from error

Comparability Enables users to identify & understand similarities in & differences

among item
Consistency The use of the same method for some items, other from period to
period within a reporting entity or in a single periode across entities
Verifiability Different knowledgeable & independent observes could reach
consensus although not necessarily complete agreement, that a
particular depiction is a faithful representation
Timeliness Having information available to decision makers in time to be capable
of influencing their decisions
Understandability Classifying, characterizing & presenting information clearly &
concisely

SFAC No. 5 “ Recognition & measurement in F/S of Business Enterprices”

Attempted to set forth recognition criteria & guidance on what information should be
incorporated into F/S & when this information should be reported.

A full set of F/S for a period should show:

1. Financial position at the end of period, Assets, Liabilities, Equity & their relationship
2. Earnings for the period, earnings is ameasure of entity performance during a period/similar to Net
Income.
3. Comprehensive Indome for the period = Earnings
 a. +/- Cumulative Accounting Adjustment
b. +/- Other non owner changes in equity
4. Cash flow during the period, should reflect on entity’s cash flow about its operatin, financing and
investing
5. Investment by & distributions to owners during the period, reflect entity’s capital transactions
during a period.

SFAC No. 6 “Elements of F/S of Business Enterprises”

There are 10 elements ; assets, liabilities, equity, investment y owners, distribution to owners,
comprehensive income, revenues, expenses, gain & losses.

SFAC No. 7 “ Using cash Flow Information & Present Value in Accounting Measurement”

The purpose of Present Value measurement is to capture the economic difference between sets
of future cashflows.

Principles-Based VS Rule-Based Accounting Standards.

During the early 2000s, FASB noted that concerns were being expressed about the quality &
transparency of accounting information. In 2003, SEC published that noted “imperfections can assist
when standards are established on either rule-based or a principles-only basis”. However, the srudy
recommended that there involved in the standard setting process more consistently develop standards
on a principles-based or objectives-oriented basis.

Benefits of each of these approaches:

Principles Based Set of Standards Rule-Based Set of Standards
1. Better able to cope with speed of change 1. More workable in large, complex
of business environment economics & countries
2. Less voluminous 2. Less room for interpretation
3. Encourages use of professional judgement 3. Provides more guidance for practical
with focus on what is right implementation
4. Seen as possibly discouraging financial 4. Less need for explanation in F/S
engineering

 Not all accountans agree that the FASB’s standards are extremely rule-based.
In 2003 a meeting of The American Asembly concluded that “ The participants agreed they favored
accounting standards that containded fewer rules & permit more judgement than the standards
that currently govern the accounting proffesion in the US”
 Despite these critism, in 2003, SEC submitted to congress a study that addressed this issue &
recommend to FASB as Follow:
 FASB should issue objective-oriented standads, Respond in July 2004 by FASB. The
board concluded that in CF needed to improved, the objectives of FASB standards needs to
be more clearly define, implementation guidance needs to be improved, scope exceptions
need to be reduced, the assets-liability approach to standard-setting should be retained.