A Comparative Analysis of the Definitions of the Elements of the Financial Statements Espoused by Various Conceptual Frameworks

• In Event: Teaching Financial Accounting

Abstract

The need to establish a well-structured conceptual framework upon which financial accounting and reporting can be built has been recognized in the U.S. since the early 20th century. The Financial Accounting Standards Board’s mechanism of the development of a U.S. conceptual framework is achieved through the issuance of pronouncements entitled Statements of Financial Accounting Concepts (SFAC). FASB has defined the conceptual framework as “a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting and financial statements” [FASB, 1976, P. 1]. Specifically, it identified the following two uses and benefits of such framework: 1- it should be used by the Board to enable it in developing standards of financial accounting and reporting that are more useful and consistent over time, and 2- it should be used by practicing accountants in resolving new or emerging practical financial accounting and reporting problems in the absence of applicable authoritative standards [FASB, 1978].

Realizing that significant benefits can be gained by such a framework, accounting standard setters in a number of industrialized countries have also been working on developing a financial accounting and reporting conceptual framework. The objective of this paper is to conduct a comprehensive comparative analysis of the definitions of the elements of the financial statements according to the conceptual frameworks of the following six accounting boards: United States’ FASB, Canadian Institute of Chartered Accountants (CICA), the Accounting Standards Board of Japan (ASBJ), the New Zealand Institute of Chartered Accountants (NZICA), and the United Kingdom’s Accounting Standards Board (ASB)], and the International Accounting Standards Board (IASB).

The analysis revealed that, collectively, the six conceptual frameworks identify the following twelve elements of the financial statements: Assets, Liabilities, Equity/Net Assets, Investment by Owners, Distributions to Owners, Comprehensive Income, Revenues, Expenses, Gains, Losses, Net Income, and Capital Maintenance Adjustments.
Although the analysis revealed a number of differences, many significant similarities were also found, particularly among the elements of assets, liabilities, revenues and expenses. The author believes that these difference can be easily resolved, making the achievement of a universal global framework of financial accounting and reporting more attainable. Given that much remains to be done in the development of a complete, comprehensive, and internally consistent framework, the development of such framework would be a significant step forward towards the development of more consistent global accounting standards.

Author

• wafeek abdelsayed, Southern Connecticut State University