The conceptual frame work of accounting is a constitution for accountants all over the world.
Standards issued by professional accounting organizations should be based this frame work.
The frame work consists of basic assumptions such as economic entity assumption and monetary unit assumption, basic principles such as the matching principle and the historical cost principle, and also constraints such as conservatism. Certain aspects are incomplete, inaccurate and deviating.Thus it needs to be reconsidered and modified.
Presented below are some of the deficiencies in the conceptual frame work of accounting:
1.The definition of Assets:
The definition of an asset as resources having future economic benefits owned by an entity is incomplete and inaccurate as this definition did not clarify tangible or intangible assets also practically any and all expenditures are expected to generate future benefits.
2.International Accounting Standard 14 (IAS14) and Financial Accounting Standard 14 (FAS14):
Current standards of IAS 14 and FAS 14 which are concerned with segment reporting also distorts the conceptual frame work of accounting as those standards contradicts with the accounting unity as there is no need to report for segments independently as we treat the whole segments as a one unit.
3.Using fair value in measurement:
Another deviation is the use of fair value in measurement. According to IAS 36 impairment of long lived assets, an asset is said to be impaired when its cost is less than its fair value. Applying the concept of fair value contradicts with the historical cost principle. Fair value calls for the accountant judgment in determining this value which will be a chaos as this will let the accountant be biased towards management in determining the value which will affect the fairness of financial reporting
The accounting profession is in deep need of adjusting the conceptual frame work of accounting to cope with current and prospected standards of IAS and FAS. We hope that the new standards of IFRS (International Financial Reporting Standards) realize the need for adjustment.