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1989, the IAS Committee established a fiscal conceptual framework that has for
the past two decades helped to define the objectives and principles of financial
reporting. The conceptual framework facilitates to set standards, develop
accounting policies, as well as understand and interpret different accounting principles.
The framework was first revised in the 1990s so that more elements could be
incorporated which had been determined to be obscure. Additionally, through
most of the IASB standards, specialists believed that sensitive areas had been
omitted, unclearly described, or outdated (Brouwer
et al., 2015, p.549). Therefore, the IASB and FASB decided to pursue
necessary improvement of the financial framework, including the provision of
complete, precise, and updated concepts. This entails measurements,
de-recognition, financial performance, reporting entities and presentation, as
well as disclosure principles (FASB, 2015, p.15).
This is in regards to the Exposure Draft that was prepared for the joint
project. Therefore, the paper purposes to evaluate some of the objectives and
provisions that the conceptual framework presents through the financial
reporting and accounting standards to help assess entity’s prospect for cash

regards to the modification of the existing financial reporting standards, the
de-recognition principle faithfully represents assets and liabilities that are likely
to be retained or changed after a transaction has taken place (Brouwer et al., 2015, p.551). Moreover,
financial statements are utilized to present information concerning these two
entities and their respective equity, income, and expenses. As a result, the
user is granted a platform to evaluate predictions attributed to the future of
the net cash inflow in regards to the entity besides assessing the management
of its stewardship (Kuhner and Pelger, 2015,
p.383). This type of data is provided by the recognition standard that
defines an item as well as its financial performance and position. Fortunately,
according to the Exposure Draft, IASB principles can further clarify some
essential requirements that satisfy the users’ need for net cash inflow
evaluations (FASB, 2015, p.16). For
instance, it provides that financial reporting must entail statistics utilized
in assessing the stewardship of the management. Therefore, having the
uncertainty of levels of measurement can render the fiscal records irrelevant,
which may compromise their usage. This provides users with the knowledge for
determining the type of data to be compiled so that when needed, it will be
available for use (Kuhner and Pelger, 2015,
p.383). Additionally, the conceptual framework suggests that during
vital decision-making sessions regarding the recognition or measurement of an
entity, the user should first consider its nature and the resultant data.

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to the IASB provision, consolidated financial statements should present
essential information to the user (Macve, 2015, p.34).
On the contrary, unconsolidated records cannot fulfill the rule, but in some
cases, entities require this format during financial statement preparations. In
that case, IASB assists the user by presenting another approach to obtain
consolidated accounts (Whittington, 2008, p.497).
Additionally, not every item has a legal entity, which means that the user has
to define necessary boundaries. This helps to gather relevant information that
is needed by the user who highly depends on the financial statement when
carrying out business such as investors, creditors, and lenders. Most
importantly, it facilitates to represent the entity’s economic activities
faithfully. Similarly, the financial standards present different definitions of
some accounting requirements with a purpose to help a user address problems
that may arise regarding the classification of liabilities and equity. For
instance, an asset is an economic resource that is currently under the control
of a resulting entity or a past event (FASB,
2015, p.24). On the other hand, a liability is a present obligation that
was stimulated by the transfer of the item. Therefore, equity is equivalent to
the subtraction of the entity’s assets and liabilities, which is also referred
to as the residual interest. Hence, by redefining the standards, IASB will have
helped users by determining whether a debt has existing obligations that
require the transfer of economic resources or not.

IASB defines the measurement of an entity, including bases that can be utilized
to obtain information. For instance, the user can identify an item by
considering its historical cost, current or fair value, the asset’s worth, as
well as the liability fulfillment charge (Macve,
2015, p.41). However, it depends on the measurement base of the item
selected and also whether each presents a set of advantages or disadvantages.
However, to attain a relative path, IASB helps the user by insisting on the use
of similar bases when outlining financial position and performance statements.
For instance, this can be seen when using the current value of an entity to
determine its income or expenses (Brouwer et
al., 2015, p.557). Consequently, according to the Exposure Draft,
financial records are essential tools in learning how users’ information can be
presented or disclosed (FASB, 2015, p.17).
For instance, the disclosure provision contains guidance concerning the presentation
and release of information, which helps users avoid misinterpretation or lack
of power to fulfill a project. Thus, it operates as a communication tool to
classify data structures in regards to the similarity of items. This helps to
improve the relevance and contribution of the faithfully represented assets,
liabilities, income, expenses, and equity.

even though the Exposure Draft does not define the number of statements
contained in the financial performance records, IASB advocates for the use of
profit and loss statements (Whittington, 2008,
p.498). This is because they are vital sources of information of an
entity’s performance within a considerable amount of time through the
registered income and expenses. That is, they contain data concerning assets
and liabilities which have been measured using the current value base.
According to IASB, the returns of an asset with a present obligation depend on
its amount, time, and uncertainty assessments of the future net cash inflows,
which can be fulfilled by examining these records. On the other hand, faithful
representation should be relevant based on the phenomena it signifies in
regards to words or numbers of the entity. Similarly, the item should depict
the neutrality, completion, and error-free attributes, which are the three most
essential aspects that IASB recognizes to be fulfilled through profit and loss
statements (Macve, 2015, p.44). However,
faithful representation does not entail accuracy in all aspects, which further
approves the use of such statistics. Its use in the current value measurement
base requires a few assumptions which do not omit or alter available data.

according to a study carried out concerning the IASB standard setting, the
conceptual framework may result in professional debates, negotiations,
political influences, as well as consensus-seeking (Nobes and Stadler, 2015, p.573). This is because the newly
anticipated conceptual framework will drive standard setting bodies such as FASB
to complex and controversial areas if changes have to be implemented on a
robust and consistent basis (Brouwer et al., 2015,
p.561). Additionally, the definitions and recognition criteria that IASB
intends to establish concerning assets and liabilities will cause adverse
impacts. For instance, divergence has been found from the old conceptual
framework which fails to apply consistency to probability thresholds (Whittington, 2008, p.500; Nobes and Stadler, 2015,
p.577). The researchers further criticize the framework by employing
judgment criteria in regards to the relevance and faithful representation,
whereby IASB subjects assets and liabilities to an assessment to determine
their entities. This means that existing standards have failed to acknowledge
the appropriate definitions of these items. Therefore, there is a need to
incorporate more measures which ensure IASB coherence in the design and
application of principles intended to be implemented.

regards to the prospect of an entity’s net cash inflow, the author points out
that an item’s inflow or outflow does not determine its probable benefit. Thus,
addressing an asset as a resource that is controlled by results of a past event
as well as a liability of a present obligation will alter the significance of
its recognition. On the other hand, an asset’s probability threshold is
considered as a reflection of prudence, which was included in the conceptual
framework of 1989. Later, in 2010 when IASB set to revise the standards, the
concept of prudence was determined to compromise the neutrality characteristic,
and, hence, it was supposed to be eliminated (Whittington,
2008, p.500). Unfortunately, when the rule-setting bodies postposed
their reviews, it was retained while the part of the framework dealing with
recognition criteria remained unedited. As a result, recollecting the
probability thresholds concerning assets and liabilities is compromising.
Similarly, the framework allows the use of profit and loss statements to
calculate the prospects of net cash inflows of an item. On the contrary, it
emphasizes that applying matching concepts that relate to expenses does not
contribute to the recognition requirement of a balance sheet. In return, users
might be confused when coming up with an entity’s current value while
calculating its net inflows.

the other hand, it has been proven by financial analysts to be quite
challenging to pursue the accountability that presumes relationships of parties
and the valuation usefulness of an entity. According to FASB, the new
conceptual framework will be attributed to the absence of errors due to
faithful representation. On the contrary, the linear, exponential, and rational
models revealed that accounting quality, freedom from mistakes, and
compromising relevance as provided by IASB representation have similar impacts
on stewardship usefulness and the concept of valuation (Brouwer et al., 2015, p.566). Thus, by trying to alter
definitions and the recognition criteria, the conceptual framework may result
in adverse effects on stewardship, even though an entity’s value will be retained.
As a result, the future cash inflows will be hard to assess or estimate. This
was a challenge encountered by the standard setters according to recent
research. Thus, instead of resolving the compromising definition of
stewardship, they decided to omit it and solely concentrate on entity valuation
as the single object of financial reporting. This raises a concern to address
both concepts if IASB intends to implement the newly proposed principles
without compromising existing definitions and recognition criteria (Kuhner and Pelger, 2015, p.384). Consequently,
this results in contradicting interests that present diverging preferences
contrary to accounting regulations.

another analysis was carried out using publicly available information provided
by IFRS to identify the qualitative attributes of financial information in
regards to the management’s accounting decision. As a result, at least 40,895
policies had been established in 2005-2011 with the help of 514 corporations
which revealed 204 reasons as to why the changes were necessary (Nobes and Stadler, 2015, p.593). In most cases,
qualitative characteristics were defined as per faithful representation,
relevance, comparability, as well as understandability, which were the concepts
not elaborately explained in the existing framework. Thus, the issue of
transparency was profoundly compromised by IASB, while most firms advocate for
modification so that quality can also be attained. On the other hand,
qualitative characteristics are attributed to entity measurement, mainly when
accounting policy decisions are involved. This further contradicts some of the
factors considered in dimension bases.

conclusion, the IASB provides necessary principles and concepts of recognition
criteria that facilitate the development of financial reports. As a result, a framework
has been in place since 1989 to set standards as well as define and uphold
accounting principles, which are requirements of a financial statement in
regards to performance and position of an entity. However, in 2010, standard
setters realized that the framework required improvements which were
indefinitely stopped until the year 2015. According to outlined aspects and
research conducted, it is evident that the modification will be necessary. This
is because it will enact transparency, relevance, and precise factors such as
the definition and obligations of a liability. In return, this will facilitate
to attain projections that users carry out concerning the future net cash
inflows of an entity. Even though there are compromising observations,
including stewardship and valuation usefulness, the standards setters should
implement the changes and be open to professional debates and negotiations.