With the society changing and economy developing, a number of countries have enhanced mutual beneficial cooperation. Meanwhile, the development of territorial economy and global economy has been accelerated. Accounting theory guides the development of economy to some extent. In other word, the search for accounting principles or a general theory of accounting were beginning, and attempts to apply scientific method and supporting methodologies to accounting. (Mathews & Perera, 1996, p. 19)
Tony Tinker who use the term "radical accounting" as a label for his views. He thinks theories are "weapons of social conflict. (David Solomons, 1991) Tinker gives his opinion that accounting theory is not only a realistic passive performance, are also the agent of changing reality. Marginal socialist provide accounting a prejudice the reality of the situation. (Tinker, 1985, p. 28) About the accounting of the social role, he thinks accounting practice also helps effect economic exchanges. Accounting statement are used in marking decisions. (Tinker, 1985, pp. 83-84) Accounting has been changed that he as an informational commodity to promotes exchange. Even accounting has to responsible for the defects of economic system. However, David Solomons as a neutralist is not agree Tinker's views. He thinks that accounting must be neutrality in financial reporting. Although prefect neutrality may be difficult to achieve, if people stop looking for is very foolish. (Solomons, 1991)
Knowledge is the source of material, and memory, reason, testimony, introspection, faith, perception and intuition also affect the knowledge. Furthermore, knowledge could as the foundation of theory. The science is very important for develop theories. Scientific method is based upon some variant of induction. The most simplified form of the inductivist philosophy is that based on naive inductivism which based all scientific reasoning upon observation. Navie inductivisim claims to be the basis of science because observation and inductive reasoning are objective and the result will be objective laws and theories had been found by Mathews & Perera. (1996 cited in Chalmers, 1982, p.2)
For further understanding of knowledge, it leads us to realize that the human agency and the limitations view by perspective are fundamental in the generation of knowledge. Our knowledge can do no more than create a weak and rather uni-dimensional representation of that world. Although achievements in technology may convince us that we are much more knowledgeable than we actually are, our understanding of knowledge always falls short in representing the reality. (Morgan, 1988)
During the social change and frequent economic activities, accounting may be radical or inhibition of social and economic change. Accountants as information provider to affect economic activities. According to Solomons, he thinks that accountants can be called journalists, because they should report the news, not make it. (Solomons, 1991) In addition, there are many difficult economic problems that need global coordination and cooperation. For example, multinational companies to carry out economic activities; global currency trade and consolidating international financial statement. Therefore, we need perfect accounting standard and theory.
Nevertheless, developing Conceptual Frameworks for Financial Accounting and Reporting is the prerequisite and foundation of international consistence of accounting standards. Conceptual framework is based on international consistence of accounting standards to appear.
' 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.2)
As the global economy developing, a number of conceptual frameworks (CF) have been built and completed in the USA, UK, Canada and Australia. The Financial Accounting Standards Board (FASB) in the United State, which developed one of the first CF in accounting, is a recent and major conceptual framework in the world. In terms of the resources devoted to it, and the length of time over which this project extended, the FASB' s CF is perhaps the major CF project so far undertaken. (RUTH D. HINES, 1991, page 313)
The conceptual framework for financial accounting is a stratified and logical system that is composed of a series of explains financial accounting and the basic concept of financial accounting for the application. Moreover, CF also is to regulate and guide the accounting standards of theoretical basis is a part of accounting theory.
Because of development of economic and the market have evolved after the 1970s, traditional accounting theory inflicted serious impact and criticism. It has to build up a normative and integrated conceptual framework, which is suitable for new economic situation, to guide accounting standard, thus solve existing accounting problems which has never involved by existing accounting standards. From December 1976, FASB advance conceptual frameworks for financial accounting and reporting firstly, and then them through a list of research and get some positive result.
Since FASB released "the concept structure of financial accounting and reporting: Elements of financial statements and its measurement" in 1976. This is the first time to promulgate CF and its relevant report. Other countries start to investigate and research the conceptual framework and obtain some achievements. For this study, China starts relatively late, has not yet formed a more systematic accounting special theoretical research system.
For the characteristic in different countries, the feature of U.S CF can be summed up as the following:
Firstly, FASB first to develop CF and almost all subsequent development in mainly countries were affected by FASB. Secondly, there are about market value, historical cost assessment, etc five measurements. Thirdly, there are nine elements of financial reporting such as assets, liabilities, cost, etc. Fourthly, the ways and aims of financial reporting. It is to provide serviceable information for economic decision-making. Lastly, reliability and relevance as main qualitative characteristics of financial reporting.
The Accounting Principles Board was replaced by the FASB in 1973. After that FASB introduced the Statement of Financial Accounting Concepts (SFACs) which research conceptual framework for financial reporting. There were seven financial reports published from 1978. The SFACs were very normative in incipient stage. However, when FASB released the NO.6 SFACs, which point out its clear in the content of the paper: not only applicable to enterprises, also apply to nonprofit organizations, to replace NO.3 SFACs. The SFACs cannot completely suitable for all the accounting standards.
Furthermore, some other standpoint as same as prove that SFACs not very suitable for all accounting standards. Such as, Nussbaumer (1992, page 238) said: … the issuance of SFAC 5 (Dec. 1984) marked the greatest disappointment of the FASB's project for the CF. It did nothing more than describe present practice; it was not prescriptive at all. The recognition and measurement issues, which the FASB promised to deal with in SFAC 5, were not settled, and measurement issue was sidestepped …
In the same way, according to Craig Deegan (2010, page 217), Miller (1990) objected that the FASB conceptual framework in accounting initially supplied much needed change to accounting. For instance, SFAC NO.1 explicitly put financial report users' demand at the forefront of consideration. However, when SFAC NO.5 was issued, 'momentum was lost when FASB did not have sufficient political will to face down the counterreformation and endorse expanded use of current values in the recognition and measurement phase of the project'(Miller, 1990, page 32). All in all, FASB have to confront a series of problems to develop the conceptual framework.
There are some different of the CF between the USA and the UK. A report had been issued by the Accounting Standards Steering Committee of the Institute of Chartered Accountants in England and Wales (ASSC) in 1975. Although the report helps to set up the UK Government Green Paper which did not turn to law, it had some important influence in accounting practices. In 1991, the UK Accounting Standards Board prepared a project to develop a conceptual framework. This project is mainly to bring into correspondence with FASB and IASC framework.
The feature of UK conceptual frameworks as follow:
First of all, true and fair view is kernel of financial reporting. Secondly, the financial reports were provided the economic decision-making information to users. Thirdly, accounting and financial information are stand for other entities. Fourthly, about qualitative characteristics, when relevance and reliability repel each other, then choose the way which can get max relevance of information. Lastly, about historical cost system, current value and mixed measurement.
About the true and fair view in accounting, there is no definition of it in accounting standards, auditing standards or other professional pronouncements. No one knows what it means and very little academic analysis has been done on its role in accounting. (Walton 1993) David Alexander said the origins of TFV. There are a number of summaries and analyses of the history and literature of the true and fair view in accounting in Chastney (1975), Rutherford (1985) and Walton (1991). Edey (1971) described true and fair as 'a term of art- a technical term'. The words 'true and fair' are likely to signify that the accounts give a true statement of facets. … Associate 'facts' with 'actual profit' and 'actual values'. He does not realize that 'profit' and 'value' are abstractions. …a method of calculation that could be followed in practice. The true and fair view has potentially a role to play in securing the status of the profession. At a superficial level, the true and fair view is the overall objective of financial report.
There are some benefits of developing a CF according to Mathews & Perera (1996, p. 108), Chye (1984) has identified a CF for financial accounting as a necessary foundation for the development of a set of generally accepted accounting standards. Firstly, CF can improve the efficiency of setting accounting standard and help the FASB to save the time. Secondly, conceptual framework is general and normative, and it suitable in any enterprises to solve problems of accounting standard. Thirdly, CF have certain constraints to set accounting standards. Lastly, using a common set of financial knowledge will increase the understanding and confidence in financial statements.
However, the impossibility of developing a CF includes: set up and develop a CF is time consuming and expensive. People often found that some accounting theories in CF are not conforming to the actual situation. CF provides too much guidance and some conflict between a CF and accounting standards.
Solomons (1991) as a neutralist provide some opinions include: Accountants are like journalists to report news, not make it. Accounting can affect social exchange, but cannot change it. He also states a contention that CF is a defense against political interference by other interest group. In other words, CF's development is a political action.
In conclusion, development of accounting financial conceptual framework was base on knowledge, image and thought. Through analyze accounting problems and summarizing the knowledge, people build up the CF. accounting can help users to solve and make decision with related financial problems. The CF can provide the most effective and direct theoretical and technical support to set accounting standards. According to Deegan's (2010) opinion, the CF could give guidance when no suitable and particular accounting standards in existence. Therefore, developing the conceptual framework has a lot of problems but it is inevitable to develop conceptual framework.
