Developing a common conceptual framework for financial reporting
A conceptual framework is system of concept and principle in which determined the preparation and presentation of financial statement. This is reflected by Foulk Lynch as he defined conceptual framework as "A coherent system of inter-related objectives and fundamentals that should lead to consistent standards that prescribe the nature, function and limits of financial accounting and financial statements." The idea of conceptual framework is to form a common standard so that financial reporting is consistent and comparable to one another. However, this is not possible to achieve in different capital market where different accounting standard exist where financial statement are prepared based on their regulated standard.
To reduce the differences among the accounting principle used in the different capital market the process of harmonisation introduced by International Accounting Standard Board by late 1970s which then in the 1990s replaced by the concept of convergence; the development of a single set of high quality international accounting standard which is now known as International Financial Reporting Standard (IFRS) that would be used in all countries. According to IASB/IFRS the convergence of accounting standard is not a new phenomenon. The concept of convergence first came into exist in the late 1950s in response to post World War II when economic integration and related increase in cross border capitalization.
In recent year, the convergence of accounting standard is in much of a focus due to the increasing demand and pressure from financial capital market. As the business gets globalise, the transaction gets complex and investors requires high quality financial information to make capital resource allocation decision. As a result increased demand of high quality financial information by providing much more reliable and consistent information and that has led to major restructuring of IASB an organization that responsible for convergence of global accounting standard.
Recently jointly convergence by the FASB and IASB as part of a joint project to develop a common conceptual framework for financial reporting is the .
The primary objective of this international convergence programme is to develop a common conceptual framework for financial reporting by reducing any differences among accounting standard. The main purpose of creating a common conceptual framework is to protect the public interest by providing high quality financial reporting which is comprehensive, comparable and consistent with one another. So, that user of financial reporting can make economic decision based on it. It will also benefit global economy as a whole as it will win investor and market confidence as well as reduce the administration cost paid to get access to capital markets.