To achieve converged conceptual framework is not straightforward as there are many problems and barriers faced by IASB.
The major problem of IASB to achieve convergence accounting standard is that difference in principles of accounting standard in different nations. The problem of achieving converged conceptual framework will exist till all the disparities between different standard have been eliminated. The one of the problem that highlight achieving international convergence is the debate surrounding whether financial reporting should be rules or principle based. The principles based approach of financial reporting provide a conceptual basis for accountants to follow when reporting and rules based approach requires preparers of financial statement to follow detailed rules. The IASB and IFRS prefers principle based approach as setting their standard where as US accounting standard FASB are rather based on rules approach. IASB believes principles based approach is best for setting standard as it provide broad guidelines to accountants and reduces complexity where financial statement are lengthy, irrelevant and not clear, which does not meet the needs of financial statement users. This is reflected by many views that principles based approach as preferred and commonly used approach for setting standard as guideline. This is supported by ACCA as ”the principle based approach be the way forward” which also supported by many others that principle based approach will limit complexity. (Doherty, 2008). This is further supported by FRC in their report ‘Louder than words’ stating “our research has convinced us that best route to better reporting and regulation of reporting emphasises principles rather than rules.
The rules based approach received much of a criticism after Enron and WorldCom scandal and US accounting standard realize that it is due to the too much rule driven and complexity which opens the room for creative accounting and manipulation. The US shift from rules based to principle was supported by majority of people and organization. Therefore, US should make move toward principles based approach in setting their accounting standard as without powerful nations participation in convergence process it is difficult to achieve the goal.
Another problem that IASB highlighted in their exposure draft that there is different view regarding objective of the financial reporting. As IASB clearly state in their exposure draft that the primary objective of financial reporting is to prepare financial report in respect meeting needs of the all financial users. But this is argued by the some people that the financial reporting should be prepared in the perspective of stewardship of the enterprise rather than perspective of shareholder. This is reflected in the ACCA study that the aim of financial reporting should not only focus on capital providers and provide a report of the management’s stewardship of the enterprise and a record of the performance and position for them. However, this is argued by Ernst & Young in their comment letter that the financial reporting should be prepared from the perspective of the equity rather than the stewardship management perspective and they request FASB framework on their financial statement that they should pay more attention on entity’s performance as users always looks for income statement. Therefore, to meet the objective of financial reporting as mentioned in IASB framework, an entity should prepare their financial report in perspective of all external users and pay more attention to decision usefulness on entity perspective rather than management of enterprise.
There is also have some problem regarding producing high quality financial reporting as there is differences in the exposure draft of conceptual framework and many accounting firms and boards comments letter regarding qualititative characteristics. The qualititative charateristics are attributes of financial reporting to make financial information useful. It determines the usefulness of information that are relevant and relevant which can be distinguishes as fundamental and enhancing qualititative characteristics. The problems arise due to the some of the qualitative characteristic are not explained appropriately in the ED. This highlights in the AJ Mugford report where he believe that it is not fruitful to use qualititative characteristics in order to select what to include and exclude in financial reporting to make it more useful as it does not state clearly in ED. He also believes that there are problems in the trade-off as the ED does not give us details guidance about the situation where trade-off between one qualititative characteristics to one other occurs. Therefore he suggests that it is just a professional judgement to be included in the ED with clear guidance and explanation about the usefulness of trade off. To improve qualititative characteristic of financial reporting there is some suggestion of importance of understandability regarding fundamental and enhancing qualitative characteristics. As Ernst & Young comment letter states that understandability is one of the important factor stated in framework that users have responsibility to understand the information and in order to do so they have a reasonable degree of financial knowledge. They believe that the financial is not useful if it is not understood by the users and therefore they believe that it should be move from enhancing characteristic to fundamental characteristics in order to be useful. It is also suggested by ACCA study that another importance characteristic substance over form is not depicted in ED and they believe that it should be included in the ED as separate characteristic to reflect the changing situations.