The IASB Conceptual Framework for Financial Reporting (the ‘Conceptual Framework’) sets out the concepts that underlie the preparation and presentation of financial statements. According to Hines (1980), the ontological assumption underpinning the ‘Conceptual Framework’ is that the relationship between financial accounting and economic reality is unidirectional, reflecting or faithfully reproducing relationship which presuppose that economic reality exists objectively, intersubjectively, concretely and independently of financial accounting practice (see p.315). In that sense, financial accounting reflects, mirrors, represents, or measures this pre-existent economic reality.
Requirement:
1. “The conceptual framework is criticised for not fulfilling its functional objectives, principally that of providing a basis for guiding standard-setting and resolving accounting controversies”.
Critically discuss this statement taking into consideration the accounting principles, concepts and the focus of general purpose financial reporting outlined by the Conceptual framework.
