Essays

Accounting: The Dynamic Language Of Business

Posted at August 14, 2012 | By : | Categories : Essays | 1 Comment
Accounting The Dynamin Language of Business


Business, as far as the context of history is concerned, is as primitive as the onset of human civilization. As long as there are societies that will create demand and utilizable resource to satisfy them, the cycle of business is fated immortal. However, it cannot speak for itself. Accounting, being the language of business, is an inseparable science that has confronted a lot of changes through time along with it. As an organized body of knowledge, accounting is governed by a set of rules, standards, principles and concepts that define its very existence as a science. Needless to say, the conceptual framework, as a fraction of the whole accounting system, has to adopt with the major developments and advancements imposed by the authorized regulating body that are carefully analyzed to fit the condition of the current economic environment.

Just recently, the IASB has completed its revision of the old conceptual framework of accounting. According to IFRS.org, “The project’s overall objective is to create a sound foundation for future accounting standards that are principles-based, internally consistent and internationally converged.” This revisiting of the old conceptual framework is ultimately aimed to update and refine the existing concepts to reflect changes in markets, economic environment and business practices that have occurred in two or more decades ever since the creation of the concepts. In the old and new version of the book Financial Accounting 1 by Conrado T. Valix, Jose F. Peralta and Christian Aris M. Valix, such renewal of the conceptual framework exposes substantial changes and improvements.

Accordingly, there are major differences that can be derived out from a careful comparison between the old and new conceptual frameworks. Most of them are focused on the topics of objectives and qualitative characteristics, measurement, definition of elements, recognition and derecognition, boundaries of financial reporting including presentation and disclosure, reporting entity concept, purpose and status of framework and its application to not-for-profit entities.

On a more detailed observation, there are modifications made including addition and omission of certain items and elements in the discussion of the conceptual framework. On the old discussion, the threshold of moving totally toward adopting the international accounting standard and the factors for deriving a decision was presented, entitled “Move toward IAS.” However, the latest version of the book has given the IFRS phenomenon more emphasis with its brief discussion entitled “Move toward IFRS.” There are also additional readings that can be found in the newest publish such as those about the Philippine Interpretations Committee and the Philippine Financial Reporting Standards. It seems the authors are now putting more effort on reviewing the framework on the national level.

Moreover, the accrual concept of accounting was already dropped out from the new discussion. Aside from that, users of financial information are already classified into two, namely the primary and other users. While financial reporting is exhaustively discussed, the accounting concepts are nowhere to be found in the new conceptual framework. Under the new conceptual framework, qualitative characteristics are now classified into fundamental and enhancive qualitative characteristics as against the primary and secondary classification used by the older version.

In the newest update, the discussion on qualitative characteristics and accounting constraints appear to be merged such that timeliness and materiality are treated as qualitative characteristics. However, it was made clear that conservatism (prudence) is not anymore part of the new framework as it proves to be inconsistent with neutrality. Other than that, reliability is made synonymous with faithful representation and the characteristic “free from error” was added on the discussion.

These major changes on the conceptual framework of accounting prove its dynamism being the language of business. For the years to come, more and more revisions are expected to occur in the framework as people, through time, witness the evolution of business and its sole language – accounting.

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  • Faith

    September 14, 2012 at 1:23 pm

    Knwoledge wants to be free, just like these articles!

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