Financial Accounting Theory Essay Example | Topics and Well Written Essays - 1500 words

Financial Accounting Theory - Essay Example The accounting frameworks are there for wide use of the financial statements of a company. A common framework of accounting would certainly be useful for the stakeholders of the company. But the criticism of the conceptual framework arises as these are not found so useful. The arguments are that the frameworks are not useful as there is lacking of practical evidences. The paper is an attempt to analyze that the conceptual frameworks of financial accounting are really useful or it is just a time wasting activity. Conceptual framework A conceptual framework is made for explaining the factors of the subject and thereby prepares a guideline for making a project. It is a kind of roadmap. The conceptual framework is a set of assumptions about the topic, the concepts, beliefs and theories about the topic. It is guidance to the persons who are associated with certain projects and also it is the guide to the users who are the other stakeholders of the project (Islamic Financial Institutions, n.d., p.1). For developing a conceptual framework experiential knowledge is most necessary to which doesn’t get needed attraction from the researchers. Because of this the conceptual frameworks are not so applicable in the practical field. ... Financial Accounting The existence of accounting theory is because it explains the existing practices and predicts the unobserved practices. The accounting theories also explains that why the firms follow some specific standards and should enable the users to forecast the attributes that may be followed by the firm (Schroeder, Clark & Cathey, 2010, p.1). The accounting theories are basically of two types Normative and positive. The normative theories of accounting are basically subjective and the positive accounting theories are mainly practical and verified enough (Kornai, 2008, p.124-125). The normative theories evolved over time and it shows that how the things should be and positive theories of accounting is more practical as it explain the cause of the event along with the definition of the things. For communicating with relevant information these accounting theories are needed by the accounting professionals and the base of the accounting theories are the conceptual frameworks (Nobes, 1997, p.4). W. A. Paton was the first one to make an accounting theory where he has expressed his views on the valuations of assets and liabilities and distribution of income and entity concepts. Since then the accountants understand the need of a generally accepted principle that will be followed by wide number of companies and their stakeholders. As a result of the great depression in the year 1929 the Generally Accepted Accounting Principle was emerged which was a set of accounting practices (Schroeder, Clark & Cathey, 2010, p.17). The next accounting theories were made by the researchers understanding the deficiencies of the existing framework. Since then some major accounting theories developed by the researchers like