The FASB's Conceptual Framework for Financial Reporting: A Critical Analysis

On Jul 6, 2006, the Financial Accounting Standards Board (FASB) published its "preliminary view" of the conceptual framework. This document, developed jointly with the International Accounting Standards Board, is a step preceding the development of an Exposure Draft of the initial parts of an improved Conceptual Framework for Financial Reporting. If adopted, it will serve to move accounting increasingly toward an approach that emphasizes the balance sheet rather than the income statement, emphasizes investment in corporate equities, and de-emphasizes the stewardship role of accounting. Indeed, the FASB's preliminary Conceptual Framework is so highly abstract that it is unlikely to be directly useful in setting accounting standards. A more detailed, intermediate-level conceptual structure should be developed to guide accounting standard-setting. Despite this papers reservations about the Conceptual Framework, this paper applaud the FASB's desire to seek views on its preliminary effort and hope to participate again as this important activity progresses.