This paper describes, analyzes and compares three areas which are: FASB conceptual framework, judgment & decision making in accounting and principle based accounting vs. rules based accounting.
The conceptual framework of accounting was developed by the Financial Accounting Standards Board. The conceptual framework provides a value resource for the accounting profession, but the framework itself does not affect the day to day activities of a person working in the accounting field. It does not affect the practice of accounting directly since concepts statements do not require changes in generally accepted accounting principles, amend, modify or interpret existing accounting disclosure standards or require changes in accounting procedures or require disclosure of practices that might be in conflict with the concepts (Foster & Johnson, 2001). The primordial purpose of the existence of the conceptual framework is to serve as a base for the FASB in order to facilitate the process of standards setting for the profession.
The organization is benefited since the framework provides a solid reasoning methodology which sets a reliable basis that can be utilized by the members of the organization regardless of who are the people working in any particular time period. The framework is a tool that brings consistency to the standard setting process. It helps eliminate personal bias from the standard setting process since the members of FASB are obligated to follow the conceptual framework. Another contribution of the conceptual framework to the accounting profession is that it helps create financial statements and other financial reports that are prepared in a consistent manner that result in reports which all users can understand and interpret in a similar manner.
There has always been a dilemma in the accounting profession on the liberties that its professionals should have concerning the judgment and decision making criteria.