International Accounting Standards Board - Dissertation Example

According to Porwal (2001), Theory refers to a coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry.  Accounting Theory is the logical reasoning in the form of a set of broad principles that: provide a general framework of reference by which accounting practice can be evaluated, and that guide the development of new practices and procedures.  The basic assumptions, definitions, principles, and concepts, and the basis for their derivation, that underlie accounting rulemaking by a legislative body, and the reporting of accounting and financial information.

There is a need, in the course of development, to question which of the traditions handed down from the past are relevant and necessary to carry on to the future, and which are merely “outdated archaic shackles of the past” (Edwards, 1989, p. 6).  Past traditions that have been deemed effective for that past age may be ill-suited to contemporary socio-economic realities.  In particular, Edwards cites the historical cost concept as one long-established – one may even say, unshakeable – principle in accounting the relevance of which is now being questioned.

  It appears that in the past when the main purpose of financial statements was to keep track of rights and obligations, the historical cost concept was entirely appropriate; however, present-day financial statements are more prevalently used as bases for corporate performance assessment and for making decisions concerning the alternative allocation of resources.  This development in the use of financial statements is what has given rise to the demand for fundamental change in the basis for preparing financial statements.

  The dynamics between the clamor for change and resistance by traditionalist institutions and individuals is still at its height because while the perceived need for change is intensifying, the desire to preserve something that has come to be familiar and within the comfort zones of most individuals is an all-too-human reaction to change.