Abstract:
The interpretation of financial data obtained from the accounting process for reporting purposes is regulated
by financial accounting standards (FAS). The history and mechanisms used for the development of ʻThe
Conceptual Framework for Financial Reporting’ (the Conceptual Framework) as well as the financial
accounting standards resulted in impressive volumes of material that guides modern financial reporting
practices, but unfortunately, as is often the case with textual manuscripts, it contains descriptions that are
vague, inconsistent or ambiguous. As part of the on-going initiatives to improve International Financial
Reporting Standards (IFRS), the International Accounting Standards Board (IASB) promotes the
development of principle-based IFRS, which aim to address the problems of vagueness, inconsistency and
ambiguity.
This paper reports on the findings of a design science research (DSR) project that, as artefact, developed
a first version ontology-based formal language representing the definitions of asset, liability and equity (the
fundamental elements of the statement of financial position as defined in the Conceptual Framework)
through the application of knowledge representation (ontology) techniques as used within computing. We
suggest that this artefact may assist with addressing vagueness, inconsistencies and ambiguities within the
definitions of the Conceptual Framework. Based on our findings, we include suggestions for the further
development of a formal language and approach to assist the formulation of the Conceptual Framework.
The project focuses on the Conceptual Framework for Financial Reporting after the incorporation of Phase
A in the convergence project between the Financial Accounting Standards Board (FASB) and IASB.
