Conceptual Framework in Accounting: Development, Principles, and Applications

This report provides an overview of the conceptual framework in accounting, including its development, fundamental principles, and global applications. It discusses how the framework aims to harmonize accounting methods and set accounting standards. The report also explores sustainability and integrated reporting in Australian and South African companies, highlighting the components of an integrated report and the applicability of such reports in institutional reporting.

RUNNING HEAD: ACCOUNTING 1
UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE

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EXECUTIVE SUMMARY
The purpose of this report is to shed light on how the conceptual framework was developed, its
fundamental principles and its applications globally. The report further outlines the process in
which the conceptual framework of accounting attempts to reduce the differences in the
accounting sector but harmonising different accounting methods and setting up the accounting
standards that must be meet by those in the sector. IFRS is the body mandated to supervise this
harmonisation process. Sustainability and integrated reporting of Australian and south African
companies is also discussed. The report discusses various components of an integrated report and
the applicability of such reports in the wider context of institutional reporting.

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Table of Contents
INTRODUCTION...........................................................................................................................................4
CONCEPTUAL FRAMEWORK................................................................................................................4
ACCOUNTING PROFESION CONCERN................................................................................................5
BENEFITS AND LIMITATIONS OF CONCEPTUAL FRAMEWORK...................................................6
benefits....................................................................................................................................................6
Limitations..............................................................................................................................................7
REVENUE RECOGNITION AND MEASUREMENT BASIS..................................................................7
QUALITATIVE CHARACTERISTICS.....................................................................................................8
SUSTAINABILITY AND INTEGRATED REPORTING..........................................................................8
SUSTAINABILITY REPORTING GUIDELINES.....................................................................................9
INTEGRATED REPORT............................................................................................................................9
Integrated framework..............................................................................................................................9
Purpose of integrated report...................................................................................................................10
DIFFERENCES BETWEEN SUSTAINABILITY REPORTING GUIDELINES AND
INTERNATIONAL INTEGRATED REPORTING COUNCIL...............................................................10
HOW HOLISTIC IS SUSTAINABILITY REPORTING AND INTEGRATED REPORTING?.............10
STRENGHTS AND LIMITATIONS........................................................................................................11
APPLICABILITY OF INTEGRATED REPORTING AND SUSTAINABILTY REPORTING
THEORIES................................................................................................................................................12
integrated reporting theories..................................................................................................................12
sustainability reporting theories.............................................................................................................12
LIMITATION OF THESE THEORIES....................................................................................................12
COMPONENTS OF AN INTEGRATED REPORT.................................................................................12
HOW IT IS SHOWN IN ECHO POLSKA PROPERTIES.......................................................................13
COMPARISON OF AUSTRALIAN COMPANY AND SOUTH AFRICAN COMPANY CSR
REPORTS.................................................................................................................................................14
CONCLUSION.........................................................................................................................................16
REFERENCES..........................................................................................................................................16

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INTRODUCTION.
Conceptual framework is the coherent system of interrelated relationships that defines the roles
and the nature of the FASB.The evolution of the process in the US, UK, Australia and the globe
at large. The US is seen as the super economy in the globe and this was the first country to
develop a framework for recording and reporting financial information after which other
countries adopt the process.
CONCEPTUAL FRAMEWORK
It is defined as the consistent composing of objectives and ground laying notion that defines the
nature ,function and limitations of the FASB(Jackling, Raar, Wines & McDowall, 2010).The
development of the conceptual framework in the US is linked to two scholars Paton and
Littleton Monograph both of 1940.The framework was further expanded through a research
study done by Moonitz and Sprouse in the year 1962-1963.The two set up the basis for the
establishment of the Financial Accounting Standards Board.John B Canning in 1922 published a
book entitled Accounting Theory in which he identified the process of valuation of assets and the
concept of measurement that to him, it was based on the expected future and this today forms the
essential concepts that are applied in recording and reporting financial transactions. The earliest
body in the US to shed light on the way of financial transactions were recorded and reported was
Tentative Statement of Accounting Principles Affecting Corporate Reports that chiefly issued
directions to the newly established Securities and Exchange Commission. The report utilised the
use of historical cost accounting, concept of matching and revenue recognition concept in the
USA. In Australia the conceptual framework was set up by the Australian Accounting Research
Foundation in the yeas 1985-1995.The aim of the framework was to issue a combined
interrelated notion that highlights the nature ,need and an expanded content of the financial
reporting.IASC developed a framework use in the preparation and disclosure of financial
information by 1989.This directs the board the board in setting up the accounting standards that
could address accounting concerns that are mentioned clearly in an International Accounting
Standard/ Financial Reporting Standards .This framework;
 Highlights financial statements objectives.
 Elaborates qualitative characteristics making accounting information important.

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ACCOUNTING PROFESSION CONCERN
Users of financial information are interested; to use them when making economic decisions
which encompasses decisions on whether to buy, evaluation of management and the involvement
of this in the national income statistics. Similarly, to assess the management stewardship only
attainable in a separate entity that is executed by an independent board of directors. Users of the
financial information includes; the shareholders who want to know whether their investments
will earn them dividends, the government is interested to make use of this in the national income
statistics to determine the living standards in the country, suppliers are interested in order to
know whether the company will meet its financial obligations when they supply goods and
services on credit .Employees need this to assess the security of their jobs and the management
for them to project the future outcomes in the business and to plan to face the consequences of
such. The IFRS regulating financial reporting standards comes with the following beneficial
effects;
 lowers the differences in the preparation of financial statements.
 safeguards investors interest in a listed company.
 Advance the quality of accounting information produced.
IFRS aims at safeguarding interest of the public, promotion of top quality and globally
acceptable financial reporting standards and promotes sustainable application of the IFRS in
financial reporting.
BENEFITS AND LIMITATIONS OF CONCEPTUAL FRAMEWORK
The framework which is tasked with the duty of undertaking measures to ensure consistency is
uphold on the preparation of the financial statements. It further defines the scope of preparation
of financial statements.
benefits
 Raises the interested party’s confidence and their thinking on financial reporting as the
variations in the accounting sector have been harmonized.
 Establish a basis in which performance of accounting work is are tested in an objective
manner. This assists to put in place the standards from which financial statements
prepared adhere to.

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 Promotes better relations between the accountants and the regulatory bodies This is made
possible as the accountants work should attain the minimum standards while the work of
the regulatory body is to make sure that the standards are achieved.
 Improves the user’s reliability of the financial information as the users have a clear
validation that the financial statements have been prepared with due regard to the set and
has the minimum standards.
Limitations
 Expensive to establish Conceptual framework is costly in terms of resources and time.
Developed countries only established this and will then imposes these policies on
developing countries which their financial and accounting standards are not in
commensuration with the set standards. The developing due to lack of resources adapts
the framework (Fidalgo,Sein & García, 2015).
 Inflexibility of the framework, once the conceptual framework has been reached and set
up, it is difficult to be changed for it to incorporate new ideas that are deemed important
and not covered by the framework.
 Disregard the interest of some parties; The framework only concerns matter that are
practical and relevant to specific parties. For instance, as largely as the framework is set
up by developed countries and imposed on developing countries whose standards are not
unison with those of developed countries (Weible & Schlager, 2014).
 The framework can be challenge, in case of a conflict arising between the existing
standards and the one set out by the framework, the existing one overrides the framework
as the present is not much considered in accounting more than the past since accounting
is based on historical basis (Bes-Rastrollo et al. 2013).
REVENUE RECOGNITION AND MEASUREMENT BASIS
The core objective of financial statements is to provide information concerning the reporting
company relating to assets, liabilities, equity, income and expenses that are deemed to be crucial
by the interested to the entity's financial matters and applies this in determining the expected net
cash flow of the firm and determining the stewardship of the company economic resources. This
information in the balance sheet is shown by disclosing the assets, liabilities and equity values.
In the balance sheet of Peet limited company as at 30th June 2017, the total assets were 933,858

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Australian dollars’. The total liabilities amounted to 408,536 as at that date. The statement of
cash flow of the Peer Limited company shows that the net cash flow from operating activities
was 57,227, net cash flow from investing activities was 1488 and the cash flow from financing
activities amounted to 40745, all in Australian Dollars. The cash and cash equivalent increase is
14994 Australian Dollars. All this are as at 30th June 2017(Pg.39 Of the 2017 Annual Report). In
the statement of Equity of Peer Limited company as at 30th June 2017, the total balance is
disclosed at balance of 513,630 Australian Dollars (Pg.37 of the 2017 Annual Report). Peer
Limited company further discloses that interest is only recognisable when earned and computed
using an effective rate of interest. Dividends are recognized when the right to obtain payment has
been attained. Proceeds from the land sale is recognised after the sale has been serviced. When
the sales contract has been signed, the project management and selling fees are recognized. Other
trading activities are recognised only after the necessary services are executed (Pg.42 of the 2017
Annual Report). The Peer report also reveals that the total expenses as at 30th June 2017
amounted to 240,609 Australian Dollars The methods, assumptions and judgements used in
estimating the amount presented and the changes on them.
QUALITATIVE CHARACTERISTICS
Timeliness states that financial information should be available to users at suitable time for them
to make decisions. Peet Limited Company has its financial year ending at 30th June every
financial year and exhibits this by preparing its financial statements as at this date to enable the
users to make decisions on time (Choudhary, Merkley & Schipper, 2017).
Understandability the financial information should prepare simply and clearly. Peer limited
balance sheet statement, statement of Equity and the cash flow statements depicts this as they
have been prepared to suit the understanding interest of all the users.
SUSTAINABILITY AND INTEGRATED REPORTING.
Sustainability report is a document prepared by various companies concerning their impacts on
various sectors of the community due to their day to day operations. This impacts could be
caused on the environment, society or on the general economy. This report also shows the
entity’s values and governance issues relating to how they intend to preserve the economy in
general. Sustainability report therefore aids the company to gauge, appreciate and convey their
key plans relating to how they intend to manage economic activities, environment, societal and

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governance issues. This will aid this organization in developing sound objectives and in efficient
management of this change. This report act as a tool to convey sustainable presentation and
effects whether they are good or bad. Sustainability reporting is sometimes considered as
corporate social responsibility (Dienes, Sassen & Fischer, 2016).
SUSTAINABILITY REPORTING GUIDELINES
 identify its intended users and explain the way it has addressed the needs and interests of
those groups.
 It should show how the entity has performed in its sustainable program
 It should show how economic aspect, environment and societal aspect has been impacted
on
 It must depict on completeness, that is, cover all performance of entity in terms of
economic, social and environmental.
 Integrated reporting blends both financial aspect of the entity and the non-financial aspect
in terms of
entities performance.
INTEGRATED REPORT
It is a specific document that convey entity’s strategies, governance and achievement prospects
to the outside context leading to the creation of company’s value in the short, medium and long
term (Eccles & Krzus, 2010).
Integrated framework
the role of this is to set guides to be followed and items that must be included in the integrated
report and discuss various concepts that are used.
contains;
 Relevant information to be included in the framework to be utilized in the assessment of
company’s ability to generate value
 Show situation when such value is maintained or not.
 Shows relationship of such value over time

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Purpose of integrated report
It clarifies to financiers the way the entity is creating value over a given period of time.it has
pertinent information both financial and non-financial.
DIFFERENCES BETWEEN SUSTAINABILITY REPORTING GUIDELINES AND
INTERNATIONAL INTEGRATED REPORTING COUNCIL
Sustainability reporting guidelines of GRI International integrated reporting
council(IIRC)
This is a standard that all entities must
prepare their sustainability report
This a framework that all companies must
prepare to accompany their financial
statements
It is prepared by both the public and private
companies globally
These reports are prepared by listed
companies around the globe to accompany
their annual financial statements
This sustainability reporting are majorly
directed to at the stakeholders with some
interest on the company
Integrated reports are purposely prepared with
the interests of the investor in mind
It is merely disclosure of the corporate
responsibility of a certain company
It is concerned with the long term value
creation of an entity and incorporation of such
into their strategic goals
Information will be treated crucial for
showing the company’s economic societal
and environment effects and impacting on the
decisions of all stakeholders
Materiality of an item will be considered if it
will significantly impact on the lenders or
other providers of funds with respect to the
entity’s ability to generate value
HOW HOLISTIC IS SUSTAINABILITY REPORTING AND INTEGRATED REPORTING?
Financial statements merely show how companies have performed and how they have complied
but does not give useful information concerning the company’s value and how they have
participated in sustainable programs to conserve and preserve the environments and societal
activities. entities have therefore seen the need to show their activities in a holistic way. This
resulted to the need of this reports.

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Integrated framework ensures presentation of various moves, discuss various capitals utilized
and show the view of the company in a long term basis
Sustainability guidelines show various elements that must be covered in reporting on the
corporate performance of an entity like materiality, completeness and others.
Integrated framework enables entities prepare its own document instead of using checklist
method. This will enable them adapt to changes thus reporting on their value more effectively.
According to the framework, entities will discuss various elements that drives their value and
include only information that is relevant to the user’s needs.
STRENGHTS AND LIMITATIONS
STREGHTS LIMITATIONS
It underscores the broader perspective of the
guiding principles on the way a firm try’s to
create value(Weber, Diaz & Schwegler,
2014).
It does not give a broader sense in the
concepts used
It solely rely on the specific company to
interpreted its value
Issues relating to measurement hiccups are
evident in the establishment of values of
various items
It gives a clear cut line between the past
traditional values and the current ones
It lacks standards of specific boundaries and
the way they are defined
It ensures that various stakeholders are
engaged in various area since they get
accessed to this reports
Comparing many firms in relations to this
reports are minimal since many present
information the way they want to present
them(Kumar, Jones,Venkatesan & Leone,
2011).
There is a very high possibility to change the
way managers and those in management
position behave
There is a high chance of interfering with
various sustainable values

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APPLICABILITY OF INTEGRATED REPORTING AND SUSTAINABILTY REPORTING
THEORIES
integrated reporting theories
AGENCY THEORY-according to this theory, managers and various regulation agencies aids in
reduction of an information asymmetry and boost on distribution of capital (Jensen & Berg,
2012).
POSITIVE ACCOUNTING THEORY-according to this theory, managers agree to reduce
agreement costs and avoid expensive rule (Zalaghi & Khazaei, 2016).
sustainability reporting theories
STAKEHOLDER THEORY-according to this theory, leaders uses this report as part of their role
to establish an association that exists between entity’s and various participants (Garcí,
Rodríguez& Frías, 2013).
LEGITIMACY THEORY-according to this theory, leaders and administrators want to ensure
that they remain legitimate in the eyes of stakeholders so that they can operate effectively (Dube
& Maroun, 2017).
LIMITATION OF THESE THEORIES
It doesn’t elaborate well why businesses are accepting to spend extra in disclosing various
elements voluntarily.it is only used when such disclosure is willful (Velte & Stawinoga, 2017).
They lack the predictive value in the organization
It doesn’t elaborate well on the reasons behind assistance of the regulator.
COMPONENTS OF AN INTEGRATED REPORT.
 Business outline-this shows the general overview of the outside environment that the
business carries operations in
 Governance-this indicates how the business organize itself to create value
 Business model
 Risks/prospects-indicates how the business is positioned to take up the chances and how
they address the risks.

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 Strategy/resource distribution-show the moves that the company takes to create value and
how they allocate resources.
 Performance measurement-show whether goals have been realized
 Sustainability
(Villiers, Venter & Hsiao, 2017).
HOW IT IS SHOWN IN ECHO POLSKA PROPERTIES.
Business outline.
In pg. 81 of the integrated report, it has been mentioned that EPP is set to comply with all the
laws and regulations in all areas that is established.it will comply with all the relevant taxation
laws and required standards, this is achieved by employing special team to advice of possible
risks of not complying.
Risks and opportunities
In pg.81 of the 2017 integrated report, the company discloses that it is ready to take up risks in
pursuit of its developmental projects in a sustainable way taking into account the interest of all
stakeholders. The company has promised to produce good returns that is in line with the
expectation of all stakeholders.
Business model
In pg. 22-23 of the report, it is disclosed that the company will sort various capitals to further its
activities like; the group seek to provide their shareholders with good returns which are
consistent. The groups disclose various inputs and outputs like disclosing how dividends have
grown and indicating sustained dividend growth. Development of a new brand resulting to
efficient growth in the economy
Strategy/resource allocation.
In pg. 24, the company identifies various resource capitals and applications as shown
below (Gleeson, 2015).
 Financial-this is debt and equity. this will enhance year growth.

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 Social/relationship-this implies good relationships with various stakeholders such
as investment relations.
 Natural-they will set up energy efficient program and green environment.
 Manufactured-they pointed out that they will build modern properties in key
points. This will lead to increased property value.
 Human-their employees will have key competencies and development of various
skills. This is achieved through development and offering incentives to the staff
(Muda et al. 2017).
 Intellectual-this involves innovation and partnering to have high occupancy levels
and build mechanisms to identify clients who don’t perform well
Governance
In pg. 60, it is pointed out that the managing board lead in an ethical way and in establishment of
an ethical climate within the group to enhance good governance structures.
Performance measurement
In pg. 134, utilizes the use of distribution of shares a key measure of performance
Sustainability
In pg. 48 of the integrated report. The company has disclosed that stakeholders will be engaged
to build a sustainable business through open communications, consistency and timely services.
This will boost the relationship and enhance sustainability.
COMPARISON OF AUSTRALIAN COMPANY AND SOUTH AFRICAN COMPANY CSR
REPORTS.
PEET company ltd did not prepare the integrated report to show its corporate social
responsibility activities. But instead, the company has just published corporate governance
statement to show key social corporate responsibility it does to accompany its financial
performance reports. Key components of such statement;
Sustainability

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As in the south African integrated report, company has included the sustainable program
statement and stated that it provides sustainable values to all stakeholders which include the
community, the environment and customers.it has been pointed out that sustainable development
is in the heart of PEET company ltd.
Performance measurement.
The company has stated that it endeavors to monitoring and managing the social and ecological
effects by employing assessable actions and devising good business policies
Governance
the statement has stated that the management of PEET ltd is accountable every step that they
undertake.it has also stated that there is policy evaluation to manage moral and expert behavior
(Newberry, 2015).
Business outline
The company has highlighted important business that they do and pointed out that they undertake
to preserve the environment
Business model
The company has stated that it is set to serve customers currently and in the future by being
flexible, productive and enhancing growth of their investment.
Strategy
The company has stated that the MD is responsible for strategy and giving direction to the group,
it also enhances efficiency and effectiveness in the operations.
Risk management
In pg. 15 of the statement, it is said that the company recognize the need for risk management
and therefore it has established such plan to check on such risks.it has also incorporated in the
policy statement such measure to keep abreast with various risks.

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CONCLUSION
In conclusion the conceptual framework has achieved a lot in its role of resolving the accounting
differences through the harmonisation of these differences by setting up the IFRS which is an
independent body mandated to set up the standards for recording and reporting financial
transactions that the accountants must adhere to in the preparation of financial statements and
their reporting.Sustainabilty and integrated reporting assist organizations to disclose various
economic, societal and environmental concerns that they endeavour to develop in the process of
their development.

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