Current Development in Accounting Thought

This essay analyses and evaluates three different aspects of the accounting process, including three major alternatives of historical cost accounting, major users of accounting within the conceptual framework of Australian Accounting Standard Board (AASB) and International Accounting Standard Board (IASB), and major advantages of accounting process developed from conceptual framework.

Running head: CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
Current Development in Accounting Thought
Name of the Student
Name of the University
Author’s Note

1CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
Introduction
Accounting is considered as one of the major processes for the success of the business
organizations. The main aim of this essay is to analyse and evaluate three different aspects of the
accounting process (Scott, 2015). The first part of the essay sheds light on three major
alternatives of historical cost accounting for the companies. The second part of the essay
identifies the major users of accounting within the conceptual framework of Australian
Accounting Standard Board (AASB) and International Accounting Standard Board (IASB). It
also discusses about the implication of this identification on the future of accounting
measurement. The last part of the essay discusses about the major advantages of accounting
process developed from conceptual framework.
Answer to Question 1
Under the process of Historical Cost Accounting, the measurement of the value of the
assets and liabilities is done based on the original and nominal cost of the assets and liabilities at
the time of acquisition. There has been the development of many alternative methods of
historical cost accenting in order to overcome the loopholes of this process. The following
discussion shows the description of three alternative methods of historical cost accounting.
Constant Purchasing Power Accounting (CCPA): IASB introduced the process of CCPA as a
major alternative of the traditional historical cost accounting and the application of this
accounting process can be seen under hyper-inflationary environment (Rodrigues, Schmidt &
dos Santos, 2012). Under CCPA, the accountants measure the financial capital maintenance in
the units of constant purchasing power (CPP) in terms of consumer price index (CPI) at the time
of low inflation. At the time of high inflation and hyperinflation, the accountants can use the
measurement in daily indexed unit account. There are three major underlying assumptions in this
model (Whittington, 2014). As per the first assumption, accrual basis of accounting is used for
the recognition of events and transactions. The second assumption supports the going concern
assumption of the companies. As per the third assumption, the measurement process of CCPA in
units of all constant real value non-monetary items can automatically remedies the erosion of
stable measuring unit assumption. Business organizations can apply CCPA for the purchase of

2CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
their plant and machinery (Henderson et al., 2015). For example, on 1 January 2010, a company
purchased a plant for $6000000 and the CPI was 150. On 1 January 2015, the CPI index was
200. Thus, the cost of the plant in 2015 would be $8000000 ($6000000*200/150). Based on the
above example, CCPA can be considered as viable alternative of historical cost accounting.
Under historical cost accounting, the company would not consider the changes in the price of the
plant where CCPA consider the deviation in changes in the price of the plant over the years.
Thus, CCPA is a viable alternative.
Current Cost Accounting (CCA): Current Cost Accounting (CCA) is also considered as
another major alternative of historical cost accounting and CCPA. It needs to be mentioned that
CCA was introduced to overcome the criticism of CPPA (Schaltegger & Burritt, 2017). With the
application of the process of CCA, the accountants become able to recognize the change in the
individual price of the assets and liabilities due to the change in general price level. Under the
process of CCA, the development and interpretation of the financial statements are done in such
a manner so that they can reflect the change in price of the assets and liabilities. There is not any
consideration of retail price index under CCA as the valuation of assets is done in the current
cost basis under CCA. There is a basic assumption under CCA (McCarthy et al., 2012). As per
this assumption, the valuation of the stocks is done based on FIFO (First In First Out) basis. The
main objective of CCA is the reporting of the assets and liabilities in the financial statements
based on fair market price. Business organizations can apply the process of CCA for the
valuation of their assets. For example, the book value of a plant is $8000000; but the fair market
value of the same plant is $5000000. Thus, under the process of CCA, the company will consider
the latter due to fair market value. For the reason of considering all the changes in the price of
the assets, CCA can also be considered as a viable alternative of historical cost accounting
(Chambers, 2014).
Exit Price Accounting (EPA): Exit Price Accounting (EPA), also known as Continuously
Contemporary Accounting (CoCoA) is a major alternative of historical cost accounting (Fischer
& Marsh, 2013). As per EPA, the companies should do the valuation of their assets based on
their exit price so that the financial statements can show the ability of the companies to adapt.
There are three major assumptions of EPA. The first assumption states that the companies exist
to increase their wealth. As per the second assumption, the company’s ability to adapt the

3CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
changing environment determines the organizational success (Djafri, Taleb & Bouteldja, 2014).
As per the third assumption, the capacity of adaption can be best reflected by the monetary value
of assets and liabilities. Thus, it can be seen that EPA takes into account the changes in the value
of the assets and liabilities as the motive of this system is to report the value of asset in fair
market value. For this reason, EPA can be considered as a viable alternative of historical cost
accounting (Fields, 2016).
Answer to Question 2
Accounting refers to the process to communicate the financial information about the
business entities to the different users. Thus, it can be observed that accounting information has
major impact on the financial decision-making process of different users. In the conceptual
framework of IASB/AASB, there is mention of the users of accounting. As per this framework,
there are two types of users of accounting; they are Internal Users and External Users. The
following discussion shows the description of these users of accounting:
Internal Users or Primary Users: The internal users of accounting are discussed below:
Management: It needs to be mentioned that management of the companies is the major users of
accounting. The managements of the business organizations are in need of the accounting
information in order to measure the performance of the business. Accounting information related
to the profitability, liquidity, efficiency and others shows the management with the actual
financial position so that effective strategies can be developed (Schaltegger & Burritt, 2017).
Employees: As per the accounting conceptual framework, employees are considered as major
internal users of the accounting information. For the purpose of judging the future of the
remuneration of the companies, the employees need accounting information on the profitability
of the companies. Employees need accounting information to assessing their job security
(Edwards, 2013).
Owners: Owners of the businesses are most important internal users of the accounting of the
companies. Business owners need the accounting information of the companies for the analysis
of the viability and profitability of their investments. They also need accounting information for
the determination of any future course of actions (Weil, Schipper, & Francis, 2013).

4CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
External Users or Secondary Users: The external users of accounting are discussed below:
Creditors: Creditors are considered as one of the major external users of accounting. The main
reason for which the creditors need accounting information is the determination of credit
worthiness of the business organizations as the creditors set the terms of credit based on the
results of credit worthiness analysis. For this reason, it is necessary to get accounting information
on the financial health of the companies. The major types of creditors in the business
organizations are suppliers, lenders, banks and others (Horngren et al., 2012).
Tax Authorities: Tax authorities are considered as another major external user of accounting. It
is required for the tax authorities to determine the financial position of the business
organizations. It helps the tax authorities in determining the credulity of the business
organizations to pay the required amount of taxes (May, 2013).
Investors: It is required for the investors of the companies to ascertain the financial position of
the business organizations so that they can take effective investment decisions. For this purpose,
the investors need accounting information on various aspects like profitability, liquidity,
efficient, debt position and others. Thus, they can be considered as the major external users
(Henderson et al., 2015).
Customers: Customers are also considered as another major external user of accounting
information. It is required for the customers to assess the financial position of the companies to
maintain a stable source of supply in long-term basis (Sharma & Panigrahi, 2013).
Regulatory Authorities: The financial regulatory authorities require the accounting information
in order to be ensured that the company has adopted the correct accounting standards.
From the above discussion, it can be seen that the conceptual framework of IASB and
AASB provided details about the users of accounting. In this context, it needs to be mentioned
that there are some major implications of this identification of the users of accounting for the
future of accounting measurement. In this process, the involvement of fair value and historical
cost accounting can also be seen (Sharma & Panigrahi, 2013). It is an important aspect that both
the internal as well as external users of accounting need the most relevant information for their
different purposes. It needs to be mentioned that the process of historical cost accounting does

5CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
not take into consideration all the changes in the value of the assets and liabilities over the years.
Thus, under the process of historical cost accounting, the users will not be able to get the most
relevant accounting information. However, in case of fair value accounting, it can be observed
that this accounting process takes into account all the changes in the value of the assets and
liabilities of the companies. Thus, it needs to be mention that it is required for the IASB and
AASB to consider the effect of both historical coat accounting and fair value accounting while
further identifying the users of accounting. It is recommended to the conceptual framework of
AASB and IASB to consider the adoption of the strategy of fair value accounting for the future
development in the identification of users of accounting measurement (Henderson et al., 2015).
Answer to Question 3
Requirement [a]
The presence of accounting process can be seen resulted from the development of
conceptual framework. In this context, it needs to be mentioned that this accounting process has
some major advantages. This type of accounting system has been developed from the conceptual
framework of IASB. The first advantage is that with the help of this accounting system, the
accountants become able to resolve different kinds of tough accounting problems (Jorissen et al.,
2012). With the assistance of this accounting system, the accountants become able do the
analysis of different types of accoutring issues. Thus, it can be said that the adoption of this
accounting helps the business organizations in the decision-making process. In case of the
complex financial reporting issues, the business organizations become able to get the basis of
reasoning to solve these issues. For this reason, the accountants become able to narrow down all
the alternatives so that they can reach to the correct solution of these problems. Thus, it can be
said that this accounting process helps the accountants financial managers in bringing greater
efficiency and consistency in dealing with different kinds of financial accounts of the companies.
Apart from this, it needs to be mentioned that the accounting developed by the conceptual
framework provides a guiding principle for the board of directors in the decision-making process
(Henderson et al., 2015).
Moreover, the inclusion of this accounting system is majorly helpful in the reduction of
any kind of influence or biasness in the accounting process of the companies. For this reason, it

6CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
can be observed that in the absence of this accounting system, the decisions of the management
of the companies will be different due to the potential presence of biasness or influence. Another
major aspect is the increase in financial credibility (Murphy & O’Connell, 2013). The use of this
accounting system developed from conceptual framework provides credibility in the process of
financial reporting and the accountants become able to increase this credibility of financial
reporting. Hence, this particular aspect helps both the preparers and users of the financial
statements of the companies as this accounting system bring internal consistency in the whole
accounting process. Most importantly, it needs to be mentioned that this accounting system helps
the users of the financial reports in the process of better understanding the accounting
information; they also become able to understand the limitations of this accounting information
(Zhang & Andrew, 2014). This particular accounting provides the accountants and users of the
financial statements with a frame of reference so that they can understand the results of the
financial statements of the companies. Thus, from the above discussion, it can be seen that the
accounting system developed from the conceptual framework has major benefits for the
companies, accountants and the users of the accounting information.
Requirement [b]
In the provided article named, ‘Financial Accoutring Knowledge, Conceptual Framework
Projects and the Social Construction of the Accounting Profession’, the author has sheds light on
different aspects of the accounting profession (Hines, 1989). In this article, the author has
mentioned that the professional practices have the power to solve different kinds of complex
problems in the field of accounting. In the discussion of this article, it can be seen that the
accounting professionals depend a lot on the accounting knowledge for different kinds of
accounting problems (Hines, 1989). In this study, the author has mentioned about some specific
skills required by the accountants while performing various operations in the accounting process;
they are diligence, honesty, integrity, recording skill, bookkeeping skill, accuracy, orderliness,
negotiation and many others. In the above discussion, it has been mentioned that the main
advantage of the accounting system developed by conceptual framework is that it helps all the
parties like the users, accountants, management of the companies and others (Hines, 1989). Thus,
for all these reasons, it is required for the accounts to possess all the above-mentioned qualities
along with effective accounting knowledge. Thus, based on the above discussion, it can be seen

7CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
that the author of this article believe that both the users and accountants of the companies will be
largely beneficial from the development of conceptual framework (Hines, 1989).
Conclusion
From the above discussion, it can be seen that there are three major alternatives of
historical cost accounting; they are Constant Purchasing Power Accounting (CCPA), Current
Cost Accounting (CCA) and Exit Price Accounting (EPA). The above discussion also shows that
there are two types of users of accounting; they are external users and internal users. It can be
seen that all these users need accounting for different purposes like investment decision-making,
to know about the financial condition of the companies and others. From the last part of the
report, it can be seen that the accounting system developed by conceptual framework has major
advantages for the users, companies and accountants.

8CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
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