Theory and Current Issues in Accounting - Assessment of Australian Accounting Standards Board’s Accounting Framework 2014

This report evaluates the latest conceptual framework by the Australian Accounting Standard Board as per the new framework amended in year 2014. It assesses the elements of financial statement as assets, liabilities, equity, revenues and expenses with reference to the AASB 2014. It also evaluates the measurement bases for the assets measurement in the accounting standard context.

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Theory and Current Issues in Accounting

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Executive summary
The Australian conceptual framework is amended according to the need or changes in the
financial reporting or disclosure of financial information of an entity. In relation to this report,
latest conceptual framework by the Australian Accounting Standard Board is evaluated as per the
new framework amended in year 2014. In addition to this, the elements of financial statement as
assets, liabilities, equity, revenues and expenses are assessed with reference to the AASB 2014.
In addition to this, the measurement bases for the assets measurement are assessed in the
accounting standard context. Along with this, the measurement bases for the assets such as
historical cost, settlement cost, current cost and the present value are also elaborated along with
this stewardship function of accounting under the Australian Accounting Standard Board agency.
Apart from this, the preference of historical cost for the measurement of assets is also evaluated
under the Australian conceptual framework of Australian.

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Table of Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
Assessment of elements of financial statement...............................................................................5
Compare and contrast between the definition and the recognition of elements in the financial
statements........................................................................................................................................7
Evaluate the nature of the essential characteristics of assets...........................................................7
Assessment of measurement criteria for assets which is recognized in accounting framework
2014.................................................................................................................................................8
Preference of assets measurement by historical cost and promoting the stewardship function of
accounting........................................................................................................................................9
Reference about the disclosure practice in financial reporting......................................................10
Analysis of measurement and reporting system of an ASX listed company.................................11
Balance sheet of ASX listed Company: Infigen Energy...........................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14

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Introduction
The main aim of this report is to engage with the assessment of Australian Accounting Standards
Board’s currently amended accounting framework in the year 2014. In addition to this, the
financial reporting is assessed with respect to the elements of financial statement according to the
Australian Accounting Framework. Along with this, the theories and the issues in concern of
AASB are interpreted at the time of preparing the financial information about the companies. On
the other hand, recognition of financial statement elements is also assessed under the accounting
theories. In context to this, the measurement basis for the elements of financial statements is also
chosen in appropriate manner. The additional disclosures which are required in disclosing the
financial statement preparation is determined as per the conceptual framework of Australian
Accounting Standard Board’s which is amended in the year 2014. In relation to this, the nature
and essential characteristics of assets are discussed as per the accounting rules and regulations.
The evaluation is also carried with the recognition of criteria for assets in accounting framework
2014. Further, the preference of accounting for measuring the historical cost is also assessed
along with the stewardship function of accounting. The measurement and reporting of assets
under the ASX listed companies are analyzed is also stated as per the annual report statement.

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Assessment of elements of financial statement
The Australian Accounting Standard Board is one of the major Australian agencies which are
committed towards developing and maintaining the financial reporting of companies that comes
under the Australian Accounting Board. The standards are developed by the AASB in order to
maintain the regulations over the private and public entities. Australian Accounting Standard
Board develops the conceptual framework so that the accounting standards can be assessed in
relevant manner. The conceptual framework is used in the financial reporting under AASB
standard and it employed as the theory of accounting through which the practical problem can be
resolved in significant manner (Henderson et. al, 2015). The main purpose of this conceptual
framework is to assist the IASB in order to developing the financial reporting and maintaining
the policies which are not exist in the concurrent accounting standards. The accounting standard
as AASB 101 is concerned to the preparation and reporting of financial statement of entities.
The position of financial statement is determined with the several elements and items that are
reported by the companies under the rules and regulations of AASB. The major elements of
financial reporting is as follows
Assets
The asset is one of the important elements of financial reporting by Australian Accounting
Boards. The assets can be termed as a resource for the business which portrays the results of past
activities of entity operations by which the future benefits for the entities in terms of economical
aspects can be obtained.
Liabilities

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The liabilities are defined by the Australian Accounting Standard Board under the conceptual
framework as the obligation of the company which occurs due to the past operational activities
of entity which results into an outflow from the available resources of entity (Ordelheide, 2016).
Equity
The equity of entity is defined as the residual value of the assets of company which is determined
from the assets after reducing the perceived liabilities over the entity in a specified financial year.
The equity is reported under the sub-classification state of balance sheet. For instance, the equity
can be as reserves, retained earnings and retaining under the capital adjustment.
Performance
The performance of entity’s activities is determined from the operations of business and the
results are generated as the profit. The profit can be meaning as the earnings on the per share
capital of the entity.
Income
The income is the results of significant entity’s operations which arise from the operations of
business activity as sales, interest, rent and dividends (Dagwell et. al, 2015).
Expenses
The expenses are also the major elements of financial reporting that are portrays as the loss or
spending which increases due to the daily business activities of entity. The expenses can be
included as the cost for selling goods, depreciation of assets, payment of wages and salaries and
outflow for meeting the need of economic performance.

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Compare and contrast between the definition and the recognition of elements in the
financial statements
The Australian Accounting Standard Board has set the definition and the recognition criteria for
the elements of financial statements. From the conceptual framework of AASB, the comparison
and contrast over the elements of financial statement is as the assets are defined as the future
economic benefits but the recognition state as the probability of assets to be recognized under the
statement of financial position. On the other hand, assets recognition criteria for the assets are
also endowed as the cost or other value so that the reliability can be determined. In context to the
liability elements, the definition is deterred as the obligation as future scarifies from entity
(Horngren and Harrison, 2015). The recognition criteria are determined as the economic benefits
will be required. Recognition also states that liability can easily measure the reliability.
Furthermore, equity is defined as the residential value but the recognition described that the
equity is reported as the results of deducted value from its assets. Moreover, the revenues are
determined as the inflow of future economics but the recognition is described as only when the
expenses are probable to increase the assets of entity. On the other hand, expenses are the loss
value for the operational activities of entity (Readyratios, 2018). In contrast to this, the
recognition of expenses is conceptualized as the future economic values can be improved in
reliable manner. The expenses are the recognized consumption or reduction of assets from its
book value.
Evaluate the nature of the essential characteristics of assets
The nature of the essential characteristics of assets is as that there should be future economic
benefits from the recognition of asset in its operating statement. Along with this, another
characteristic is detained as the entity should have proper control and monitoring over the assets

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of the company so that the benefits can easily be accessed (AASB, 2016). On the other hand, it is
also endowed that the transaction that is taking place in the control and measuring of financial
statement should also be covered in the context of future economic benefits. Along with this, the
nature of characteristics of assets is that it is acquired at a cost which is incurred for the entity.
Moreover, the legal enforceability might also be an essential characteristic of assets so that the
assets can measured in proper manner.
Assessment of measurement criteria for assets which is recognized in accounting
framework 2014
The measurement of financial statement’s elements is also a crucial aspect for the entity under
the Australian Accenting Standard Board. Measurement can be determined as the process in
which the monetary value of elements is recognized and the amount of elements is carried out in
respective to the income statement and balance sheet. There are number bases through which the
asset of entity is measured under the amended ASSB 2014.
In context to the asset, the assets are measured by the historical cost in which the assets are
recorded at the amount for which it is acquired in the terms of cash of cash equitant
consideration value. On the other hand, current cost measurement bases are also applied over the
asset measurement in which the asset is carried out. In addition to this, the assets are also
measured over the realizable or settlement value of the assets at which the cash or cash equitant
amount is paid with the selling of an asset in disposal manner (Legislation, 2013). In comparison
to this, the assets can also be measured by the present value bases which the assets are measured
at the present discount value from the net cash inflow; by this amount the item might generate
the operating activities for business.

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Preference of assets measurement by historical cost and promoting the stewardship
function of accounting
The accounting standards changes time to time when there is a need of changes in the financial
reporting system of accounting and the new and suitable method and base is adopted for the
measurement of assets in the income statement and the balance sheet. The accountant basically
uses the historical cost of measurement method for the assets determination for the entity. The
main reason behind the adoption and following the historical cost method is that the market
value of assets changes according to the movement in the market fluctuation that the whole
reporting of assets are distorted than the accountants do not wants to create hurdles in the
recording of financial information in the income statements and balance sheet. At the same time,
the historical cost is reliable base for the assets measurement as it is supportive to make the
comparison in between the assets of entity. Along with this, using historical cost base for assets
management, it enables the accountants to maintain the transparency in the reporting of
accounting information (AASB, 2017). On the other hand, using another methods as present
value of settled value base might be resulted into understate or overstate of assets valuation for
the perspective entity. Along with this, the historical cost is also used as this base is suitable
principle for trading off in between the usefulness and reliability.
In context to the accounting stewardship, it is used by the accountant in the reporting of financial
information under the objectives of financial reporting. The accountant uses the stewardship
function in efficient decision making for the reporting of information as they follow the ethical
responsibility in order to take care about the depiction of reliable and important information for

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the users. In addition to this, the accountant has also adopted the ethical practices as per the
stewardship function of accounting report under the Australian conceptual framework.
Reference about the disclosure practice in financial reporting
According to Australian Accounting Framework, the Exposure Draft includes complicated
concepts that illustrate what information should be shown in the financial statements, and how
that information is need to be disclosed. The IASB has also worked on the Disclosure Initiative,
which is a set research projects designed to enhance the disclosure requirements in the financial
reporting (Kent, & Zunker, 2017). In the Disclosure Initiative, the Australian Accounting Board
seeks to expand the theory contained in this Exposure Draft in order to provide further regulation
on disclosure and presentation. In addition to this, the Accounting Framework has undertaken a
research project for discovering whether it adds to the performance reporting transparency in the
financial statements.
The framework, 2014 has described that all those accounting items that show essential attributes
but unable to fulfill the criteria for recognition in the financial statements are not required to be
disclosed in the clarifying material, notes, or any complementary schedules. However, this is
allowed only when the knowledge of the item is considered significant for the assessment of the
financial state, and changes in it of a firm by the stakeholders of financial statements (Kent, &
Zunker, 2017). Moreover, the standard setters view this known information as more valuable
than the disclosed information. This is mainly due to the fact that the recognized information is
most likely to be more appropriate and reliable. However, The Framework 2014 recognition
states that the all those financial items that meet all the criteria of financial statement but fail any
of the recognition criteria are required to be disclosed in the notes by every entity.

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Analysis of measurement and reporting system of an ASX listed company
In order to determine the measurement and reporting system of ASX listed companies, Infigen
Energy business has been referenced for the assets reporting and measurement in the balance
sheet of company for the year 2017.
From the consideration of balance sheet of Infigen energy 2017, it is determined that the assets
of company as plant, property and equipments, the major assets for the company are as wind
turbines and associated plant of the company. In relation to the measurement and reporting of
assets, the assets are measured at the cost of the asset by less accumulated depreciation and
impairment method. In relation to the cost of assets is reported as the expense that occurred
while acquitting the assets (Southeast, 2017). On the other hand, the assets of company which are
under construction have not been considered for depreciation. Along with this, the intangible
assets of the company are valued at the fair value of the net assets and contingent liability which
are acquired at the date of reporting. Moreover, the inventories of the Infigen energy business are
measured at the lower of cost and net realizable value.
According to the Australian Accounting Standards, every ASX listed company is required by the
statue to produce an annual report, basically in 2 parts. The first part is descriptive, providing
relevant information about the entity’s operations while the other part illustrates the set of
accounts such as profit and loss account, a balance sheet, and cash flow statement along with the
notes to accounts (Chandrakumara et al., 2018). Also, the Board requires the company to provide
all the stakeholders with a true picture of the financial health of the company. These documents
are fundamental for providing financial reporting to the users.

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Balance sheet of ASX listed Company: Infigen Energy

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Conclusion
On the basis of above analysis, it can be concluded that the Australian Accounting Standard
Board is focused on the reporting, controlling and monitoring of presenting the financial
information of entity. It is also summed up that the financial statement’s elements as assets,
liabilities, equity, expenses and revenues are major elements of statements under the AASB. It
can also be summarized that the financial statements are compiled with the several elements of
financial statement. In addition to this, it can also be said that the there are numbers of
measurement bases for the assets of an entity. It is also concluded that the historical cost, realized
cost, settlement cost and present value methods are major bases for the measuring reliable
presentation of assets in most suitable manner. The nature of the characteristics of assets is also
evaluated under the measurement criteria and the recognition criteria. Moreover, the preference
about the usage of historical cost is also assessed in relation to the control manner, an economic
activity and compliance framework. Stewardship function is also elaborated under the
accounting theory. Along with this, it can also be concluded that the reference is not used for
disclosure practices of financial reporting.

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References
AASB, (2016). Framework for the Preparation and Presentation of Financial Statements.
Retrieved from: https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-
04_COMPjun14_07-14.pdf
AASB, (2017). Presentation of Financial Statements. Retrieved from:
https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-04_COMPsep05_01-06.pdf
Chandrakumara, A., McCarthy, G., & Glynn, J. (2018). Exploring the Board Structures and
Member Profiles of Top ASX Companies in Australia: An Industry‐level Analysis. Australian
Accounting Review, 28(2), 220-234.
Dagwell, R. Wines, W. Lambert, C. (2015). Corporate Accounting in Australia. Australia:
Pearson Higher Education.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., (2015). Issues in financial
accounting. Australia: Pearson Higher Education.
Horngren, C. and Harrison, W., (2015). ACCOUNTING: BSB110. Australia: Pearson Higher
Education.
Kent, P., & Zunker, T. (2017). A stakeholder analysis of employee disclosures in annual
reports. Accounting & Finance, 57(2), 533-563.
Legislation, (2013). Amendments to Australian Accounting Standards – Conceptual Framework,
Materiality and Financial Instruments. Retrieved from:
https://www.legislation.gov.au/Details/F2014L00370
Ordelheide , D. (2016). Transnational Accounting. Germany: Springer.

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Readyratios, (2018). Historical Cost. Retrieved from:
https://www.readyratios.com/reference/accounting/historical_cost.html
Southeast, (2017). INFIGEN ENERGY: ANNUAL REPORT 2017. Retrieved from: https://s3-ap-
southeast-2.amazonaws.com/infigen/wp-content/uploads/2017/09/26172520/
AnnualReport2017.pdf

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