Accounting Theory

This report provides an assays of different parts in the contemporary accounting theory, it evaluates conceptual framework and sustainability. It uses data from the South Africa Company and other companies that are located in Australia.

Running Head: ACCOUNTING THEORY 1
Accounting Theory
Student’s Name
Institutional Affiliation

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Accounting Theory
Executive Summary
This report provides an assays of different parts in the contemporary accounting theory, it
evaluates conceptual framework and sustainability. It uses data from the South Africa Company
and other companies that are located in Australia. Also, it provides a table integrated report of
one of the companies in Australia. Therefore, the purpose of the report is to analyze in details the
conceptual framework and the sustainability that occurs in the accounting field.
Introduction
Accounting theory is a set of framework assumptions and methodologies that are used in
the development, study, and application of the financial reporting principles. It more so involves
the review of practices, the historical foundation of accounting and the way these methods are
changing over time (Accounting Standards Board, 1999). Therefore, there is a need to study
what needs to be changed or added to the framework that governs and regulate the financial
reporting and financial information so as to be at par with the contemporary accounting theory.
Hence the following assessment is research and report of several aspects of the business
external report practices. It has the two parts which are part A and B. the first part talks about the
conceptual framework. The framework encourage the evaluation and development of existing
and new standards. Therefore, the paper is going to analyze the historical development of the
conceptual framework in various countries. Moreover, it’s going to discuss the professor's
concern about the application of the conceptual framework in Australia under IASB. Also, the
benefit and the limitation that entails the framework in academic fields. Finally, it will analyze
the application of this conceptual framework in several companies in Australia.

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The part B of the paper is going to evaluate integrated or sustainability reporting. The
research paper is going to analyze the Comparison of Reporting Guidelines GRI and IIRC. Also,
the strengths and limitations of conventional accounting. Moreover, it will discuss the
Applicability of the theories to explain the contents of sustainability as well as integrated reports.
Prepare an index table of various components of an integrated report. More so, develop a
comparison of the Australian company’s reporting practices with the index and the integrated
reporting practices in the selected South African company.
Part A
a) History and development of the conceptual framework.
Conceptual framework is regarded to as system of objectives which leads to the
generation of consistent accounting set standards. Since its inception in 1989, the conceptual
framework has largely remained unchanged. More so, this was the time that the financial stamen
preparation and the presentation were accepted by the International Accounting Standard
Committee board. Globally the conceptual framework has undergone through various stages, in
July 1989, it was the time which the framework was published. IASB further adopted the
conceptual framework and in 2010, IASB passed the conceptual framework for financial
Reporting. Also, in March 2018, was the time where the framework was published.
The institutional effort for the USA to start and develop the Business Corporation
framework which can be traced from in 1940 by work of Littleton and Paton monograph. It was
later followed studies done by Sprouse and Moonitz in attempt to develop accounting literature
which was laid out by Patron William. Australian accounting research foundation (AARF) and
the Australian Accounting Standard Board (AASB) developed the conceptual framework for
Australia over the period of 1985-1995. The main objective of the conceptual framework was to

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provide a set related concept that defines the subject, nature, purpose and broad base of
understanding financial reporting and give a unique rendition on the thinking that governs the set
standards. IASB adopt the framework in 2001, the framework describes the basic concept of how
financial statement can be prepared. Therefore the adoption of IASB standard in Australia
reviewed the conceptual framework to ensure that the framework fulfills its function when
AASB gives out standards that are based on IFRS (Mosso, 1998). Moreover, they check whether
the framework has been changed to meet the changed circumstances in the Australian setting.
The conceptual framework in the United Kingdom over a few years has been based on the rules-
based, as opposed to the principle-based system as set by the ASB standard. However as time
goes by the nation has been adopting the principle base standard which is been used by another
country such as Canada, USA, and Australia. In 1999, the country formed its own conceptual
framework base on the stated principle that was issued by the Accounting standard board (ASB)
(Solomon, et al., 2000). The move was very essential due to the increase due to the increasing
international needs for accounting and more so the influence that the nation received in term of
globalization from countries such as the USA.
b) Australian professors concern about the application of the conceptual framework
In 2010, as part of the joint mission with FASB, IASB gave out two chapters of the
revised conceptual framework that they would like to amend in the standards that were already
set. The chapter deal with the general objective of the purpose of the financial reporting and the
useful information and the quantitative characteristics that the report must include. However, in
2012, IASB decided to restart the work of the conceptual framework so that they can reconsider
making changes in these chapters (Financial Accounting Standards Board, 2004). The decision
aroused concerns in the accounting profession and more IASB considers and proposes new rules

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of the application which includes; to provide more prominence in the discussion about the
objective of the financial reports so that it may include or provide important information that can
assess the organization management stewardship when it comes to the company resources.
Moreover, to reintroduce a unique reference on the notion of prudence and state importance of
prudence in achieving neutrality. Also, define explicitly that a faithful representation represents
the economic scenario substance in lieu of rather legal form.
However, the raised concern on this issue by the proffers still believe that IASB has not
yet covered all the purpose of the changes fully. They raised issues that since 2010, the
conceptual framework has no to identify reliability as a quantitative characteristic of useful
information. More so, their main concern seemed to be that of the measurement of uncertainty
that makes financial reporting and information to be less useful (International Accounting
Standards Board. 2004). Therefore, in response to this IASB proposed to clarify the
measurement of uncertainty and make it be one of the major factors in determining the relevance
of financial information and reporting. Additionally, the board retained the description of the
reliability in the existing conceptual framework as it contains quantitative characteristics of
faithful representation.
c) Benefit and limitation of the conceptual framework
Some of the academic concern about the benefit of the conceptual framework in the
financial report includes; development of the concept in an orderly manner that makes financial
reporting and accounting to be more consistent, logical and overall enhances communication in
it. Furthermore, developing of standards that are backed with the conceptual framework is more
economical and easier since it is based on the basic principles that are already discussed and put
in place hence the students are able to understand it easily. Additionally, the conceptual

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framework contributes to an increase in public confidence and credibility this is because of the
uniformity in the procedure and practices in all company that it is employed.
However, the framework consists of a number of limitation. One, it is too general in
nature also, the principle that encompasses it release majorly in a lot of assumption which is very
complicated for academic personnel to understand. Therefore, provides little help when it comes
to its application. Moreover, the framework tends to focus on the usefulness of the financial
information that is on it and it can never be used to assess factors such as the management
stewardship. More so, the user’s requirement such as shareholders and the investors are very
diverse, and for a student, it is very difficult to use the framework because of its inadequate in
the information provided and over generalization.
d) Application of conceptual framework in a selected Australian company.
The annual financial report of Suncorp Company was used in the report so as to discuss
how the conceptual framework is applied. It is a company that provides financial services and
solution, more so, they help the customer to make good choices so that they can enhance their
financial well-being. The company was listed in the Australian security exchange market as it
brings together a strong portfolio of banking and insurance and wealth solution from across all
the brands such as AAMI, Apia, Shannon, Suncorp as well as product from another partner.
Hence the director report and the financial statement of 2017-18 of Suncorp Company was used
in the report.
They were four statements or report that was prepared by the company. They include;
statement of financial position, statement of change in equity, cash flow statement and
comprehensive income. The report was prepared as per the conceptual framework. It is because
the financial statement helps in increasing the user confidence and understanding and make it

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easier for the organization to be compared to another organization (FASB, 1980). The major
components that entail the financial reports of the company are that it provides the objective of
the financial reports of the organization, second, it has the qualitative characteristic of the
accounting information useful information. Third, the report has the element of financial
statement, recognition, and derecognition, measurement, presentation, and disclosure. Also, the
concepts of capital and capital maintenance.
The revenue recognition principle demands that an organization should record or realize
revenue at the moment it is earned. In other words, the business should not wait until all the
revenue has accumulated so that it can be recorded, therefore, the concept forms a key basis of
accruals in accounting. Their three principles of recognition. However, in the report, Suncorp
limited company has prepared consolidated financial statements using historical cost. Therefore
the company has used the revenue recognition principle that demands that revenue to be
recognized when cash has been actually received (In Bebbington, In Unerman, & In O'Dwyer,
2014). Moreover, the company has used asset recognition criteria where assets are being
included in the balance sheet and the expenditure are recognized as expense being the default
presumption. The liability of the company is recognized in the financial statement because they
have met the criteria of being a present obligation of the business that aroused from the past
event.
Qualitative characteristic of the financial reporting must contain the information that it is
very useful to the users, especially when it comes to the case of decision making. Therefore,
Suncorp limited company financial report has relevant financial information because it can
enable the organization management to make judgment, estimate, and assumption so that they
can come out with valid decision especially when it comes to recognition of revenue, asset, and

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liability (Miller, et al. 1998). Also, the company has a faithful representing this is because in its
financial reports they have use represents the economic phenomena both in numbers and in
words. More so, the company has sought to maximize the characteristic of neutrality,
completeness, and freedom of error by using faithful presentation. The financial report of
Suncor Company is represented in 2017 and in 2018, thus they enhance qualitative characteristic
by providing a means of comparability, timeliness, understandability, and verifiability of the
usefulness of the accounting information.
Part B
Sustainability
A) Comparison of Reporting Guidelines and the International Integrated Reporting
Framework
Global Reporting Initiative is an independent body whose objective is to develop and
disseminate report guidelines that are globally accepted to help businesses and organization to
report environmental, economic and social dimension of their services, product, and activities.
While, international integrated reporting council main objection is to create a globally accepted
framework, which will ease the process that results in communication by a business entity about
the value creation over time (Potter, 2005). Therefore the aim of IIRC is to bring together factor
represented from investment accounting, regulator, securities and academic standard sector in the
civil society. In 2010 there was the inception of GRI to IIRC, therefore, GRI has immensely
continued to participate to IIRC management bodies and also collaborate in the events where
IIRC advocated for a multi-stakeholder method of reporting financial information and material
sustainability (Roubini, Wachtel, & National Bureau of Economic Research, 1998). They share a
goal, which is to change the corporate reporting alignment, reporting framework and standards

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so that they can develop consistency in the application on the way which financial report is done
in the organization. Thus both organization is committed to identifying ways in corporate
reporting can be strengthened. More so, they provide guidelines that pro-actively communicate
the nature of the market, role, and alignment of each other framework, guidelines, and standards
so they can help in providing a better understanding of the corporate environment. Therefore
through working together, they can come up with ways that they can voice to guide the
organization on relevant information.
B) Rigour (strengths & limitations) of the conventional accounting
Conventional accounting minimizes the degree to which an individual may be influenced
by personal judgment. As it is based on the actual transaction, it provides information that is less
disputable as compared to another accounting system.
Data from this approach are free from bias and can be verified independently. Therefore, it is
easy to invest in public and other external entities. The financial statement can be verified easily
with the presence of a document or other supportive documents. Since it can be proved, account
expertise prefers the traditional method to other systems. Besides, the system can be accepted
by legal institutional as a way of defining legal capital, dividend declaration, and capital.
Furthermore, conventional accounting is supported basing on its legal acceptability in areas such
as declaration of dividend and taxation.
Weakness
The weakness of conventional accounting includes the unrealistic value of fixed assets.
Therefore, in time of inflation, the conventional system is based on historical cost data and does
not reflect the true and fair value of the business. Normally, a fixed asset is calculated using
historical cost but not the current value

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C) Applicability (usefulness or limitations) of the theories to explain contents of
sustainability as well as integrated reports
Some of the theory that explains the applicability of the content of sustainability and the
integrated report includes; institutional theory, stakeholder theory, and legitimacy theory. The
theories have shown a significant growth that concern accounting practices and sustainability
matter. The usefulness of these theories includes; offering different explanatory perspective
about financial reporting that can be easily be understood. Also, it gives significant criticalities
on the organization management on the social dimension so as to view the company success in
terms of what the external environment provides. Moreover, the theories are useful when it is
applied to the integrated report because it helps in accessing and acquiring transparent
information from a wider range of sources such as external and internal sources.
D) Preparation of an index
A report of Coronation Company in South Africa, which is an active investment company
that manages and evaluates long term investment. Its investment extends to other classes of
assets and locations, with an emphasis of multi-asset funds and equities in the frontier and global
emerging markets. Below is a table of components of an integrated report of Coronation
Company:
Strategic focus
and future
orientation
The component of the integrated report gives an insight on how strategic
relates element of an organization will have an ability to create short,
medium and long term values. Therefore, Coronation Company is a
responsible corporate citizen as it ensures that its action delivers a
sustainable long term value to the main shareholder through proving
meaning financial information and engaging with them regularly so that
they can be at per with the activities that the business purpose to achieve.
Connectivity of
information
The company reductant connectivity has been built through telephone
lines, email and internet this method has helped it to build a strong
relationship with the vendors, and the monitor and evaluate them regularly
moreover, clear escalation paths have been establishing through diligence
assessment

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Stakeholder
responsiveness
The business has created values with its shareholder by the board act in the
best interest of stakeholder also create long term investment performance
which is a desire for every stakeholder, they offer appropriate and relevant
investment returns to them. Moreover, they give them timely and
transparent reports.
Materiality and
conciseness
The company provides an integrated report that can contain information
that is material and it can be able to assess the organization of that
company. Such as basic preparation of accounting policies, the related
transaction of the business, short-term and long term borrowings, and fair
value disclosure.
Reliability and
completeness
The integrated reports should be reliable in that it can change or vary with
a different company. The company has considerable estimation so that they
cannot make a lot of mistakes during reporting moreover, the committee
remains careful and focuses to ensure that they maintain ethical cultures
and value so they can serve their customer to maximum satisfaction.
E) Comparison of the Australian company’s reporting practices with the index and the
integrated reporting practices in the selected South African company
Suncorp which is an Australia company does not prepare an integrated report. However, they
have an alternative way in which the company prepares its corporate social responsibility report
of its evaluation of financial performance. Suncorp limited company repot there corporate
responsibility progress in their Suncorp Annual Review. They do this so that they can enhance
transparency about their performance across their economic, environmental and social measures
and targets. Moreover, they report their financial performance with diligently and also they help
their customer to make good choices with their investment. They do this through their financial
action plan, where they support their focus on improving their devises and product for the
vulnerable customer. Also, they work with joint ventures partners and corporates so that they can
develop new and accessible insurance offers such as AA Small Business insurance.
The Australian company corporate social responsibility delivers to its shareholder a 40%
dividend per share, also they give them a special 8% dividend per share. This outcome makes the
shareholder have average equity of 80% in the financial year. While Coronation Company values

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its company shareholder by delivering consistent financial performance report, continuously
engaging them in their activities and maintain significant distribution to cash flow. Also, when it
comes to reliability and completeness, Suncorp has provided and gave out some estimation to
contingent assets and liabilities. While Coronation Company has also provided the same
estimation in their contingent liabilities such as the South Africa Revenue Service group.
Conclusion
In summary, the report provides a need of why it is important to study needs to be changed or
added to the framework that governs and regulate the financial reporting and financial
information so as to be at par with the contemporary accounting theory. Therefore, the knowing
the history of the conceptual framework history, its limitation and strength is important for its
application in practical terms. Furthermore, sustainability deals with the non-financial
information of the organization performance also it deals with activities impact on economic
performance, environment, and society in general. Hence the report has summaries some of the
difference in guidelines that some of the accounting bodies have implemented. Also, its strength
and limitation have been highlighted in different accounting convection. Finally, the report has
provided a framework of the integrated report in South Africa Coronation Company and has
compared it with an Australian company which uses a different corporate responsibility report.
References

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Accounting Standards Board (1999). Statement of Principles for Financial Reporting, Revised
Exposure Draft. London: ASB.
FASB, (1980).Qualitative Characteristics of Accounting Information. Statement of Financial
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Financial Accounting Standards Board (2004).On the Road to an Objectives-Oriented
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Financial Accounting Standards Board (2007).Facts About FASB. Viewed from:
http://fasb.org/facts
In Bebbington, J., In Unerman, J., & In O'Dwyer, B. (2014). Sustainability accounting and
accountability.
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National Bureau of Economic Research.

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