Accounting Research and Theory

This assignment delves into the diverse landscape of accounting research theories and methodologies. It encourages students to examine prominent theories such as structuration theory, domain theory, and information theory, understanding their underlying principles and practical applications within accounting research. Case studies, particularly focusing on IAG and QBE Insurance, are analyzed to illustrate how these theories inform accounting practices and contribute to a deeper understanding of the field.

Running head: ACCOUNTING THEORY AND CURRENT ISSUE
Accounting Theory and Current Issue
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The report deals with the accounting policies used by “Insurance Australia Group (IAG)” and
depicts the flexibility of the accounting policies. It has been further able to compare the policies
with the rival company “QBE Insurance Group Limited”. Some of the other sections of the
discussion has evaluated the quality of disclosure, identified the potential red flag area of
disclosure and overall compliance with the conceptual framework. The state of compliance to the
conceptual framework for “Insurance Australia Group Limited” has been evident with
preparation of financial report as per Corporations Act 2001. This has been further seen to be
evident with that adoption of “Australian Accounting Standards (AASB)” with various types of
authoritative pronouncements as per AASB ASX rules for listing. Based on the interpretation of
the accounting policies of both the companies it can be stated that “Insurance Australia Group
Limited” is seen to follow the guidelines of Positive Theory of Accounting whereas QBE
Insurance’s accounting policies are more normative in nature. “Insurance Australia Group
Limited” has been identified to be flexible with the various types of segment reporting in its
operating segments associated to the internal reports reviewed by Chief Executive Officer. “QBE
Insurance Group Limited” is more flexible in adaptation of newer standards.

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Table of Contents
Introduction......................................................................................................................................4
Section 1: Identification of the key Accounting Policies................................................................5
Section 2: Assessment of Accounting Flexibility............................................................................6
Section 3: Evaluating Accounting Strategy.....................................................................................8
Norms for accounting policies with industry peers.....................................................................8
Incentives for managers to manage earnings...............................................................................8
Changes in policies and estimates and the rationale....................................................................8
Structuring of the transaction to achieve certain accounting objectives......................................9
Section 4: Evaluating the Quality of Disclosure..............................................................................9
Adequacy of the disclosures........................................................................................................9
Adequacy of footnotes to the financial statements......................................................................9
Rationale for Financial Notes consistent with current performance.........................................10
GAAP reflects or restricts the appropriate measurement of key measures of success..............10
Adequacy of segment disclosure...............................................................................................11
Section 5: Identification of the Potential Red Flags......................................................................11
Unexplained changes in accounting, especially when performance is poor..............................11
Unexplained transactions that boost profits...............................................................................11
Unusual increases in receivables in relation to sales revenue...................................................12

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Increases in the gap between net income and cash flows or taxable income............................12
Use of R&D partnerships, SPEs or the sale of receivables.......................................................12
Unexpected large asset write-offs..............................................................................................12
Large fourth-quarter adjustments..............................................................................................13
Qualified audit opinions or auditor changes..............................................................................13
Related-party transactions.........................................................................................................13
Section 6: Compliance with the Conceptual Framework..............................................................13
Conclusion.....................................................................................................................................14
Reference List................................................................................................................................16
List of Appendix............................................................................................................................18

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Introduction
Accounting system is composed of thoroughly constructed application of theories which
shows the method for depicting accurate performance of company. The two main theories of this
system have been identified with positive and normative accounting. The positive accounting
theory deals with overall contracts which a company has ventured. The positive accounting
concept identifies real life incidences and interprets how the companies will be able to address
accounting treatments along with their respective transactions. Henceforth, this theory looks into
understanding that the real-life economic consequences of the accounting decisions as a result of
those events. The knowledge of application of the positive accounting will be able to predict on
how the companies are able to account for the different types of transactions and the events
which are taking place in the future. The conceptualization of normative accounting on the other
hand deals with what has already occurred in the companies that present. This concept deals with
the theoretical principle of what should be done for a particular event. Therefore, the normative
approach can be termed as a deductive process which is able to deduce the specific policies and
generalize higher level of principles. However, there is no way to discern the best among both
accounting systems (Velayutham 2014).
The study has highlighted the accounting policies used by “Insurance Australia Group
(IAG)” and estimated on the flexibility of the accounting policies. It has been further able to
compare the policies with the rival company “QBE Insurance Group Limited”. Some of the other
sections of the discussion has evaluated the quality of disclosure, identified the potential red flag
area of disclosure and overall compliance with the conceptual framework (Unerman and
Chapman 2014).

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Section 1: Identification of the key Accounting Policies
“Insurance Australia Group Limited” headquartered in Sydney, Australia is identified as
a multinational insurance company which was established as a result of demutualization of
NRMA insurance business on July 2000. The main operations of the company is seen to be
spread across Australia, New Zealand and Asian countries such as Thailand, India, China,
Vietnam and Malaysia.
The financial reports of the company have been prepared in accordance with
“Corporations Act 2001”, “Australian Accounting Standards (AASB)”. The accounting policies
adopted as a result of preparation of financial report is seen to be consistent with the entities of
the group and the same has been applied to all the previous reporting years unless there is any
decision for modification. The related financial statements associated to the operations outside
Australia have been appropriately maintained through overseas accounting principles and the
same are adjusted wherever necessary for compliance and consolidation (Christensen, Nikolaev
and Wittenberg-Moerman 2016).
Based on the interpretations of annual report published in 2016, the changes in the
accounting policies and the Australian accounting standards did not have any impact on the
material statement of the group. The process of application of significant accounting policies and
accounting estimates are made by the management and the same is seen to affect the recognition
of the financial statements. The different types of estimates and the related are considered as per
the experience and factors which are reviewed as an ongoing process. The areas of critical
accounting estimates and judgments are referred with Note 2.2 “Claims and reinsurance and
other recoveries on outstanding claims”, Note 2.4 “Liability adequacy test”, Note 5.1
“Intangible assets and goodwill impairment testing, initial measurement and useful life”, Note

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5.2 “Income tax and related assets and liabilities” and Note 6.1 “Acquisitions and disposals
of businesses” (Iag.com.au 2017).
On comparing the accounting policies with a similar competitors such as QBE Insurance
Group Limited, the various types of accounting policies has been defined under the section of
“AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors”. Some of the
new accounting policies adopted by QBE Insurance have been further identified with “AASB
2015–1 Annual improvement to Australian Accounting Standards 2012 – 2014 Cycle”, “AASB
2015–2 Disclosure Initiative: Amendments to AASB 101”, “AASB 2014–9 Equity Method in
Separate Financial Statements” and “AASB 2014–4 Clarification of Acceptable Methods of
Depreciation and Amortisation” (Beattie 2014a).
Based on the interpretation of the accounting policies of both the companies it can be
stated that “Insurance Australia Group Limited” is seen to follow the guidelines of Positive
Theory of Accounting whereas QBE Insurance’s accounting policies are more normative in
nature.
Section 2: Assessment of Accounting Flexibility
“Insurance Australia Group Limited” has been identified to be flexible with the various
types of segment reporting in its operating segments associated to the internal reports reviewed
by Chief Executive Officer. This has been mainly seen in terms of allocation of resources and
identifying the major risks along with the effect on rates of return. The different aspects of
accounting flexibility have been seen to be associated to the insurance products for the
individuals throughout Australia with a divisional agreement with Cole’s insurance brand. Based
on the flexibility in the accounting policies the reconciliation relating to the unearned premium

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liability, deferral premiums and donning of premiums are written down both on the basis of
present financial and previous financial years. The flexibility aspect has been further identified
with the accounting standards which have been already issued but not yet effective. The
operative date of the standards is 1st January 2018. Some of the standards have been identified
with “AASB 9 Financial Instruments”, “AASB 2009-11 Amendments to Australian Accounting
Standards” arising from “AASB 9 Financial Instruments”, “AASB 2009-11 Amendments to
Australian Accounting Standards arising from AASB 9”, “AASB 15 Revenue from contracts
with customers” and many more such standards (Beattie 2014b).
However, on comparing the flexibility aspect with Competitor Company it has been seen
that QBE Insurance has already adopted standards such as “AASB 2015–1 Annual improvement
to Australian Accounting Standards 2012 – 2014 Cycle”, “AASB 2015–2 Disclosure Initiative:
Amendments to AASB 101”, “AASB 2014–9 Equity Method in Separate Financial
Statements” and these are already effective. The aforementioned standards are seen to be
effective in “Insurance Australia Group Limited” from the operative date. This shows “QBE
Insurance Group Limited” is more flexible in adaptation of newer standards. In addition to this,
the facts and the assessments from the company’s latest balance sheet has been able to state that
“Insurance Australia Group Limited” relies on the positive theory of accounting as predicts the
outcomes for the application of newer standards. As QBE insurance is more flexible in its
accounting policies, the normative theory is evident with compliance of more standards for
conceptual framework (Miller and Power 2013).

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Section 3: Evaluating Accounting Strategy
Norms for accounting policies with industry peers
The various types of major general insurers operating in Australia such as Suncorp,
Allianz Australia and QBE Insurance have been observed to follow a similar accounting policy
which complies with Australian Accounting Standards (AASB)”. The application of the key
accounting policies has been identified with the discount rate movements combined with the
various types of operating ratio (Lukka and Vinnari 2014).
Incentives for managers to manage earnings
“Insurance Australia Group Limited” is seen to provide benefits to their senior
management and executive through share-based incentives for creating a connection between
shareholder value creations and rewarding the employees. The share-based incentives further
assists in retention of key personnel in the company.
QBE Insurance on the other hand has been identified to have a better incentive disclosure
with short-term incentives and long-term incentives. The STI are seen to be based on the
outcomes for the divisional executives and individual performance as per the group’s statutory
ROE and RoAC targets for the divisional executives. The RoAC is for the thing to be calculated
with the economic capital model. The disclosure on LTI is consistent with the conditional rights
of QBE shares and the same is approved by the shareholders at the annual general meeting.
Changes in policies and estimates and the rationale
“Insurance Australia Group Limited” is seen to be flexible with changes in consolidation
statements pertaining to the equity of the company. That sets have been further classified to have
the recoverable amount for the rapid changes in technology and reduced lifespan for the software

9ACCOUNTING THEORY AND CURRENT ISSUE
assets. Significant changes in the state of affairs have been for the scene with the appointment of
new structure and leadership team for having an impact in the future profitability and growth of
the company (Boučková 2015).
Structuring of the transaction to achieve certain accounting objectives
The achievement of certain accounting policies for the associated change has been seen
with sales, brand marketing, services and business needs. It has been further seen to have a lower
impact of tax effect on the corporate expenses. This is evident with a reduction of $ 20m of tax
effect on corporate expenses in 2016.
Section 4: Evaluating the Quality of Disclosure
Adequacy of the disclosures
The various disclosures by “Insurance Australia Group Limited” are adequately
mentioned by stating that remuneration received by the executives in 2016 and 2015. The
company has made insurance disclosures by stating the actual composition of general insurance
revenue. It is further able to state disclosure for capital structure by demonstrating its overall
operations and growth by using various sources of funds including debt and ordinary equity
instruments. On the other disclosure category has been identified with goodwill and intangible
assets, income tax and provisions (Zhong 2014).
Adequacy of footnotes to the financial statements
The notes to the financial statements have been adequately used with information on the
financial reporting and disclosures. The group has further disclosed about the exposure risks and
the effect on financial position and performance. The footnotes section has been further able to
state about the measures for mitigating these risks. Some of the important criteria for adequacy to

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the footnotes have been seen with compliance of certain entity with “Australian accounting
standards” and stating off balance sheet disclosures (Rumens 2016).
Similarly, QBE has been also identified to be consistent with statutory remuneration a
disclosure which provides an analysis of both numbers and commentary as required by
“Australian accounting standards”. The company has further adhered to the disclosures through
the consolation of profit after income tax as a result of cash flows from the operating activities.
Rationale for Financial Notes consistent with current performance
“Insurance Australia Group Limited” has duly reported its current performance by
segment reporting notes. The various types of consolidated entities have been segregated in
terms of operational segments as per the internal reports and the same as been reviewed by CEO
in terms of assessing the performance and allocation of resources. The various types of insurance
disclosures have further identified the group’s overall performance and financial position.
QBE insurance has identified the performance conditions based on share schemes
financial Notes. It has been identified with the better performance measuring criteria with
adjusting of formulaic outcome for ensuring LTI and STI plans can be appropriately reflected in
the financial statement (Coad, Jack and Kholeif 2016).
GAAP reflects or restricts the appropriate measurement of key measures of success
Based on the analysis of both the company’s financial statement the GAAP has not seen
to be restricting the overall measurement of the key measures for success of the disclosures
related to accounting policies.

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Adequacy of segment disclosure
The adequacy of segment disclosure for “Insurance Australia Group Limited” is evident
with significant changes in current state of affairs, adjustment policy and various types of
reportable segments. This reportable segment has been identified in form of consumer division,
business division and overseas division.
In a similar way the segment information for QBE insurance is evident with consistency
of operating segments with the various types of measuring performance of overseas operations
(Englund and Gerdin 2014).
Section 5: Identification of the Potential Red Flags
Unexplained changes in accounting, especially when performance is poor
“Insurance Australia Group Limited” has not been able to specify the exact reason for
increasing instance for BBB and below ratings in 2016 which shows for counterparty credit
ratings of interest-bearing investments.
Similarly for QBE insurance the voluntary termination and the dismissals due to
termination and poor performance for the same have not been justified as per the annual report of
2016 (Roberts 2014).
Unexplained transactions that boost profits
Based on the interpretation of annual report published in 2016, the interest-bearing
liabilities and initial measurement of fair value act net transaction cost and the subsequent
amortized cost for “Insurance Australia Group Limited” has not been explained with appropriate
clarity.

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Unusual increases in receivables in relation to sales revenue
The trade receivables recorded in 2016 has been seen to be lower than the amount
recorded in 2015. The main rationale for the same has not been explained appropriately in the
financial Notes of the company. Standards such as “AASB 2015–1 Annual improvement to
Australian Accounting Standards 2012 – 2014 Cycle” and “AASB 2015–2 Disclosure
Initiative: Amendments to AASB 101” (Ross 2016).
Increases in the gap between net income and cash flows or taxable income
It has been further seen that the income tax expense incurred for 2015 is $ 119 million
whereas, the total income tax expense incurred in 2016 is $ 285 million. However, the gap in
profit or loss is identified to be unexplained in the financial statement of the company. This has
been evident with decreasing profit of $ 830 million in 2015 and $ 702 million in 2016.
Use of R&D partnerships, SPEs or the sale of receivables
The use of partnership has been identified with “Insurance Australia Group Limited”.
Based on the annual report analysis of 2016 the company is a member of KPMG network and is
independently affiliated for “KPMG International Cooperative ("KPMG International")”. This
has been identified as a limited liability as per approved scheme under professional standard
legislation. The group is also entered into a strategic partnership to Berkshire Hathaway which
has been able to provide significant capital flexibility in terms of aligning governance, strategy
and risk approaches across the group.
Unexpected large asset write-offs
The various types of expenses such as impairment charge recognized in P/L account and
debt of uncollectible nature of their written off.

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Large fourth-quarter adjustments
There have been no such incidents of large fourth-quarter adjustment.
Qualified audit opinions or auditor changes
The company is yet to be adapting to the changes in the accounting policy.
Related-party transactions
The related party transactions for “Insurance Australia Group Limited” is evident with
Justin Breheny who drew $133,846 for “other benefits, accommodation, health insurance, tax
compliance, airfares for home visits and the value of interest” this would have been further seen
to be accrued on the interest free loan.
Section 6: Compliance with the Conceptual Framework
The state of compliance to the conceptual framework for “Insurance Australia Group
Limited” has been evident with preparation of financial report as per Corporations Act 2001.
This has been further seen to be evident with that adoption of “Australian Accounting Standards
(AASB)” with various types of authoritative pronouncements as per AASB ASX rules for listing.
It has been further identified that financial reporting of the consolidated entities complies with
“Financial Reporting Standards (IFRS)”. The present insurance contracts for the IFRS standard
are not seen to include the certain set of recognition for measurement criteria. The IASB further
continues to issue the various types of standards which include such criteria. Before the issuance
of the standard that financial reports of insurers in the various parts of the countries complied
with IFRS which may not be compatible in terms of measurement for the insurance contracts and
recognition.

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Comparably, the bases of preparation of financial report for QBE insurance has been set
in accordance with “Australian Accounting Standards”, furthermore it complies with the
“International Financial Reporting Standards” as it has been issued by “International Accounting
Standards Board” and “the Corporations Act 2001”. It has been further identified that various
types of values has been interpreted to the adjoining thousand dollars which is in accordance
with “ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191”. All
the various entities such as derivatives and hedging transaction have been based to meet the
criteria as specified under “AASB 139 Financial Instruments: Recognition and Measurement”.
All the various types of application of other accounting policies are seen with “AASB 1023
General Insurance Contracts”. QBE has been recognized to review the factors which determine
the specific risk margin and the changes in terms of net discounted central estimate and the
resulting probability of adequacy and risk margin in terms of percentage of the net discounted
central estimate.
Conclusion
The report has been able to the state about the financial reports of the company which has
been prepared in accordance with “Corporations Act 2001”, “Australian Accounting Standards
(AASB)”. On comparing the accounting policies with a similar competitors such as QBE
Insurance Group Limited, the various types of accounting policies has been defined under the
section of “AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors”. The
flexibility aspect has been further identified with the accounting standards which have been
already issued but not yet effective. The operative date of the standards is 1st January 2018.
Some of the standards have been identified with “AASB 9 Financial Instruments”, “AASB 2009-
11 Amendments to Australian Accounting Standards” arising from “AASB 9 Financial

15ACCOUNTING THEORY AND CURRENT ISSUE
Instruments”, “AASB 2009-11 Amendments to Australian Accounting Standards arising from
AASB 9”, “AASB 15 Revenue from contracts with customers” and many more such
standards.“Insurance Australia Group Limited” has not been able to specify the exact reason for
increasing instance for BBB and below ratings in 2016 which shows for counterparty credit
ratings of interest-bearing investments which has been seen as the main red flag issue. The
related party transactions for “Insurance Australia Group Limited” is evident with Justin Breheny
who drew $133,846 for “other benefits, accommodation, health insurance, tax compliance,
airfares for home visits and the value of interest” this would have been further seen to be accrued
on the interest free loan.

16ACCOUNTING THEORY AND CURRENT ISSUE
Reference List
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theory, methodology, methods and a research framework’, The British Accounting Review, 46(2),
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BoučkováM. (2015) ‘Management Accounting and Agency Theory’, Procedia Economics and
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Accounting, Auditing & Accountability Journal, 29(7), pp. 1138–1144. doi: 10.1108/AAAJ-07-
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https://www.iag.com.au/results-and-reports/FY2015/pdf/2015-IAG-annual-report-final.pdf

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[Accessed 14 Oct. 2017].
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ZhongL. (2014) ‘Rethink Energy Accounting with Cooperative Game Theory’, Mobicom, pp.
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List of Appendix
Insurance Australia Group Limited

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QBE Insurance

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