ACCT20074 Contemporary Accounting Theory: Conceptual Framework

This report assesses literature on the development of conceptual frameworks in accounting globally, discussing concerns, benefits, and limitations. It examines qualitative characteristics of accounting information using Flexigroup, an Australian company, as an example. The report details sustainability and integrated reporting, highlighting their content and value creation, and differentiates between sustainability reporting guidelines and the International Integrated Reporting Council. It further discusses the strengths and limitations of conventional accounting, the applicability of integrated and sustainability reporting theories, and provides checklists for integrated report components, exemplified by Quilter PLC's report. A comparison between Flexigroup and Quilter PLC's CSR reports concludes the analysis.

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

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EXECUTIVE SUMMARY
The purpose of this report project is to assess various literatures that explain the development of
conceptual framework in the accounting field around the globe.it discusses various aspects of
accounting profession like the concerns that accountants have regarding the conceptual
framework. This report also show how the conceptual framework benefits the accounting
professionals and points out some limitations of such framework.it also show some qualitative
characteristics of a good accounting information and how it is shown in the books of
FLEXIGROUP an Australian company.
Sustainability reporting and integrated reporting is also discussed in detailed showing the
contents of each and how it aids the company in creating value.

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Table of Contents
INTRODUCTION.......................................................................................................................................4
HISTORY AND DEVELOPMENT OF THE CONCEPTUAL FRAMEWORK........................................4
ACCOUNTING PROFESSION CONCERN..............................................................................................5
Benefits...................................................................................................................................................6
Limitations..............................................................................................................................................6
MEASUREMENT AND RECOGNITION CONCEPTS............................................................................7
SUSTAINABILITY AND INTEGRATED REPORTING..........................................................................8
Integrated framework..............................................................................................................................8
Role of integrated report..........................................................................................................................9
DIFFERENCES BETWEEN SUSTAINABILITY REPORTING GUIDELINES AND
INTERNATIONAL INTEGRATED REPORTING COUNCIL.................................................................9
HOW HOLISTIC IS SUSTAINABILITY REPORTING AND INTEGRATED REPORTING?.............10
STRENGHTS AND LIMITATIONS OF CONVENTIONAL ACCOUNTING.......................................10
APPLICABILITY OF INTEGRATED REPORTING AND SUSTAINABILTY REPORTING
THEORIES................................................................................................................................................11
integrated reporting theories..................................................................................................................11
sustainability reporting theories.............................................................................................................11
DISADVANTAGES OF THESE THEORIES..........................................................................................12
CHECKLISTS OF COMPONENTS OF INTEGRATED REPORT.........................................................12
HOW IT IS SHOWN IN THE REPORT OF QUILTER PLC...................................................................12
COMPARISON OF AUSTRALIAN COMPANY FLEXIGROUP AND SOUTH AFRICAN COMPANY
QUILTER PLC CSR REPORTS...............................................................................................................14
CONCLUSION.........................................................................................................................................15
REFERENCES..............................................................................................................................................16

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INTRODUCTION.
Conceptual framework of accounting may be defined as a technique applied in the establishment
of a body of knowledge in an accounting subject concern codifying the literature and it is used to
put into a reality an experimental set off principles and fundamental guidelines
PART A.
QUESTION A
HISTORY AND DEVELOPMENT OF THE CONCEPTUAL FRAMEWORK
According to framework put in place by Faweet of accounting is the system that is applied as a
research basis for pedagogic reasons and administration particulars. In the United States of
America, the growth of this framework of accounting is attributable to two researchers namely
Moonitz and Sprouse in the years 1962 and 1963 respectively. John B Canning is also another
researcher who he contributed to the conceptual framework development process through his
book entitled The Accounting Theory in 1922, Canning identified asset valuation and
measurement concept which are currently fundamental accounting concerns. The Tentative
Statement of Accounting Principles Affecting Corporate Reports also contributes to the
framework development by identifying historical base costing, matching and revenue recognition
concepts that today are the most critical concerns of any accounting work. William Patnon and
Littleton are also considered to be the founding father of what today we termed as accounting.
The above individuals laid down the foundation for the birth and growth of the conceptual
framework of Financial Accounting Standard Board(FASB) which is globally mandated to
supervise and oversee the implementation of the accounting policy. In the Australian Republic
the conceptual framework of accounting of accounting was established by the Australian
Accounting Standard Board and the Australian Accounting Research Foundation which was the
two independent bodies set up to provide a list of similar concepts that will highlight the
inherency, need and an expanded components of the financial reporting .IASC provided a
framework for the recording and presentation of financial statements and the underlying books
of account in 1989 reflecting the commercial view for profit and non-profit making entities.
The board also facilitated the setting up of accounting standards that touched directly the issues
that were not addressed clearly by the International Accounting Standard and the Financial
Reporting Standard (IASPLUS of2004). The framework further lays down the objective of the

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preparation of financial statements, the characteristics that accounting information should meet
to be deepened useful to the users, the reasons behind financial reporting.
PART A
QUESTION B
ACCOUNTING PROFESSION CONCERN.
Financial reporting is the methodology of disclosing the outcomes and the financial performance
of an entity in question. As by this definition the accounts of any entity should be ready each
year should be guided by the relevant legislation that has is in plac. Accounting processes in
Australia are carries out with due regards to the dictates of the Australian Corporations Act 2001
and the Australian Accounting standard whic has the same measure with IFRS.Financial
reporting faces the following shortcomings;
I. Expensive to establish; the framework that lays foundation for the establishment of
accounting standards is costly to set up and maintain and it is only a product of the
developed countries who will impose them on poor countries whose standards does not
match.
II. It is rigid; the conceptual framework laying foundation for the formulation and
implementation of the accounting standards, once established it is a tedious process to
amend its provisions in order to incorporate a new idea that is considered valuable to the
framework.
Disregards the interest of some parties; the framework only considers the interest of the
parties that are a subject to it while ignoring the interest of others i.e. the developed
countries setting the framework only benefits from it while the developing countries
adopting it their interest is not safeguarded.
III. Can easily be challenged; the framework is not clear on what to do when a conflict ensue
between an existing and a new idea .Though the standard, will prevail in my view the
framework should have prevail as it is a product of tedious and approved process.
PART A
QUESTION C.i

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Benefits
a. Fosters the relationship between the parties; conceptual framework promotes a good
relation between the accountants and the regulating body.
b. Users reliability; conceptual framework improves the user’s reliability in the financial
statements since they are assured that the preparations has meet certain standards needed
for decision making.
c. Harmonises the differences in different accounting sectors; this I'd very crucial as it
increases the interested party’s confidence and view concerning accounting information.
d. Establishes minimum standards; this forms the basis under which financial Statements
standards are set and adhered to by all parties willingly (Biondi, Glover, Jamal, Ohlson,
Penman, Sunder & Tsujiyama, 2012).
QUESTION C. ii
Limitations
Expensive to set up; conceptual framework is exorbitantly high to set up in terms of
resources and time which makes the framework to be a product of the developed counties
alone and they later impose this on a developing country whose accounting measures are
not uiform with that of the developed countries.
a) Rigidity of the framework; the conceptual framework is very rigid and this makes the
adoption of a new idea once the framework has been set up tedious and time consuming
for an entity.
b) Irrelevant to the non- users; the framework only concerns what is good relevant to some
parties i.e. since the framework is set up by the rich countries and adopted by poor
countries whose interests in the set standards are not taken into consideration making the
framework a little bit irrelevant.
c) Lacks clarity in its address; the framework is not clear should a conflict ensue on what
must be done in between an established standards and a newly adopted one, though the
standard will override the framework which has taken long to be established.
PART A
QUESTION D.i

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MEASUREMENT AND RECOGNITION CONCEPTS
information in the balance sheet is outline by recognising assets, liabilities and the equity, for
instanc the Flexi Group limited group balance sheet discloses that the total assets amounted to
2854.2 Australian Dollars. On the same balance sheet the total liabilities is reflected to be
2226.60 Australian Dollars. Furthermore, the group cash flow highlights that the total net cash
flow from operating activities is 188.7. The net cash flow from investing activities totalled to
342.3 and the total net cash flow generated from financing activities was 117.0 all this are in
Australian dollars as it has been previously disclosed. The statement depicts a negative variation
in the cash and cash equivalence which is not a good condition for a listed company in any state.
In page 14 of the Flexi company annual report, the group profit and loss account shows that the
total operating expenses amounted to 168.5 Australian dollars and the total net income was 103
Australian dollars. (Ye, Stevenson & Dobson, 2015).
PART A
QUESTION D.ii
Qualitative characteristics
a. Comparability; the financial statements should be comparable to those of the previous
year or to those of other organizations. i.e. in the Flexi Annul report of 2018 the total net
cash flow from operating activities was 188.7 Australian dollars while in 2107 it was
161.0 depicting a 17 % change. Furthermore, the net cash flow from financing activities
in 2018 was 117.0 dollars but 23.2 in 2017 depicting a 404% change (Barth, 2013).
b. Timely; financial statements ought to be ready and avail on time for the parties to make
decisions. For instance, the Flexi annual report the balance sheet, profit and loss account
and the statement of cash flow has been prepared as at 30th June 2018 which is the
company's accounting period hence the information is ready for decision making
(Christensen, 2010).
PART B
QUESTION. a.

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SUSTAINABILITY AND INTEGRATED REPORTING.
Sustainability report refers to a detailed letter set up by several entities that explains their
influence on the environment and steps they undertake to control it. this influences can be caused
to the environment, community or even to the economy. This statement also indicates the
company’s governance structures and the way they undertake to conserve the ecology.
Sustainability report therefore helps the company to measure, recognize and disseminate their
key strategies concerning how they want to address environmental, societal, and economic
issues. This clear plans will assist company’s in addressing such problems in a conclusive
manner in a very efficient way. Sustainability reporting is also CSR statement.
GUIDELINES
 Categorize various groups that are supposed to use the document and explain to them
how the statement will assist in addressing the issues that affect them.
 Indicate ways in which the concern company has behaved in the past regarding its
sustainable programs.
 Indicate how economic, environmental and social aspects have been influenced in the
past.
 It should show on entirety, that is, must show the performance of the company in all
aspects.
 Integrated reporting combines the financial and the non-financial aspect of the company’s
performances.
INTEGRATED REPORT
This refers to a document which indicates various steps in governance and achievements that the
company has made.it shows this to the external environment of the company which will yield a
lot of value to the company in the short, medium and long term basis (Zhou, Simnett & Green,
2017).
Integrated framework
Its role is to set direction to be followed and show various components and elements that should
be covered in the report and elaborate on concepts used (Cheng, Green, Conradie, Konishi &
Romi, 2014).

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Contents;
 Information that is necessary to be used in the evaluation of the company’s capability to
bring the value.
 Indicates cases where the value created is kept or not.
 Indicates the connection the generated value against time
Role of integrated report
It explains to investors how the company is making value over a given period of time.it contains
the necessary information both financial and non-financial of the company (Rivera, Zorio &
García, 2017).
DIFFERENCES BETWEEN SUSTAINABILITY REPORTING GUIDELINES AND
INTERNATIONAL INTEGRATED REPORTING COUNCIL
SUSTAINABILITY REPORTING
GUIDELINES OF GRI
INTERNATIONAL INTEGRATED
REPORTING COUNCIL(IIRC)
It is mandatory for the whole parties to set up
this report
All companies ought to set up this standards.
Private and public limited companies in the
world prepares this.
It is only prepared by private limited
companies together with their yearly
statements.
Mainly directed to the stakeholders who has a
degree of concern in the company
Set up to purpose the interest of the investor
in the entity.
It is just a reflection of the corporate social
responsibility of an enterprise.
It mainly deals with the long term value
establishment of an enterprise and inclusion
of this into the strategic goals
Information is considered important for
highlighting the company’s economic
societal and environment impact and
effecting on the decisions of all stakeholders
Materiality of an item is deemed considered if
it will significantly effect on the creditors
and other funds providers with utmost aught
to the entity’s ability to obtain value

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HOW HOLISTIC IS SUSTAINABILITY REPORTING AND INTEGRATED REPORTING?
Financial statements reflect how entities have advanced and how they adhere though this does
not provide significant data pertaining the entities quality and how they are involved in
sustainable activities to protect and preserve the environments and societal activities. Companies
have to observe the importance to reflect its programs in a holistic manner. This necessitate this
report.
Integrated framework makes sure the presentation ofseveral apects, highlights several capitals
consumed and reflect the looking of the entity on long term criteria.
Sustainability principles outlines several aspects that ought to be incorporated in reporting on
the corporate achievements of a company ie materiality, completeness among others.
Integrated framework facilitates companies preparations of its own details in lieu of
applying a checklist technique. This facilitates them to adapt to variations therefore reporting on
their quality more effectively.
According to the framework, enterprises will discuss several aspects that motivates their
quality on information that is pertaining to the interested parties needs (Setia, Abhayawansa,
Joshi & Huynh, 2015).
PART B
QUESTION. b.
STRENGHTS AND LIMITATIONS OF CONVENTIONAL ACCOUNTING
STRENGHTS
 It shows how the company is creating value on a wider perspective thus assists such
companies achieve maximum value
 The company itself will be responsible for interpreting the value gained.
 It indicated a clear difference between the traditional and the modern ways of value
creation
 Various stakeholders are involved in the process of value creation since they get accessed
to the reports.

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 It will lead to change in the behaviours of those in the management position and the way
the carry out the activities of the company (Uddin, Mang, Huba & Lapegue, 2014).
LIMITATIONS
 It doesn’t elaborate well the various concepts that are utilized in the reports hence limited
understanding
 Valuing some elements shows that there is a challenge in the measurement criteria used
 There is no clear boundary especially in their definition.
 Comparison of different firms across industries is difficult as different companies use
different methods.
 Interference with sustainable value and ethical standard is possible (Schroeder, Minocha
& Schneider, 2010).
PART B.
QUESTION.C
APPLICABILITY OF INTEGRATED REPORTING AND SUSTAINABILTY REPORTING
THEORIES
integrated reporting theories
i. AGENCY THEORY-as per this theory manager and several legislative agencies helps
to lower expenditure asymmetry and expands on capital distribution (Hill, Jones &
Schilling, 2014).
ii. POSITIVE ACCOUNTING THEORY-as per this theory, administrators gives into to
lower agreement expenditure and avert costly rule (Gao, 2011).
sustainability reporting theories
i. STAKEHOLDER THEORY-as per this theory, leaders uses this report as part of their
duty to establish an association that exists between entity’s and various participants
(Prno & Slocombe, 2012).
ii. LEGITIMACY THEORY-according to this theory, leaders and administrators want to
make sure that they remain legitimate in the eyes of stakeholders so that they can operate
effectively (Deegan, 2010).

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DISADVANTAGES OF THESE THEORIES
i. It does not show clearly the reason why companies are willing to spend much money in
the disclosure of some items regarding their business.it only indicate that they disclose
them (Lozano, 2013).
ii. It cannot be used to project on the unforeseeable future and events of the company.
iii. It does not clearly show how the regulating entity assist various firms and companies
(Ceulemans, Molderez & Van, 2015)
PART B.
QUESTION. d
CHECKLISTS OF COMPONENTS OF INTEGRATED REPORT
COMPONENT MEANING
Organization outlook Shown by mission and vision statement
Business model Indicated by company’s values
Operating context Key risks being disclosed by the company
Strategic goals and how to achieve Indicates short, medium and long term goals
of an entity
governance Shows various leadership styles of the
company
performance Shown by describing how performance is
described in the company
Future outlook Indicated by pointing out on forward looking
information of the company((Abeysekera,
2013).
HOW IT IS SHOWN IN THE REPORT OF QUILTER PLC
Organization outlook.
Integrated report of the company has pointed out that it participates in boosting long term
sustainable success of the company, creating increased value to the shareholders and contributing
to the wider community. This indicates how the business interact to the society. The business has