Accounting Theory & Contemporary Issues

This assignment discusses the conceptual framework role in accounting, general-purpose financial reporting objectives, prudence concept and substance over form concept as well as faithful representation.

Running Head: ACCOUNTING THEORY & CONTEMPORARY ISSUES
ACCOUNTING THEORY & CONTEMPORARY ISSUES
Name of the Student
Name of the University
Author Note

1ACCOUNTING THEORY & CONTEMPORARY ISSUES
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Answer 1................................................................................................................................2
Answer 2................................................................................................................................3
Answer 3................................................................................................................................3
Answer 4................................................................................................................................4
Conclusion..................................................................................................................................4
Reference....................................................................................................................................6

2ACCOUNTING THEORY & CONTEMPORARY ISSUES
Introduction
Conceptual framework is the term that is use to represent system of ideas as well as
objectives that assist in creating the set of consistent rules as well as regulations. These
standards and rules set the nature, functions as well as limits of the financial statements as
well as financial accounting (Richardson et al. 2015). Therefore, this assignment will discuss
the conceptual framework role in the accounting, general-purpose financial reporting
objectives, prudence concept and substance over form concept as well as faithful
representation.
Discussion
Answer 1
Conceptual Framework role in Accounting
The conceptual framework is that concept, which has major role in accounting. It has
key role in providing with the assistance to the IASB in the future development of the IFRS
as well as providing review to the current IFRS. It provide assistance to the financial
statement preparers in development of the policies of the accounting for events and
transactions that are basically not covered in current standards. Moreover, conceptual
framework has the major benefit for setting of the accounting standards, fundamental
principles and provides the basis for resolving accounting disputes that have not to be
repeated in the accounting standards (Ifrs.org. 2019).
In the year 2010, the published conceptual framework has been criticized heavily in
relation to lack of the clarity, exclusion of certain important terms as well as being outdated
in the current IASB thought. This has resulted into IASB into proposing for the shifting of the
fundamental concepts of the liabilities and the assets to improve clarity (Ifrs.org. 2019).

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Answer 2
General Purpose Financial Reporting Objectives
All through the years, the preparations of the general-purpose financial statements are
done for giving aid to stakeholders in the process of decision-making. Moreover, general
purpose financial reporting has one of the major objectives to provide information about
reporting organization. This is beneficial to not only investors but also to the creditors as well
as lenders to take decisions in relation to providing resource to organization. Further, it also
provides information about company’s financial position, its financial performances and the
flows of cash, which would be useful for wider ranges of the users in economic decisions
making (Ifrs.org. 2019).
Answer 3
Prudence Concept
The prudence term is described as the principle of conservatism. This term is
considered to be the crucial accounting principle that makes sure regarding no any existence
of overstatement of income and the assets as well as provisions are being made for the losses
as well as expenses, apart from the fact that whether the amount is to be known for the
estimation purposes. The concept of prudence takes all the considerations of prospective
losses in comparison to prospective profits. In the application of prudence, there is the need
to make sure that the financial statement helps in presenting realistic picture of the business
organizational state of the affairs in comparison to just painting good picture (Ifrs.org. 2019).
The exercises of the prudence do not allows income as well as the assets
understatements or overstatements of the liabilities as well as the expenses. This is due to the
fact that these misstatements lead towards overstatements of the income or understatements
of the expenses in the upcoming period. It is because prudence is all about standards and

4ACCOUNTING THEORY & CONTEMPORARY ISSUES
rules of the accounting. It helps in allowing asymmetrical prudence to take the considerations
of income that would be received only after specific period (Ifrs.org. 2019).
Answer 4
a)
Substance over Form Concept
The Substance over form term in accounting is economic substances of transactions as
well as the events that has the requirement for recording it into the financial statement rather
than just being in the legalized form for presenting fair as well as the true view of the affairs
of organizations. The instance of the same is IAS 18 accounting standard, under which the
revenue requires the accountant to consider economic substance of sale agreements in
determining the occurrence of sale (Zhang and Andrew 2014).
b)
Faithful Representation Substance of Economic Phenomenon
It can be agreed that decision of board for stating explicitly that the faithful
representation helps in representing substance of the phenomenon of economy rather than
merely represent its legalized system. The faithful representation seeks to maximize
underlying features of freedom from error, neutrality and completeness. The relevancies of
financial statements are represented with the help of relevancy of the economic phenomenon
and faithful representation of it (Macve 2015).
Conclusion
Therefore, the analysis on conceptual framework concludes that it has major role in
providing assistance to the IASB in future development of the IFRS and giving review for
existing IFRS. Moreover, it has been found from the analysis that issuing general-purpose

5ACCOUNTING THEORY & CONTEMPORARY ISSUES
financial accounting would aid investors and the creditors in the decision-making. Lastly, it
could be said that conceptual framework has the important role in the substance over form,
prudence and faithful representations of the accounting financial representations.

6ACCOUNTING THEORY & CONTEMPORARY ISSUES
Reference
Ifrs.org. 2019. [online] Available at: https://www.ifrs.org/-/media/project/conceptual-
framework/exposure-draft/published-documents/ed-conceptual-framework.pdf [Accessed 10
Sep. 2019].
Ifrs.org. 2019. [online] Available at: https://www.ifrs.org/-/media/project/conceptual-
framework/exposure-draft/published-documents/ed-conceptual-framework-basis-
conclusions.pdf [Accessed 10 Sep. 2019].
Ifrs.org. 2019. [online] Available at: https://www.ifrs.org/-/media/project/conceptual-
framework/current-stage/conceptual-framework-summary-of-tentative-decisions.pdf
[Accessed 10 Sep. 2019].
Ifrs.org. 2019. IFRS . [online] Available at:
https://www.ifrs.org/news-and-events/2018/03/iasb-completes-revisions-to-its-conceptual-
framework/ [Accessed 10 Sep. 2019].
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Richardson, P., Dellaportas, S., Perera, L. and Richardson, B., 2015. Towards a conceptual
framework on the categorization of stereotypical perceptions in accounting. Journal of
accounting literature, 35, pp.28-46.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical
perspectives on accounting, 25(1), pp.17-26.