Analysis of Accounting Concepts, Theory and Integrated Reporting

This report offers a comprehensive analysis of financial accounting concepts and theories. It begins by addressing the additivity problem in accounting measurement and explores various measurement bases, including historical and current costs. The report then examines the adoption of International Accounting Standards (IAS) and its implications, highlighting the benefits of standardization in a globalized environment. It also delves into the necessity of accountability and legitimacy for organizations, emphasizing their importance to stakeholders. Furthermore, the report discusses the relationship between accounting theory and contemporary practices, including issues like fair value accounting and environmental sustainability. The report concludes by commenting on the goals of integrated accounting reports, emphasizing the inclusion of relevant data from cost, management, and financial accounting to facilitate informed decision-making. The report references various accounting theories, including historical cost accounting, current purchasing power accounting, and current cost accounting. The report is a student contribution to Desklib, a platform offering AI-based study tools.

Concepts and Theory based
Questions

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1. Additivity problem in context with measurement in accounting.............................1
Question 2. Adoption of International Accounting Standards....................................................2
Question 3. Necessity of accountability and legitimacy.............................................................3
Question 4 Accounting theory and whether they are related to each other................................4
Question 5 Contemporary issue of accounting and link between accounting theory and
practices......................................................................................................................................4
Question 6 Comments on integrated accounting report should achieve.....................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
The report summarises answers to various essay types questions that are related with the
functions and features of financial accounting. Report discusses various problems that can be
identified in measurement of accounting which are referred as additive problems. These
problems arise when different basis of measurement is used by the organisation. There are
different theories of measuring accountancy that may have contradict affects to financial reports
of an entity. Three of such theories has also been explained. This report also shades some light
on the views of adopting same set of standards by all countries. Views on the same issue has
been provided. Necessity of accountability and legitimacy has also been explained in the context
of organisations along with its benefits to the stakeholders and society. Organisations have to
face many contemporary issues in accounting, the link between accounting theory and
accounting practices has also been explained. Globalisation has increased the expectations of
society and world towards the organisation. These expectations are rising the importance of
impact of financial reports to the stakeholders. Therefore, ways of fulfilling these expectations
by integrating issues in the reports has also been mentioned in the report.
Question 1. Additivity problem in context with measurement in accounting
Under measurement of accounting there are mainly two fundamental measures, capital
and profit. These capital and profit amounts can be defined and derived in number of ways.
Concepts of measuring capital and profit has been changes number of times over the period.
Likewise, measurement of various assets and liabilities should be linked with general objectives
of financial reporting. Many different theories are used in measuring different assets and
liabilities (Hoffman and Yu, 2013). All such theories, provide different concepts of measuring
components of financial report that can have a significant impact on the results of the
organisation. Various basis of measurement an organisation can use are:
 Historical cost
 Current cost
 Realisable value
 Present vale
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 Deprival value
Different basis of measurement results in different amount of values to be recorded.
Therefore, there are various factors that an organisation can consider while selecting an approach
for measurement :
Measurement of similar items: according to this approach similar items should be measured in
similar ways.
Items generating cash flow: Those items that generates cash flow inclusively must be measured
in a similar manner (Zhukova and Shutov, 2015).
Cost-benefit: While preparing measurements, benefits that would be derived from alternative
cost measurements should be assessed.
Therefore, many judgements are required in order to select appropriate basis for
management.
Question 2. Adoption of International Accounting Standards
The approach of One-size-fits-all is appropriate in case of adopting international
accounting standards. International Accounting Standards has been adopted by mostly countries
including Australia. It will be appropriate for the organisations running in globalised
environment to adopt same sets of accounting standards. Though, many countries have adopted
different accounting practices and accounting standards. Countries are different from each other
in number of ways and these international differences could be religion, ownership of business,
culture and finance system (Gan, Ma and Xie, 2014). However, process of setting standards in
many countries is a job of political process. Different standards that are used by different
countries are International accounting standards (IAS), International financial reporting system
(IFRS), or Generally Accepted Accounting Principles (GAAP). Using same set of standards can
provide significant benefits to the organisations in international business environment. These
benefits would be:
 Using same set of standards will bring transparency within the financial reports of
organisations.
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 This will increase comparability of financial reports of different organisations.
 Through comparability investors will be enable to compare the results of financial
performance of different companies and can direct their investments.
 It will also help other external users of financial reporting, to evaluate financial
performance of the business as even they would be having knowledge of standards that
has been used by the company (Ramanna and Sletten, 2014).
 Using same set of standards, will restrict the company to use wrong practices in order to
portray better profitability and financial performance.
Question 3. Necessity of accountability and legitimacy
Accountability: Accountability refers to the responsibility of reporting results of the task or
answering a question that was assigned to a person to a person in-charge.
Legitimacy: Legitimacy refers to the justification or logic that has been used while responding
to the assigned task. From the perspective of organisation, legitimacy refers to undertaking an
activity by a management that is acceptable by the community and concerned stakeholders.
Accountability and legitimacy are directly related with each other. While undertaking any
task, the task should be done in the logical manner and in such a way that can be justified.
Organisations pursuing goals of social values must have a claim of legitimate resources.
Legitimacy guides social action. When an activity is acceptable it is legitimacy and the way how
acceptance is demonstrated can be seen as accountability.
Accountability and legitimacy, both are subjective to each other (Capkun, Collins, and
Jeanjean, 2016). While undertaking a process management can express its views and values of
social reality that is acceptable by the society. Management must fulfil social and juridical
expectations of the society. This also includes communicating strategies that are used to the
stakeholders of concerned entity. The process of legitimacy is also seen as maintaining, gaining
and regaining legitimacy under various circumstances of the respective entity. A well known
concept in the field of financial accounting is accountability, it is a way of measuring financial
position and a control process. Accountability comes after legitimacy as the results that are to be
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answerable must be logical and justifiable and acceptable by the community as well as
stakeholders.
Question 4 Accounting theory and whether they are related to each other.
There are many accounting theories which are propounded by different authors like the historical
cost accounting, current purchasing power accounting, current cost accounting theory etc.
Historical cost accounting- this theory assume that money holds a constant purchasing power
and is fixed over times. There are many limitations which states that there are less valid
assumptions in this modern times. The specific price level changes are only for some times as
things changes with the technological advances and shift in consumer preference (Haynes, 2017).
The general price level changes that is there are inflation in the economies as well.
Current purchasing power accounting- this CPPA is developed on the bases of a view that in
times of rising price if any entity has unadjusted profits and is based on historical cost then that
will result in reduction in the real value of an entity. That entity can distribute part of its capital
in real terms. Current purchasing power accounting with tits reliance on its use will be accepted
as being easier and less costly.
Current cost accounting theory- this CAA theory is the alternative to historical cost accounting
theory which has tented to gain the most acceptable (Haynes, 2017). This theory take out the
difference between profits from trading and with gains to that of result from holding an asset.
Operating profit is best calculated by using replacement cost as this approach to profit calculated
after ensuring the operating cost.
Question 5 Contemporary issue of accounting and link between accounting theory and practices.
In this there is critical analysis of the major approaches to the formulation of an
accounting theory. This will explore the advance accounting concepts and policies any only
applying them to a range of contemporary accounting basis (Dillard and Vinnari, 2017). It
reflects the issues related to approaches to measurement, fair value accounting and environment
accounting and sustainability as well. These are also linked with the accounting theory and
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practices like they design and equip with the knowledge which is required to discuss, analysis
and critically evaluate a range of issue that are likely to encounter upon entering in the
accounting profession.
Question 6 Comments on integrated accounting report should achieve.
The accounting report of any businesses should consist of all the relevant data. Cost
accounting, management accounting, and financial accounting to look into all these aspects is
very important for any organisation. The issues related to the cost, financial and management
accounting should be there in this report (Akisik and Gal, 2017.). These all issued should be
measured by taking corrective actions from the management and the accountant side so that these
could not happen in the future. As already stated about the historical cost method and its
limitations this method is not appropriate in the basic accounting sense. As this method does not
include the current situations and only consider the past cost. in integrated report all relevant data
is used but in sustainability report this is not used and does not take into account the cost and
management accounting.
CONCLUSION
The above report summarises responses to various questions in a logical manner. The
report concludes various results like problem of additivity that management faces in
measurement of accountancy, adoption or non-adoption of same set of standards for measuring
accounting by all countries. From this it has been concluded that countries if using same set of
standards will benefit to the organisations that are operating in global environment in various
ways. From the discussion of above report it is also concluded that accountability and legitimacy
are related with each other. Accountability will be effective with legitimacy. The report also
discusses integration of issues that are faced by the organisations in the reports that will facilitate
decision making to stakeholders.
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REFERENCES
Books and Journals
Akisik, O., and Gal, G., 2017. The impact of corporate social responsibility and internal controls
on stakeholders’ view of the firm and financial performance. Sustainability Accounting,
Management and Policy Journal. 8(3). pp.246-280.
Capkun, V., Collins, D. and Jeanjean, T., 2016. The effect of IAS/IFRS adoption on earnings
management (smoothing): a closer look at competing explanations. Journal of
Accounting and Public Policy, 35(4). pp.352-394.
Dillard, J. and Vinnari, E., 2017. A case study of critique: Critical perspectives on critical
accounting. Critical Perspectives on Accounting. 43. pp.88-109.
Gan, G., Ma, C. and Xie, H., 2014. Measure, Probability, and Mathematical Finance: A
Problem-oriented Approach. John Wiley & Sons.
Haynes, K., 2017. Accounting as gendering and gendered: A review of 25 years of critical
accounting research on gender. Critical Perspectives on Accounting. 43. pp.110-124.
Hoffman, J. W. and Yu, G., 2013. A ternary additive problem. Monatshefte für Mathematik.
172(3-4). pp.293-321.
Ramanna, K. and Sletten, E., 2014. Network effects in countries' adoption of IFRS. The
Accounting Review. 89(4). pp.1517-1543.
Tucker, B.P., 2017. Figuratively speaking: analogies in the accounting classroom. Accounting
Education. 26(2). pp.166-190.
Zhukova, A. A. F. and Shutov, A. V., 2015. Binary additive problem with numbers of special
type. Chebyshevskii Sbornik. 16(3). pp.246-275.
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