Contemporary Accounting Theory: Conceptual Framework and Integrated Reporting

This report discusses the conceptual framework for financial reporting and integrated or sustainability reporting. It explores the adoption of IFRS and the differences between GRI Reporting and IIRC. The report analyzes Northern Star Pty Ltd and Glencore PLC as case studies.

Running head: ACCT CONTEMPORARY ACCOUNTING THEORY
ACCT Contemporary Accounting Theory
Name of the Student
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1ACCT CONTEMPORARY ACCOUNTING THEORY
Executive Summary
The present report would be shedding lights on the important aspects of the accounting
namely the conceptual framework for financial reporting and integrated or sustainability
reporting. According to the findings of the report, there are several nations across the world
have adopted to conceptual framework for financial reporting of IFRS under the IASB to
assure that they are following a single accounting standards for accounting harmonization.
According to the findings of the Northern Star Pty Ltd has complied with the conceptual
framework of IFRS for financial reporting together with the identification and measurement
of different forms of substances. As per the findings in the second part of report it is noticed
that there are few differences amid the sustainability reporting framework of GRI Reporting
and the integrated reporting framework of IIRC. According to the findings Glencore PLC has
increased its efficiency in the social and environmental reporting than the Northern Star Plc
due to the adoption of integrated framework of reporting.

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Table of Contents
Introduction:...............................................................................................................................3
Part A:........................................................................................................................................3
Response to requirement (a)...................................................................................................3
Response to requirement (b)..................................................................................................4
Response to requirement (c)...................................................................................................4
Requirement [d].....................................................................................................................5
Answer to i.............................................................................................................................5
Answer to ii............................................................................................................................5
Answer to iii:..........................................................................................................................6
Part B..........................................................................................................................................6
Response to requirement (a)...................................................................................................6
Response to requirement (b)..................................................................................................7
Requirement [c]......................................................................................................................8
Requirement [d].....................................................................................................................9
Requirement [e]....................................................................................................................11
Conclusion:..............................................................................................................................12
References:...............................................................................................................................13

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Introduction:
The present report would be shedding lights on the important aspects of the
accounting namely the conceptual framework for financial reporting and integrated or
sustainability reporting. The primary objective of this report is to assess and evaluate the
different form of conceptual framework and integrated or sustainability reporting. Namely
there are two parts of report. According to the findings of the report, there are several nations
across the world have adopted to conceptual framework for financial reporting of IFRS under
the IASB to assure that they are following a single accounting standards for accounting
harmonization.
As per the findings in the second part of report it is noticed that there are few
differences amid the sustainability reporting framework of GRI Reporting and the integrated
reporting framework of IIRC. The first portion of the report takes into the account the
analysis of several aspects of conceptual framework namely the historical and development
of conceptual framework, concerns association to framework and others. The second portion
of this report would be addressing the analysis of integrated or sustainability reporting
particularly the comparison among the two reporting framework such as strength and
limitations. The companies that is selected for this report Northern Star Pty Ltd and Glencore
PLC.
Part A:
Response to requirement (a)
The conceptual framework’s design developed for reporting financial minutes under
the guidelines of International Accounting Standard Board (IASB) is subject to discussion
about a long history. The main intention of 1934 Securities Exchange Act and 1933 Securitas
Act in United States was to regain confidence of investors’ after the occurrence of sudden
crash in the financial market in 1992 and realization of economic recession in United State.
Keeping in mind this objective, the ‘Financial Accounting Standard Board (FASB)’ was
assigned with the responsibility of developing a proper conceptual framework to
acknowledge financial reporting (Cheng et al., 2014). In United Kingdom, the reason behind
development of a conceptual framework to report financial details is found to be different.
The main reason for designing a conceptual framework in the field of financial reporting was
the objective of the nation to shift from an accounting system that is based on principle to that
is mainly based on rules. This is the reason why UK chose to adapt a conceptual framework

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that is based on IFRS for meeting the objective of financial reporting under the guidelines of
IASB. For Australia, it was the decision of Australian FRC to adapt a complete course of
accounting standard of IASB. The decision was taken in 2012 (June) to integrate Australian
financial system with the accounting standard followed globally. Australia followed the
principle of IFRS for the purpose of developing conceptual framework to report financial
details. Most of the global companies follow guidelines of IFRS in designing framework of
financial reporting to come under one single accounting standard of financial reporting
(Zhang & Andrew, 2014). This sets obligation on companies that choses to adapt the
conceptual framework addressing financial reporting under principles of IASB. Australia,
Denmark, Brazil, Bosnia, Belgium are some of the many countries that have complied with
this kind of conceptual framework.
Response to requirement (b)
The accounting profession of Australia has raised some concerns related to adaption
of IASB/IFRS’s conceptual framework to address financial reporting. One of these concerns
is that relying on such a framework of financial reporting would have major implication on
measurement, recognition and disclosure of various items included in the financial statement
of the entities reporting the statement. This in turn has some serious consequences for the
associated stakeholders (Palmer, 2013). The second concern raised by the accounting
professionals is related to fair value. The professionals stated that the adapted conceptual
framework may add to a greater volatility in the fair values. Changes resulted from adaption
of the conceptual framework would give rise to lobbying on the part of affected parties
connected to the fields such as intangible assets and financial instruments having serious
economic consequences. The likely impact on non-profit entities following adaption of new
system of conceptual framework of IFRS/IASB is another area of concern for these
professionals. The main objective until recently is to design a conceptual framework and
relevant accounting standard for addressing the issues in large companies targeting to
maximize profit. All these large companies are listed in the country’s stock exchange. For
Australia, the scenario however differs from that in other countries because of the compulsion
by legislation to design accounting standard complying sector based needs (Schaltegger &
Burritt, 2017) Because of this, the non-profit companies in Australia is likely to bear huge
consequence following the adaption of conceptual framework of IFRS/IASB.

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Response to requirement (c)
The conceptual framework designed for reporting financial details have some
potential benefits along with some obvious limitations. The benefits related to conceptual
framework prepare broad room for application of the framework in different countries. The
limitations in contrast are related to concerns raised by academicians regarding the quality of
the designed framework. Major areas of advantage of the conceptual framework are it offers
basis for accounting goals and rationales, it facilitates discussion on accounting issues
following the guidelines of its makers, it enhances reliability in the area of financial
reporting, improvement means of communication between the accountants and makers of
accounting standard and others (Abeysekera, 2013). In contrast to these advantages, the
potential disadvantages have raised significant concern regarding use of the conceptual
framework. Developing countries face challenges for adaption of the conceptual framework
due to huge expenses related to this framework. Academicians expressed concern over the
rigid structure of the conceptual framework. Due to the rigid structure of the framework, it is
not possible to incorporate newly innovated accounting standard to the existing framework.
Another adverse implication related to the conceptual framework is that it leads to a conflict
between new framework and the old one that is already in existence. The benefits related to
the conceptual framework does not encompass all the involved parties. This in turn leads to
conflict among the parties having adverse consequences for the financial system and the
economy as a whole (Owen, 2013). All these negative aspects cast doubt on quality of the
conceptual framework that is related to financial reporting to major companies in the country.
Requirement [d]
Answer to i
As evident from the annual report of Northern Star Pty Ltd that the company has
prepared four forms of financial reporting statements which mainly includes Consolidated
Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement
of Change in Equity and Consolidated Cash Flow Statement (Nsrltd.com, 2019). Under the
notes 26 (1) of the company it has reported that the financial reports of the company are
prepared in accordance with the IFRS that is issued by IASB. This means that the company
has prepared the financial statements based on the guidelines of the conceptual framework. It
should be stated that the main elements of the financial statements generally includes the
revenues, expenses, profit, assets, liabilities, equity, cash flow and changes in equity.

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Answer to ii
As evident from the annual report of Northern Star Pty Ltd the company has
undertaken certain kinds of recognition measures and principles for their assets, liabilities and
revenues that are given below;
Revenue: The revenue is identified up to the extent which is having economic benefit to the
entity and revenue is reliably measured by the company (Nsrltd.com, 2019). The revenues are
measured based on the fair value of the considerations that is received or receivables. The
revenue is recognized based on the services that are performed.
Assets: Regarding the assets Northern Star Pty Ltd has recognized the investment properties
based on their cost that comprises of the transaction costs. Following the recognition of the
process, the assets are presented based on fair value. While the for the derivative financial
assets they are classified as assets that are held for sale and accounted based on their fair
value through the profit and loss except they are designed as the hedges.
Liabilities: Concerning the payables and other liabilities, Northern Star Pty Ltd has
recognized the amounts based on the requirements to be paid in future for the services
performed. Following this, Northern Star Pty Ltd has measured the revenues associated to the
distribution payable for the amount that are declared by firm on or prior to reporting period.
Finally the borrowings of the company are identified based on their fair value.
Answer to iii:
There are mainly two fundamental qualitative characteristics that is considered
relevant and faithful representation and hence there are four improving qualitative
characteristics that includes the verifiability, timeliness, comparability and understandability.
The fundamental characteristics is tested through assessment of faithful representation
relating to financial elements which is considered highly relevant for the uses of financial
reports (Dumay et al., 2014). For the users of financial reports, the most important elements
are the measurement criteria, values, identification procedure and others. As evident from the
annual report of Northern Star Pty Ltd the company has provided the disclosure regarding all
the information regarding their assets, liabilities, equity, income and expenses in the annual
report by adhering with the required standards of AASB, IFRS and IASB.
In the situation of improving qualitative characteristics, it is understood that Northern
Star Pty Ltd the financial information is presented by the company in a manner that it can be
easily compared with the other company and different timeline of the similar company.

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Following this, the verifiability characteristics is witnessed in the values of financial
statement that can be easily verified through the financial reports. The existence of timeliness
is witnessed since Northern Star Pty Ltd has provided the information to its users on timely
way. According to the management of Northern Star Pty Ltd the company has assured that
existence of needed justification and clarification of their accounting transaction where the
users of financial reports can understand them in a correct way.
Part B
Response to requirement (a)
The principles of sustainability reporting as suggested in Global Reporting Initiative
(GRI) and that of the International Integrated Reporting Council’s International Integrated
Reporting Framework share some common as well as contrasting features. The main areas of
similarities and difficulties between the standard sustainability reporting and integrated
reporting principles are illustrated in the following section.
So far as the similarity is concerned, it can be said that both integrated reporting and
sustainable reporting is part of issues related to sustainability of a business organization. Two
frameworks however are different in many of their aspects. Integrated reporting is designed
to make improvement of stewardship, trust and accountability in line with maintaining
business transparency and information flow abide by the theory (Adams, 2015). The main
objective is to provide sufficient information to the investors related to performance of the
company covering aspects of both financial and non-financial such that they can take better
decision for investment in the longer term for future of the company. In contrast, objective of
the sustainability reporting is to prepare a report on part of the company for overall impact of
business activities carried out on regular basis on the economy, environment and on the
society. In addition, sustainability reporting also provides a model to govern activities of
keeping in mind the objectives of developing a connection between strategies of the firm and
the commitments towards achieving a sustainable world economy.
The framework of sustainability reporting focuses on communications related to
effective communications covering both social and environmental issues (Frias‐Aceituno,
Rodriguez‐Ariza & Garcia‐Sanchez, 2014) Despite importance of sustainable reporting
towards developing a sustainable world economy, integrated reporting is one step ahead of
the sustainable reporting in the sense that it involves effective communication related to

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management of process of value addition in the long-run. This is done through undertaking
an integrated approach covering both sustainability risks and traditional risks.
Response to requirement (b)
The conventional accounting standard comprises both some strengths along with
some areas of weakness depending on structure of integrated reporting and sustainability
reporting. Some of the key strengths and weaknesses of conventional accounting systems
have been discussed in the following section.
Under principle of sustainability reporting, the conventional accounting system results
in better understanding of opportunities and risks. This is done by giving emphasis on
connectivity between financial and non-financial aspects of performance of business
organizations. Based on this type of accounting system managers of firms can design
strategies and plans for future of the business. Because of the system it becomes possible for
external stakeholders to develop understanding that contribute to the process of value creation
from tangible as well as intangible assets. The main concern related to disadvantage of the
system is that the framework of Global Reporting Initiatives encourages reporting of internal
performance of the company (James, 2014). This is associated with the risk of promotion of
disclosure which misses interactive effects of the organization performance to comply with
external environment. This in turn results in reporting of wrong information that misguides
the readers regarding the company. This is considered as one major risks associated with
conventional accounting system based on sustainability reporting.
The integrated reporting based accounting system is not free from limitations. It is
true that such kind of accounting standard results in implementation on a more integrated
management system guided by a more integrated system. This actually leads to greater
transparency for performance and other issues related to the company. Beside the advantages,
there are some criticism of the accounting standard that follows integrated reporting. One
primary limitation of the system is lack of connectivity (Owen, 2013) This occurs because the
system requires breaking down of information into silos after the data collection. Definition
of performance measure is another area of criticism of the accounting system. The relative
long length (150 pages) of the report makes it difficult for the companies to present concise
report.

9ACCT CONTEMPORARY ACCOUNTING THEORY
Requirement [c]
Connection of accounting theories is witnessed through the sustainability reporting
practice and integrated reporting practice for the companies (Integratedreporting.org, 2019).
These are as follows;
Sustainability Reporting – The contents of the sustainability reporting is associated to
mainly two accounting theories, this include the stakeholder theory and legitimacy theory.
According to the legitimacy theory, the business corporation willingly assures that the
disclosures relating to the social and environmental performance associated to the
information with the objective of meeting their social obligations to assure their endurance in
the society (Ioannou & Serafeim, 2017). According to the stakeholder theory, the
management of the organization are required are under obligation of taking into the
consideration the requirements of stakeholders. With respect to this theories, the companies
generally make the sustainability discloser to assure that the information requirement of the
stakeholders in order to make sure that their presence in the society is maintained.
Integrated Reporting – The contents associated to the integrated reporting is associated with
the stakeholder theory and the agency theory (Globalreporting, 2019). According to the
stakeholder theory, the requirement of the stakeholders should be considered by the
managements of the organizations. The agency theory on the other hand explains that the
management of the corporations work as agents shareholders and hence they are accountable
for increasing the wealth of shareholders (Calabrese et al., 2016). With respect to the above
discussion, it is worth mentioning that the main reason for development of integrated
reporting is due to the rising requirement of the stakeholders for communication of
information relating to sustainability of the organizations.
Requirement [d]
Index of Various Components of Integrated Report
Sl. No. Indexes for Integrated Reporting
1 Accountability of Integrated Report It is necessary to obtain the
statement from the concerned
people that are given
responsibilities of governance.
2 Strategic focus and future orientation This must include the insight
regarding the strategies of the

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company.
3 Stakeholder Relationship It must offer an insight regarding
the nature as well as quality of the
relations of the organization with
its stakeholders.
4 Materiality This must provide discussion
regarding the matters which creates
an impact on the ability of the
company to create value.
5 Conciseness It must be clear and concise
6 Reliability and Completeness It comprise of both the positive as
well as negative matters in a
balance way.
7 Organizational Overview and External
environment
This must comprise of what the
organization does and under what
situations it operates.
8 Governance This must comprise of information
relating to governance structure of
the company.
9 Business model This must comprise of the needed
business model.
10 Risk and Opportunities This must comprise of the risk as
well as opportunities of company
which impacts its value creation
ability of the organization.
11 Performance This must comprise of whether the
company has been successful in
attaining the strategic aims and
objectives.
12 Outlook This must address the challenges
that are faced by the company to
attain the strategy
13 Basis of preparation and presentation This must comprise of basis based

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on which the company ascertains
the matter that should be included
in the financial statements.
(Source: integratedreporting.org, 2019)
It is noteworthy to denote that Glencore PLC has prepared as well as presented its
integrated report for 2018 by adhering with the above stated indexes. By adhering with the
first checklist, the chairmen of the company has given the statement of leadership review. On
the other hand with respect to the second index, Glencore PLC has given strategies regarding
the business cantered strategies and main business drivers. Following this, Glencore PLC has
also provided explanation regarding the engagement of stakeholders under the section of
stakeholder engagement under which the company has made disclosure regarding the
approach, key aims and dispute resolution (Siew 2015). With respect to the risk management
framework, the matters generally comprises of the lower amount of GDP growth, reduced
customer spending and others.
The company has also made disclosure regarding market in which it operates such as
Oceania, Americas, Asia and Europe. Concerning the disclosure made regarding the
governance the company has provided information regarding the remuneration report and
corporate governance. An information associated to the business model as well as the
integrated report has been disclosed by Glencore PLC. Disclosure regarding the risk and
business opportunities of the business for Glencore PLC has been made under the “Risk and
Opportunity Management” (Glencore.com, 2019). Both the aspects of the financial as well as
non-financial performance of the organization can be witnessed under the integrated annual
report.
Requirement [e]
While making a comparative study of the reporting practice that is adopted by
Northern Star Pty Ltd against the integrated reporting indexes it is evidently seen that the
annual report comprises of the declaration regarding the chairman as well as fund manager.
The report also comprises of the organization’s strategic objective but it has given less
amount of information regarding the strategic business objectives. It is worth mentioning that
Northern Star Pty Ltd has provided sufficient amount of information in its annual report
regarding the aspects associated to government such as executive remuneration and corporate

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governance. The organization has only provided information regarding the financial risks, but
only little information has been provided regarding the financial risks and business risks.
Northern Star Pty Ltd has also not provided the information regarding the business
opportunities in its latest annual report. Northern Star Pty Ltd has provided the information
associated to the business performance and the basis of preparation of the financial reports.
While comparing the financial reporting of the Northern Star Pty Ltd against the
integrated reporting of the Glencore PLC, it is noticed that the Northern Star Pty Ltd has
lacked efficiency in its reporting (Glencore.com, 2019). The company has been lacking
behind in taking into the account the required financial as well as non-financial aspects of the
reporting because of not adopting the framework of integrated reporting approach. By
adopting the approach of integrated reporting, Glencore Plc has been successful in reporting
regarding all its index in the integrated report while Northern Star Pty Ltd is required to issue
other supplementary report such as the sustainability report and governance to offer
information on all the financial as well as non-financial aspects of reporting. Therefore, in
such a way this cannot be viewed possible for the management of Northern Star Pty Ltd to
offer its stakeholders with the financial as well as non-financial information with the help of
one single report. While Glencore Pty Ltd has represented its efficiency in reporting in all
aspects under one single report.
Conclusion:
On arriving at the conclusion, the primary objective of nations such as Australia, UK
and other to adopt the conceptual framework of reporting financial report is the adhere with
the IFRS and IASB to make sure that the harmonization with the single accounting standard.
As evident from the above stated discussion Northern Star Pty Ltd has adhered with the
different elements of conceptual framework of financial reporting in the preparation as well
as presentation of financial reports. The discussion that is made above relating to the
sustainability reporting as well as integrated reporting it is understood that Glencore PLC has
represented better efficiency in reporting than the Northern Star Pty Ltd in reporting the
matters associated to the financial as well as non-financial information with the objective of
value creation.

13ACCT CONTEMPORARY ACCOUNTING THEORY
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