Evaluation of Conceptual Framework of Financial Reporting and Sustainability Reporting

ACCT20074 Contemporary Accounting Theory
Term 1 Assessment 3: Practical report (Major assignment)
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Executive Summary
This report has undertaken an evaluation of the conceptual framework of financial
reporting by analyzing its history of development; concerns related to its adoption and also
demonstrated its application with the selection of financial reports of an ASX listed entity. In
addition to this, it also presented an examination of sustainability or integrated reporting
framework of businesses. It includes comparison of GRI with integrated reporting, discussion of
CF for sustainability reporting, application of theories for developing content of sustainability
reporting and examined the various components of integrated reporting systems in reference to a
South African company. Also, the comparisons of the components are done with the selected
Australian company to identify the differences between the types of disclosures in relation to
sustainability by the two companies.
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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................5
Part A: Conceptual Framework.......................................................................................................6
A: Review of Literature Regarding History and Development of Conceptual Framework for
Financial Reporting in the USA, UK, Australia..........................................................................6
B: Application of the IASB/IFRS Conceptual Framework for Financial Reporting...................7
C: Quality Concerns of the Conceptual Framework of Reporting...............................................8
D: Application of conceptual framework by Ingenia Communities Group.................................8
D(i): Financial Statements and their components........................................................................8
D (ii): Recognition principles and measurement basis used to present revenue, assets and
liabilities by Ingenia Communities Group...................................................................................9
D (iii): Qualitative characteristics of financial information used in financial report of Ingenia
Communities Group...................................................................................................................10
Part B: Integrated and sustainability reporting..............................................................................13
A: Comparison of GRI (Global Reporting Initiative) with International Integrated Reporting
Framework.................................................................................................................................13
B: Strengths and Limitations of the Conventional Accounting.................................................13
C: Applicability of Theories to Explain Content of Sustainability and Integrated Reporting...14
D: Evaluation of NEPI RockCastle (South African Company) on the grounds of different
components of integrated reporting through use of index (Table or check list)........................15
E: Comparison of reporting practice of selected Australian Company with the index and
reporting practices of selected South African company............................................................17
Conclusion.....................................................................................................................................19
Reference.......................................................................................................................................20
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Introduction
The conceptual framework has been developed as per the normative theory of accounting
that has been developed for providing recommendations to the policy makers such as IASB
(International Accounting Standards Board) regarding the development of accounting policies on
the basis of theoretical principles. On the other hand, the term ‘Corporate Social Responsibility
Reporting’ or ‘sustainability reporting’ implies to satisfying information against social, economic
and environmental indicators of an organization. It requires business to provide adequate
disclosures about the ways in which their different operational activities are impacting the
abilities of future generations for meeting their varying needs. As such, this report has discussed
and analyzed various aspects related to conceptual framework and sustainability reporting with
including `examples from a selected Australian and South African entity.
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Part A: Conceptual Framework
A: Review of Literature Regarding History and Development of Conceptual Framework
for Financial Reporting in the USA, UK, Australia
The Conceptual Framework (CF) has been applied by business entities across the world
complying with IASB or FASB for development of their financial reports. The development of
the conceptual framework in the USA can be traced back to early 1960s by the development of
Accounting Principles Board (APB). However, the accounting framework of the country has
received criticism on account of lack of an appropriate framework. As such, there has been the
development of Trueblood Committee in the year 1971 that produced Trueblood Report which
has outlined the accounting objectives and the required qualitative features to be present within
financial information. However, these initiatives undertaken have not led in improving the
quality of financial reporting system which leads to the replacement of APB by FASB. FASB
has then introduced CF into the financial reporting system of the US business entities by working
in co-operation with IASB and developing a revised conceptual framework in the year 2005
(Barth, 2008).
Similarly, in the UK there has been development of the Corporate Report in the year
1976 that has placed emphasis on meeting the rights of the users by providing them access to the
accurate financial information. However, the content provided by it is not accepted by the
accounting professionals. ASB in the UK has replaced by IASC (International Accounting
Standards Committee’s) but it was regarded as inconsistent with the US framework and thereby
finally replaced by the IASB framework and as such lead to the adoption of the CF (Macías and
Muiño, 2011).
The development of a coherent system of financial reporting was rather very slow in
Australia and here has been presence of only four accounting statement concepts that are,
defining reporting entity, stating the objectives of purpose of developing financial reports,
qualitative features of financial reports and recognition of varying elements of financial
statements (Chua, Chee and Cheong, 2012). The deficiencies in the reporting framework of
Australia have lead to the adoption of IASB CF as per the Financial Reporting Council decision
(Dean and Clarke, 2003). The IASB and FASB are working together in co-operation for
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