Advanced Financial Accounting: Assignment

ADVANCE FINANCIAL
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
1. The objectives and purpose of the conceptual framework.................................................1
2. IASB revised conceptual framework..................................................................................2
3. Identify and explain main improvements according to the IASB......................................4
4. Revised conceptual framework..........................................................................................6
5. Information used in assessing stewardship is needed to achieve the objective of financial
reporting.................................................................................................................................7
6. Argument and evaluation of effectiveness of conceptual framework needed to revised...9
CONSLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

Research topic: “A review and revision of the Conceptual Framework for Financial Reporting”
INTRODUCTION
Conceptual frame work of financial reporting provides deep knowledge and information
to prepare financial statements and reports for effective management (Van Deventer, Imai and
Mesler, 2013). This report defines the IFRS with relevant accounting literature. Objectives and
the purpose of the conceptual framework in respect of measurement, presentation and
recognition are also covered in organisational context. IASB and the main improvements are
measured with organisational context. Factors which are considered with effect of IFRS rules a
regulations illustrated properly in this report. Importance of IASB and IFRS subject to attain the
financial reporting objectives also covered in this report.
1. The objectives and purpose of the conceptual framework
Conceptual Framework include the structure and the categories regarding presentation,
measurement and disclosure of accounting reports and statements. There is a vital role of this
framework subject to present accurate financial record. In financial reporting proper legal and
ethical structure used to make financial reports and records legal and viable to stakeholders.
There are main objectives and purpose of the conceptual framework are defined as follows;
Objective of conceptual framework
A conceptual framework for financial reporting is a part of a joint project between IASB
and the financial accounting standard board (FASB).
An accounting is not completed without proper framework, as these fundamentals leads
to prescribe the nature, functions and limits of financial accounting and financial statements. The
main reason for developing a conceptual standard is that to provide a framework for setting
accounting standard, it will make easy for resolving accounting disputes and reduce the
reputation of accounting principle in accounting standard (Gordon, 2011).
The main objective of Conceptual framework in accounting is defined below:
To provide financial information that is useful to users in making decisions relating to
providing resources to the entity. Makes easy to select the easiest and appropriate accounting
solution permitted by financial accounting standard. These frameworks are useful for investor
too, as it discloses the risk capital to them and help them to advise and remove the same risk
factor from their investment (Richard Barker 2015).
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It enables lender to make sure that the amount of loan and interest will be paid when due.
Purpose of conceptual framework-
The main important purpose of the conceptual framework was to help international
accounting standard board in the development of new future IFRS and have a look on upon the
existing IFRS (Objective of Financial Reporting and Qualitative Characteristics of Decision-
Useful Financial Reporting Information, Accounting in Europe, 4:1). Framework bring
uniformity in accounting method that help in improving he reliability of the financial statements,
simplify the accounting information. It assets the auditor to prepare financial statement in the
application of IFRS, which include dealing with a particular transaction for which there is not yet
an accounting standard. It also promotes similar rules of accounting regulation and standard by
reducing the number of pre-reputation of alternative accounting standard (May, 2013).
As a purpose of financial reporting it provides useful information for economic decision
making, it also helps to determine how trans should be measured and reported.
2. IASB revised conceptual framework
International Accounting Standard Board has revised the conceptual framework which
includes revised definitions of an assets and liabilities and new guidelines for measurement,
presentation, disclosure and prudence in financial reporting. IASB focused on disadvantages that
required to be dealt with. It is observed that the existing financial reporting standards were
insufficient to meet the reporting criteria (Mohammed Sarea and Mohd Hanefah, 2013). To build
a strong criteria and reporting standard for legal and authentic reporting standard IASB published
conceptual framework with more concepts and financial rules.
a) Measurement, presentation and disclosure
Measurement is devoted to the various measurement bases, details that they provide and
their merits and demerits. Measurement bases includes historical cost and current value i.e. fair
value, current cost and fulfilment value. Current cost is recently introduced into the conceptual
framework as it is broadly recommended in academic profession. This framework doesn't
include detailed guidance on specific measurement bases which would be suitable because the
suitability of specific measurement bases will change depending on facts and conditions.
Presentation and disclosure is the framework refers to concepts which determine which
information is enclosed in the financial statement and how it is presented and disclosed. The
statement of comprehensive income is currently described as 'statement of financial
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performance'. The changing requirement occurred due to analyse of historical transactions
historical cost, current value measurement bases, cost constraint etc.
b) Definitions of an asset and liability and recognition criteria
This framework only includes items which meet the definition of an assets, liabilities are
recognised in the financial statement. Their recognition depends on two bases, firstly it provides
related information and secondly a faithful representation regarding asset or liabilities, income,
expenses or alteration in equity to financial statement users. The framework also mentions a cost
constraint (Leauby, Szabat and Maas, 2010). De-recognition are the requirements that presented
in the structure are impelled by two aims that are retaining assets and liabilities after the event
which lead to de-recognition must be presentation truly and the variation in the business assets
and liabilities as a outcome of transaction must also be presented faithfully. In previous
definition the meaning of economic resources in respect of fixed assets were not clear which was
a confusing point for users. To define separate meaning of assets and liabilities it is revised in
new conceptual framework.
c) The roles of stewardship and prudence in financial reporting
There is a particular comment and recommendation made on IASB preliminary views on
an improved conceptual framework. It provides the main elements and objectives of pursuing the
conceptual framework in decision making and financial reporting. Stewardship approves an
important aspect to financial reporting that is mainly reflected by specific acknowledgement in
the objectives of financial reporting (Lovell and MacKenzie, 2011.). It is considered that it
simply identifies the core objectives and the plans related to financial reporting and the
management of effective strategies and plans. It remains categorised in several forms as
managers, directors and the senior level authorities.
It should not be categorised in simple information to assist and provide a stricture of
better constructive dialogue between management and shareholders. It is observed that
Stewardship supplies a direct assistance for various propositions advanced in the PV paper. For
instance, it spots the importance of historical information and the details to complete the targets
and achieve the core competence in financial reporting. Find out the appropriate framework is
also one of the main objective of stewardship. In financial management and decision making it
creates viable structure to represent the financial data of an organisation and manage the
financial standards in organisation with more effective manner.
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Prudence in financial reporting mainly conduct the conceptual framework that proposed a
new chapter on measurement and it confirms the statement of income and expenditure from the
primary sources.
3. Identify and explain main improvements according to the IASB
a) Factors to be considered a when selecting a measurement basis
Relevance: It is required to prepare the financial accounts of organisations relevant to the
subject. Two main relevant elements as predictive value and feedback value are required to
considered in this factor.
Reliability: there are three major elements are considered as representational faithfulness,
neutrality and verifiability. For instance the application of measurement basis parallel to
reasonable degree of precision.
Comparability: It is one of the essential aspect in terms of determining the phenomena of
differences and similarities of type of financial information subject to measurement basis.
Understand ability: It is required to prepared reasonable financial statements and
information to be presented in the form of assets and liabilities (Arjen Brower, Martin
Hoogendoorn & Ewoud Nearing, 2015).
The International Accounting Standards Board published a revised conceptual;
framework for financial reporting that contain the definition of assets and a liability as well as
new guidance regarding measurement and recognition and disclosure (Guthrie, Ricceri and
Dumay, 2012). There is a particular aspect are considered regarding the selecting a measurement
basis implemented by IASB. There are many factors which are required to oversee while
applying the concept of measurement includes cost, fair values etc.
Measurements: There are type of factors discussed in measurement factor subject to
build a strong and effective measurement tool. The concept of measurement and the basis are
illustrated in this change. There is type of factors to be considered while choosing a measurement
basis which are defined as follows;
Historical cost measurement bases
Price of the transaction or other event that provided rise to the item being measured.A
particular way to apply and implement the historical measurement and cost to financial assets
and the financial liabilities
Current value measurement basis
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Price that is received to sell and buy the assets or paid to transfer a liability. Market
participants and current expectations subject to amount timing and uncertainty for future cash
flows. Current value and fair value.
b) The classification of income and expenses in other comprehensive income
Presenting the information related to income and expenditure is the prime disclosure
requirement. The statements of single statement of financial performance or a separate statement
are prepared. There are four major categories were bifurcated in various form as priority,
fulfilling gaps and Clarifying the income and expenditure. This is the main aspect subject to
classify the income and expenditures.
Other comprehensive income is classified in exceptional circumstances the board may
decide the statement of profit or loss, income and expression arising from a change. There is type
of factors need to be considered while crossing the measurement standards as nature of factors,
measurement techniques, style of presentation and effective creative and analysing skills for
enhancing the viability of structure. Potential areas are also clarified to make viable structure of
financial reporting in the form of profit and loss statement as Prudence, Stewardship,
Measurement uncertainties and substance over form. With the help of this framework objectivity
become more clear and advanced.
c) Guidance on when assets and liabilities are to be removed from financial statements
There is a proper provisions and rules are formed in subject to removal of assets and
liabilities from financial statements. IASB decides the several rules in terms of valuation of
assets and liabilities of business. IASB could decide;
Evaluating the assets at fair value in condition when these are sold. Income and expense
indicates whether management use resources more or less efficiently and effectively than market
associates expected. It is evaluated that all the assets and the liabilities are recorded on the basis
of cost and the analysis done for deriving the skills and the management for developing the
structure of cost and the measuring the assets and the financial statements which used to describe
the section (IASB's Preliminary Views on an Improved Conceptual Framework for Financial
Reporting, 2013).
There must be a meaningful outcome is required to reflect in financial statements reading
the value of assets and liabilities with in operations and management. Particular section and class
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is needed to bifurcate for total and subtotals more significant in financial statements prepared
under existing requirements.
4. Revised conceptual framework
A) Definition of assets and liability are -
Assets- In an accounting for any company, business or an organisation, assets are valuable
economic resource. Revised concepts relay that economic resources, which previously had no
value, is now can be defined as “a right that has the capacity to produce more economic benefits.
So in other words, the efficiency of an assets to produce economic benefits means that the flow
of income (economic) benefits no longer needs to be certain, or even likely. If it is not certain
then the assets recognisance and the measurement for the same may get affected.
It assists organisation to control the replacement cost in the duration of disposal or
replicating an asset after its useful life. This is one of the scenario considered essential while
considering the factors.
Liability- Previously, liability was defined as a present legal financial debts of a company that
are arise during the course of business operation. These are settled over a time through the
payment of economic benefits (money, goods or services). As per revised concept, liability is
considering a present obligation of the organisation to conveyance an economic resource as in
respect of past events. It is an obligation that cannot be avoided by organisation.
Now a liability is defined as a present duty of an entity to transfer an economic resource
as a result of past events, the settlement of which is expected to result is an outflow from the
entity of resources embodying economic benefits. For clear view this mean that the obligation
(duty) must be present one, arising from past events-for example a bank loan taken is past event
and the duty to pay off the loan would be present obligation.
B) Criteria for including assets and liabilities in financial statements:
Recognition criteria
Relevance criteria: Low profitability of flow of economic benefits and existence
uncertainty are the factors considered in this context.
Faithful representation: Measurement uncertainty, recognition inconsistency and
presentation and disclosure are the factors are considered in this criteria.
Assets- these are recognised in the balance sheet only when there are economic benefits
associated with that flow to a business and these assets has a cost or a value that can be measured
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reliably. Another criterion used for assets recognisance is that there must be a set of objective
way to measure the value of assets. Fixed or current assets are also recognised in the materiality
of the expenditure. when the entity loses control of all or part of the recognised asset. Any
moveable or non-moveable thing that can be owned or controlled or held by a company to
produce positive economic value are termed as assets.
Liabilities- these are recognised in the balance sheet only when the outflow of resources
embodying economic benefits (such as cash, services etc.) from the entity and the cost of
particular obligation can be measured reliably. when the entity no longer has a present obligation
for all or part of the recognised liability. In other words, liability is future scarifies of economic
benefits arising from present duty of an entity to transfer assets or provide services to other
groups as a result of past transaction or events.
5. Information used in assessing stewardship is needed to achieve the objective of financial
reporting
Financial reports and information’s are needed to assess management's stewardship.
There type of information as income and expenditure, acquiring and selling out assets and
liabilities, amendments and changes are needed to assess in stewardship to attain the objectives
of financial reporting. It mainly associated with assessing management competence and integrity
containing the success of the strategy and managing the business (Scapens and Bromwich,
2010). The adequacy of management compensation and the assessment are analysed with
practical evaluation and the prime objectives of financial reporting also considered in this theory
with relevant day (Craig, Smieliauskas and Armenic, 2017).
The main objective of financial reporting is to set out the report with information need to
assess the management's accountability and clarifying the meaning of stewardship. Both the
information is essential in terms of identifying the prospects of entity's future net cash flow.
Using financial information as generate revenues and expenditures, selling out the timeline for,
financial reporting, holding for collection data according to terms, to follow the accounting rules
as IASB defined, it is required to follow the proper term of considering the value of current IFRS
and better alternatives.
There is a proper analysis and evaluation of cash flow form assets which are used in
terms of assess the base on the information about the comprehensive income and cash flow.
Specific treatment and analysis also carried out of unrecognised gains and losses. Price changes
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and the useful aspects are considered in this context. In Addition, there are some cost based
measured considered in this context. Operating cost and the appropriate measures subject to past
sales, cost of sales and other recurring amount of profit and loss.
Stewardship help in treatment of recording the physical assets and the intellectual
properties are also charged others for right to use of assets (Conceptual framework's purpose,
2018). The main purpose of cash flow is leasing. For reactivity and analysing the charge of use
and the information about the past and the income and expense and cash flows is more relevant.
Liabilities with the stated are considered as per contracts and the determination of amount in the
full settlement. Proper rules and regulations are followed to present the relevant data and aspects
based upon measures.
6. Argument and evaluation of effectiveness of conceptual framework needed to revised
The case for coherence in the conceptual framework and standards defines the basis of
development and fundamental changes regarding the financial structure of organisation. It was
required to determine the key principles regarding the approaches and maintain consistency in
financial reporting. Apart from it, revised conceptual framework become the part of argument for
other financial rules and reporting standards. It affected the GPFR general purpose financial
Reporting standards. The papers mainly argue for default liability approaches and recasting of
the statement. The liability of operational flows is considered in this conceptual framework.
In developing accounting policies and regulatory and accounts are considered in this
framework. There is a proper rectification and changes were made to assist the existing financial
reporting and business structure. These papers argue the theoretical coherence subject to
developing a hypothetical and consistent set of different type of accountability for accessibility
(Sutton, Cordery, & Zijl, 2015). It mainly associated with determining and analysing the
financial aspects and framework for developing the existing structure of business and boost the
reporting framework. It was also not cleared that for which organisations it is mainly important
whether profit organisations or non-profit organisations.
CONSLUSION
The above report defines the main aspects, assumptions and principles upon which
conceptual framework is introduced. It is concluded that by implementing these concepts,
financial reporting become more reliable and viable. Effective evaluation and management done
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subject to developing financial plans and strategies. It is summarised that conceptual framework
is one of the important element in terms of classification of income and the expenditure in other
comprehensive income. Guidance regarding the assets and liabilities are to be remover form
financial statements. Stewardship requirement and the objectives are achieved in terms of
managing the operations of business in more significant manner.
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REFERENCES
Books and Journals:
Andrew Lennard (2007) Stewardship and the Objectives of Financial Statements: A Comment on
IASB's Preliminary Views on an Improved Conceptual Framework for Financial
Reporting:
Arjan Brouwer, Martin Hoogendoorn & Ewout Naarding (2015) Will the changes proposed to
the conceptual framework's definitions and recognition criteria provide a better basis for
IASB standard setting?, Accounting and Business Research, 45:5, 547-571, DOI:
10.1080/00014788.2015.1048769
Craig, R., Smieliauskas, W. and Armenic, J. 2017, ‘Estimation Uncertainty and the IASB's
Proposed Conceptual Framework’, Australian Accounting Review, 27 (1): 112–14.
Gordon, I. M., 2011. Lessons to be learned: An examination of Canadian and US financial
accounting and auditing textbooks for ethics/governance coverage. Journal of Business
Ethics. 101(1). pp.29-47.
Guthrie, J., Ricceri, F. and Dumay, J., 2012. Reflections and projections: a decade of intellectual
capital accounting research. The British Accounting Review. 44(2). pp.68-82.
Leauby, B. A., Szabat, K. A. and Maas, J. D., 2010. Concept mapping—An empirical study in
introductory financial accounting. Accounting Education: an international journal.
19(3). pp.279-300.
Lovell, H. and MacKenzie, D., 2011. Accounting for carbon: the role of accounting professional
organisations in governing climate change. Antipode. 43(3). pp.704-730.
May, G. O., 2013. Financial accounting. Read Books Ltd.
Rankin, M., Ferlauto, K., McGowan, S.C. and Stanton, P.A., 2012. Contemporary issues in
accounting. Milton, Australia: Wiley.
Richard Barker 2015 Conservatism, prudence and the IASB's conceptual framework,Accounting
and Business Research, 45:4. 514-538.
Scapens, R. W. and Bromwich, M., 2010. Management accounting research: 20 years on.
Sutton, Cordery, & Zijl (2015) Sutton, D. B. , Cordery, C. J. , & Zijl, T. (2015). The purpose of
financial reporting: The case for coherence in the conceptual framework and standards.
Abacus, 51(1), 116–141
The Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful
Financial Reporting Information, Accounting in Europe, 4:1, 51-66,DOI:
10.1080/17449480701308774
Van Deventer, D. R., Imai, K. and Mesler, M., 2013. Advanced financial risk management: tools
and techniques for integrated credit risk and interest rate risk management. John Wiley
& Sons.
Online
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Conceptual framework's purpose, 2018. [online]. Available
through:<https://www.iasplus.com/en/standards/other/framework>.
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