BAC304 Advanced Accounting Theory

1BAC304 Advanced Accounting Theory
Running head: BAC304 ADVANCED ACCOUNTING THEORY
Advanced Accounting Theory
Author’s Name
Institutional Affiliation
Author’s Note:
[Personal Family Name] [Assignment 2018S2]

2BAC304 ADVANCED ACCOUNTING THEORY
Table of Contents
Part 1: Internal Audience Directors’ Brief.......................................................................................3
Case Overview.............................................................................................................................3
The Context of Change................................................................................................................4
Arguments For.............................................................................................................................5
Arguments Against......................................................................................................................7
Arguments Against......................................................................................................................7
Part 2: IASB Audience Exposure Draft Submission.......................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................12
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3BAC304 ADVANCED ACCOUNTING THEORY
Advanced Accounting Theory
Part 1: Internal Audience Directors’ Brief
Case Overview
The conceptual framework (CF) made for the purpose of financial reporting has been
revised as well as improved time and again in the past years. However, from the general
understanding, CF is particularly formulated to outline the fundamental concepts related to the
financial reporting of the firms on the basis of international standards. It also guides the Boards
of firms to develop appropriate International Financial Reporting Standards (IFRS). Moreover,
the main goal is to ensure that the standards are to be consistent conceptually so that useful
information relating to the firms can be accessed by the external parties such as lenders,
investors, and creditors (IFRS, 2017). This has been evident even in the scenario that CF is an
important consideration. In addition, it has also been observed that ‘prudence’ is the oldest and a
well-known concept within the domain of financial accounting in the IFRS. The term ‘prudence’,
which is also known as conservatism is defined as differential verifiability, which is required for
profit recognition when it is compared to losses. This implies that prudence has been playing a
significant role but in 2010, International Accounting Standards Board (IASB) removed
references to this concept such as definitions stating that it conflicted with the objectives of
unbiased representation and neutrality (Măciucă, Hlaciuc, & Ursache, 2015).
In this context, there has been a debate among the members of the Board of Directors of
Big Phore Partners, especially the Executive Director of Audit and Executive Director of
Corporate Advisory. Both the person had their own opinions relating to the inclusion/exclusion
of the concept of prudence. In this context, the Executive Director of Audit stated that
cautiousness/prudence is the main foundation stone of financial reporting. On the other hand, the
[Personal Family Name] [Assignment 2018S2]

4BAC304 ADVANCED ACCOUNTING THEORY
Executive Director of Corporate Advisory stated that rather than prudence, providing correct
information to the stakeholders such as investors is highly essential for making appropriate
decisions. As a result of these arguments, the Executive Chairman decided to have an internal
debate for settling the conflicts of opinions. Furthermore, it has been decided by the company to
send a formal submission with respect to the outcome of this debate to the IASB through a letter.
Hence, it can be taken into consideration for the betterment of the standards along with the
companies complying with it.
The Context of Change
Understanding the aforementioned case overview, the background of the proposed
change is further outlined in a brief manner. The difference in the opinions among the members
of the board raised a serious issue with respect to the re-inclusion of ‘prudence’ in the new CF.
In this context, a serious as well as a heated debate has occurred in the organization, which must
be solved immediately. One of the members stated that it is imperative to provide precise
information to the investors so that they can be able to take decisions accordingly. Another
member argued that prudence is more important, especially when it comes to preparing financial
reports. After the conversation of both the board members, Executive Chair Dr. Coopers decided
to solve the underlying issue with the support an internal debate and the result of which will be
submitted to the IASB. This can help in ensuring that future considerations will be taken into the
account while developing the standards of the new CF. In brief, this was the context of change
i.e. the re-inclusion of prudence that may or may not is considered in the new CF. Hence, this
changing context has been evident in the comprehensive Exposure Draft (ED) published by
IASB.
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