Contemporary Accounting Theory

This report discusses the conceptual framework for financial reporting and integrated/sustainability reporting. It explores the history and adoption of the conceptual framework, concerns raised by the accounting profession in Australia, and the advantages and limitations of the framework. The report also examines the financial statements and reporting practices of ARB Corporation Limited and Mr Price Group Limited. Additionally, it discusses the differences between sustainability reporting and integrated reporting frameworks and the benefits and limitations of traditional accounting in sustainability reporting.

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary Accounting Theory
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Executive Summary:........................................................................................................................2
Introduction:....................................................................................................................................3
Part A: Conceptual framework........................................................................................................3
Question (a):................................................................................................................................3
Question (b):................................................................................................................................4
Question (c):................................................................................................................................5
Question (d):................................................................................................................................6
Part B: Integrated/sustainability reporting:......................................................................................8
Question (a):................................................................................................................................8
Question (b):................................................................................................................................9
Question (c):..............................................................................................................................10
Question (d):..............................................................................................................................11
Question (e):..............................................................................................................................13
Conclusion:....................................................................................................................................14
References:....................................................................................................................................15

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Executive Summary:
The primary objective of the report is to represent the vital aspect of the conceptual
framework in relation to integrated or sustainability reporting and financial reporting in corporate
social reporting. It could be observed from the report findings that the implementation of
identical financial reporting guidelines has been the major cause behind the adoption of the
conceptual framework associated with financial reporting. The paper has expressed concern
regarding the accounting profession in Australia about the implementation of the new conceptual
framework of accounting and the factors having negative effect on the new conceptual
framework in relation to financial reporting. The current report has discussed different financial
and non-financial reporting practices associated with ARB Corporation Limited in Australia and
Mr Price Group Limited in South Africa.
Based on the report findings, it is needed to consider the similarities and variations
between integrated reporting in IIRC framework and sustainability reporting under GRI
framework. In addition, it has been found that the traditional accounting reports do not consider
the importance of non-financial business information, which is considered by both integrated
reporting and sustainability reporting. Finally, the report has revealed the requirement for the
organisations to take into account all indices of corporate social reporting in order to strike
balance between financial and non-financial information.

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Introduction:
The report consists of two parts; the first part is related to the conceptual framework for
financial reporting, while the second part is focused on integrated and sustainability reporting.
The parts provide critical discussion on the important aspects associated with the two topics. The
evaluation of the various parts associated with the conceptual framework of IASB for financial
reporting is the aim of the first segment of the report. After this, the assessment of the main
aspects related to sustainability reporting framework and integrated reporting framework is the
goal of the second segment of the report. The two selected organisations for meeting the purpose
of the report include ARB Corporation Limited in Australia and Mr Price Group Limited in
South Africa.
Part A: Conceptual framework
Question (a):
From the literature associated with the development and history of the financial reporting
conceptual framework, it has been stated by IASB that the presence of a uniform reason
contributed towards the conceptual framework implementation by the global entities. Due to this
reason, a single accounting standard set was the intention for assisting the global entities
(Adams, 2015). Besides such uniform reason, some history has been evident that led to the
adoption of the conceptual framework by nations such as USA, UK, Australia and others.
It needs to be noted that US witnessed significant economic downfall in 1932 and this
drove the nation to implement uniform accounting standards that could take into account all
needed economic as well as other aspects in the financial reporting process (Amran & Keat Ooi,

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2014). As a result, conceptual framework has been adopted in USA with the help of the US
Securities and Exchange Commission and the FASB. Before the conceptual framework has been
adopted in UK, it was in the favour to utilise rules-based accounting standard for financial
reporting purpose (Bebbington, Unerman & O’DWYER, 2014). However, since there have been
certain drawbacks in rules-based accounting standards, UK implemented the conceptual
framework of IASB for resorting to the principles-based accounting standards. For staying in line
with the international financial reporting standards of IASB, Australia implemented the
conceptual framework so that it could adhere to only one set of accounting standards for
financial reporting purpose (Bonilla-Priego et al., 2014).
Question (b):
There are certain concerns about the initiation and adoption of conceptual framework
shown by the accounting profession in Australia. The concerns are observed to possess valid
bases that are to be taken into account and they are depicted as follows:
The unfavourable effect on the implementation of conceptual framework in IASB on the
methods of realising and gauging assets and liabilities of the organisations is a significant
concern shown by the accounting profession in Australia. The entities have to bear
various negative outcomes owing to the change in measurement and realisation processes
of liabilities, assets, income and others. Various stakeholders such as shareholders,
investors and others might have to encounter the outcomes (Ceulemans, Molderez & Van
Liedekerke, 2015).
The significant rise in unpredictability throughout the fair value measurement of
economic components such as liabilities, assets and others could be adjudged as the other
significant issue, which has been raised by the accounting profession in Australia. Owing

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to the initiation and implementation of IASB conceptual framework, there might be rise
in lobbying from the impacted stakeholders in few crucial financial reporting areas like
the valuation of intangible assets of the organisations by using fair value and others (Cho
et al., 2015).
The accounting profession in Australia has increased the issue that the initiation and
enforcement of the conceptual framework of IASB, which could not impact non-profit
organisations owing to the variations in the recognition processes as well as valuation of
economic components. It is to be stated that the IASB conceptual framework has
developed primarily for the listed profit firms; however, it is the legal need of Australia to
have different accounting standards for the different sectors. This aspect could result in
severe effect on non-profit entities (Del Mar Alonso‐Almeida, Llach & Marimon, 2014).
Question (c):
The primary advantage obtained from the conceptual framework of IASB is the
presence of only group of accounting standards for the international entities, which is a major
aspect in order to harmonise financial reporting. It could be found that the researchers have
shown some significant concerns associated with various aspects, which could impact the
conceptual framework quality of IASB and such aspects could be deemed as the drawback of the
specific conceptual framework. These are represented as follows:
The enforcement and initiation of the conceptual framework of IASB has resulted in
main conflict with the accounting guidelines already available before the new standards
are introduced. When such conflicts are present, the standards could be taken into
account in the form of a critical matter impacting the quality of conceptual framework in
relation to financial reporting (Del Mar Alonso-Almeida et al., 2015).

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The presence of main rigidity in the conceptual framework of IASB could be taken into
account as another main limitation impacting the quality of new standards. When the
conceptual framework is rigid, it could be deemed as another significant drawback, which
is influencing the quality of new standards. When such rigidity is present in the
conceptual framework, the standard-setters would not be able to incorporate accounting
ideas or new standards in the conceptual framework. Such aspect is developing
conceptual framework quality for the IASB financial reporting (Dienes, Sassen &
Fischer, 2016).
Another critical aspect that needs to be stated that the initiation and enforcement process
of the conceptual framework is an expensive process consuming significant amount of
time. This is an unfavourable aspect for the conceptual framework quality, since wrong
adoption could hamper the process of financial reporting (Ehnert et al., 2016).
It could be observed that the conceptual framework is not entirely acceptable by all
parties or stakeholders. When this aspect is present, the entire benefits could not be
obtained from the conceptual framework of IASB and this could be deemed as a
significant aspect having unfavourable effect on the conceptual framework quality
(Fonseca, McAllister & Fitzpatrick, 2014).
Question (d):
i) From the annual report of ARB Corporation Limited in 2018, the entity has disclosed certain
financial statements, which are stated as follows:
Income statement
Comprehensive income statement
Statement of financial position

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Cash flow statement
Statement of changes in equity
As mentioned in the notes to the financial statements, ARB Corporation Limited has
adhered to the Australian accounting standards as well as IFRS that IASB has issued in order to
prepare and present the financial statements (Arb.com.au, 2019). The above statements contain
some main components such as income, expenses, assets, liabilities and equity.
ii) The below-stated explanation reveals the realisation of assets, revenue and liabilities of ARB
Corporation Limited by the organisation.
Revenue:
From Note 1 (d) of the financial statements in 2018 annual report of ARB Australia
Limited, revenue is realised by the organisation to the degree when there is chance for the
organisation to obtain future economic benefits that could be gauged with reliability. Accrual
accounting basis is used by the organisation for revenue recognition based on the terms of
contract. In addition, the organisation realises revenue from the sale of goods at the time there is
transfer of significant risks and rewards to the buyers (Arb.com.au, 2019).
Assets:
From the annual report of ARB Australia Limited in 2018, it could be seen that the entity
has some significant assets. For freehold land and buildings, they are stated at cost after the
deduction of accumulated depreciation and accumulated impairment losses. After this, the entity
has designated its listed and unlisted investments in the form of assets and they are realised at
fair value in the income statement. Finally, for measuring inventories, cost or net realisable value
is used, whichever is lower (Arb.com.au, 2019).

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Liabilities:
Along with this, ARB Corporation Limited is deemed to have major significant liabilities.
The payables are carried at amortised costs and no discounting is made owing to their short-term
nature. Besides, interest-bearing liabilities are disclosed by the firm at fair amounts of the
obtained consideration after transaction costs attributable directly are deducted (Arb.com.au,
2019).
iii) It is a crucial fact to state that financial information has five qualitative features constituting
of faithful representation, relevance, understandability, comparability, verifiability and timeliness
(Arb.com.au, 2019). According to the annual report of ARB Corporation Limited in 2018, the
organisation has disclosed all crucial information regarding income, expenses, liabilities and
equity by conforming to the pertinent accounting standards. This assures the characteristics of
faithful representation and relevance (Hahn & Lülfs, 2014). For assuring understandability and
verifiability, the organisation has reported its financial footnotes in the annual report and it has
made timely disclosure as well as publication of financial information of its business. Finally, for
assuring that comparability characteristic is present, ARB Corporation Limited has provided
information of two years in its financial statements for better comparison (Arb.com.au, 2019).
Part B: Integrated/sustainability reporting:
Question (a):
In the current era, the considerable inception of sustainability framework for reporting
within GRI and integrated framework for reporting under the IIRC could be witnessed for
corporate social responsibility reporting along with disclosing financial information of the

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entities. However, it has to be cited that the corporate social reporting frameworks have various
differences and they are evaluated as follows:
Sustainability reporting is a method of communication approach of an entity so that
significant environmental and social issues could be managed accordingly. The framework
provides details regarding public communication of undertaken strategies and processes of the
entities to assess environmental and social issues important to them, which are termed as
material issues (Sustainability Reporting, 2019). The framework provides disclosure regarding
the ways through which issues are addressed by the firms and their performance against the
issues. The framework is developed by following the guidelines mentioned in GRI (Herremans,
Nazari & Mahmoudian, 2016).
Integrated reporting is an additional step beyond sustainability reporting, since the
framework provides communication regarding the efficiency of an entity in managing its long-
term value by implementing an integrated approach towards sustainability and conventional risks
(Integrated Reporting, 2019). Instead of disclosure of separate presentation of sustainability and
financial performance, the primary objective of the framework is to represent the way the entities
are integrating environmental and social thinking into their business activities. Six-capital
concept is considered by integrated reporting framework for sustainability reporting, which
include social, manufacturing, intellectual, natural and relationship for addressing broad
environmental and social issues (Higgins & Larrinaga, 2014).
Question (b):
Conventional accounting has certain benefits and limitations under sustainability
reporting. The increased overview of opportunity and risks from considering financial as well as
non-financial aspects could be deemed as a significant benefit of the traditional accounting

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system. Under sustainability reporting, with the help of this system, the stakeholders could have
an idea of knowing the strategies of the entities for considering business effects. However, it
could mislead the outside stakeholders owing to the main emphasis placed on reporting internal
information of the organisations (Hughen, Lulseged & Upton, 2014).
Traditional accounting injects integrated thinking within the entire accounting system
resulting in providing transparency and clarity on performance and issues of the organisations.
As a result, there would be enhanced profit margin of the business entity by delivering
information on financial performance as well as non-financial performance of the entities
(Junior, Best & Cotter, 2014).
Question (c):
It is possible to apply certain theories for describing sustainability reporting and
integrated reporting concepts and they are represented as follows:
Sustainability reporting:
Stakeholder theory and legitimacy theory are deemed to have relevance with
sustainability reporting. According to the legitimacy theory concept, the entities use to report
information on social and environmental performance mandatorily, which is essential for
maintaining sustenance within the society. Stakeholder theory requires the management of an
entity to consider stakeholder interest equally rather than focusing only on the shareholders. By
considering the perspectives of the above two theories, it could be cited that the entities provide
financial and non-financial information to each stakeholder group so that they could assure
legitimate survival within the societies. Thus, it is deemed to be vital aspect from the business
perspective (Kozlowski, Searcy & Bardecki, 2015).

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Integrated reporting:
For integrated reporting, the applicable theories include agency theory and stakeholder
theory. The agency theory cites the management of an entity to be the shareholders’ agent and it
is obliged to increase the value of the shareholders. Based on the above two theories, the reason
behind the generation of integrated reporting is to fulfil the requirements of different stakeholder
groups so that information could be generated on sustainability-related performance of the
entities (Siew, 2015).
Question (d):
Serial Number Indices Overview
1 Integrated reporting responsibility Individual opinion related to
governance
2 Strategic focus and future orientation Business strategy information
3 Stakeholder association Business engagement information
with the stakeholders
4 Materiality Material issue information
5 Business overview and outside
environment
Business operations and area of
operation of the concerned business
6 Governance Governance structure information
7 Model of the business Business model information
8 Risks and opportunities Risk and opportunity in terms of

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creating value
9 Performance Financial and non-financial
information
10 Basis of preparation and presentation Basis of determination of matters to
be incorporated within the report
Table 1: Integrated reporting index
(Source: Integrated Reporting 2019)
Discussion on Mr Price Group Limited:
It could be identified that Mr Price Group Limited has provided its integrated business
report in 2018 by adhering to the IIRC. Such integrated report constitutes of responsibility
statement from individuals looking after governance like the Chairperson, Finance Director and
Chief Executive Officer of the entity (Mrpricegroup.com, 2019). In addition, the entity has
provided detailed information regarding its business practices under the strategy section within
the integrated report of the concern. Followed by strategy, Mr Price Group Limited has provided
its association with the stakeholders with the help of involvement platforms. In addition,
adequate material-related issues could be obtained by the entity regarding the ways through
which such issues are chosen along with associated capital and the stakeholders with the issues.
The entity has undertaken its business model disclosure comprising of key partnerships
and resources, strategic trend influencing business model, increased material risks, value chain
and influence on capitals. Besides, detailed analysis of business risks and opportunities has been

13CONTEMPORARY ACCOUNTING THEORY
provided by the entity in its integrated report including probability of risk occurrence and overall
exposure of the firm towards the risks. Finally, region-wide reporting is made by Mr Price Group
Limited compared to the strategic targets. Therefore, it could be said that Mr Price Group
Limited has provided the necessary information by adhering to the index.
Question (e):
From the sections of “Investors” and “Sustainability” of ARB Corporation Limited, no
evidence is found that it prepares integrated report. Moreover, the firm does not prepare any
separate report for corporate social responsibility disclosures. Instead, it has a section named
“Sustainability” in its annual report, in which information was provided by the entity regarding
its initiatives related to sustainability and corporate social responsibility (ARB 4x4 Accessories,
2019).
From the 2018 annual report of ARB Corporation Limited, it could be stated that the
organisation has provided only few pages on sustainability reporting, while the major sections of
the report provide financial information to the users. By comparing the corporate social
responsibility reporting of ARB Corporation Limited with the above index, there is presence of
essential information. Some of the main aspects comprise of risk management, stakeholder
involvement, material issues, business strategy and others. However, when it is contrasted with
that of Mr Price Group Limited, it could be observed that corporate social responsibility
reporting of Mr Price Group Limited is better than ARB Corporation Limited, as the former has
implemented integrating reporting framework within the organisation (Stacchezzini, Melloni &
Lai, 2016). Significant emphasis has been placed on providing financial disclosures by ARB
Corporation Limited in its annual report. On the other hand, adequate balance has been

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maintained by Mr Price Group Limited by disclosing financial and non-financial information
required for sound financial and corporate social reporting.
Conclusion:
From the above discussion, it could be seen that the primary advantage obtained from the
conceptual framework of IASB is the presence of only group of accounting standards for the
international entities, which is a major aspect in order to harmonise financial reporting. ARB
Corporation Limited has adhered to the Australian accounting standards as well as IFRS that
IASB has issued in order to prepare and present the financial statements. Mr Price Group
Limited has provided its integrated business report in 2018 by adhering to the IIRC. Such
integrated report constitutes of responsibility statement from individuals looking after
governance like the Chairperson, Finance Director and Chief Executive Officer of the entity.
Finally, it has been analysed that corporate social responsibility reporting of Mr Price Group
Limited is better than ARB Corporation Limited, as the former has implemented integrating
reporting framework within the organisation.

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16CONTEMPORARY ACCOUNTING THEORY
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