Contemporary Accounting Theory

This report provides a critical overview of contemporary accounting theory, focusing on integrated/sustainability reporting and conceptual framework. It discusses the differences between integrated reporting and sustainability reporting and analyzes the financial statements and reporting practices of two organizations. The report also explores the benefits and drawbacks of traditional accounting within the integrated reporting framework.

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary Accounting Theory
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1CONTEMPORARY ACCOUNTING THEORY
Table of Contents
Executive Summary:..................................................................................................................2
Introduction:...............................................................................................................................3
Part A: Conceptual framework...................................................................................................3
Requirement (a):.....................................................................................................................3
Requirement (b):....................................................................................................................4
Requirement (c):.....................................................................................................................5
Requirement (d):....................................................................................................................5
Part B: Integrated/sustainability reporting.................................................................................7
Requirement (a):.....................................................................................................................7
Requirement (b):....................................................................................................................8
Requirement (c):.....................................................................................................................9
Requirement (d):..................................................................................................................10
Requirement (e):...................................................................................................................11
Conclusion:..............................................................................................................................12
References:...............................................................................................................................14

2CONTEMPORARY ACCOUNTING THEORY
Executive Summary:
The current report entails critical overview of the two necessary aspects related to
contemporary accounting, which include integrated or sustainability reporting and conceptual
framework. It could be observed from the integrated report of Exxaro Resources Limited in
2018 that the organisation has disclosed information on sustainability reporting in its different
pages of the integrated report. This report is prepared only for providing non-financial
information to the stakeholders of the organisation. Moreover, it has disclosed its financial
information separately by publishing other financial statements. By comparing the corporate
social responsibility reporting of Exxaro Resources Limited with the index above, it could be
witnessed that the organisation has disclosed different vital information and other aspects.
Some significant aspects include material issues, business strategy, risk management,
stakeholder involvement and others.
Exxaro Resources Limited has implemented the doctrines of the new conceptual
framework for financial reporting purpose. Certain major differences could be found between
integrated reporting framework and sustainability reporting framework; however, the
common objective is the overall sustainability-related development of the organisations.
Moreover, Exxaro Resources has adopted sound reporting framework for corporate social
reporting, while Sensex Energy limited is observed to place more emphasis on financial
aspects. Hence, in terms of comparison, integrated reporting is followed better by Exxaro
Resources Limited than Sensex Energy Limited.

3CONTEMPORARY ACCOUNTING THEORY
Introduction:
The current report entails critical overview of the two necessary aspects related to
contemporary accounting, which include integrated or sustainability reporting and conceptual
framework. The report is segregated into two sections. The objective of the first section is to
emphasise on the different aspects of the conceptual framework in relation to financial
reporting. The second part of the report analyses the significant accounting frameworks,
which include sustainability reporting in accordance with the GRI Framework as well as
Integrated Reporting under IIRC. The chosen two organisations are Sensex Energy Limited
from Australia and Exxaro Resources Limited from South Africa.
Part A: Conceptual framework
Requirement (a):
There has been long historical background associated with the nations such as
Australia, UK and others towards the adoption of the conceptual framework in relation to
financial reporting in accordance with IASB (Adams, 2017). In USA, the investors lost their
confidence after the occurrence of the economic downturn in 1934 and therefore, the
government adopted measures to boost the financial accounting practices by implementing a
single conceptual framework. As a result, the concerned authority provided responsibility to
FASB so that conceptual framework for financial reporting could be developed accordingly
(Adams, 2015).
In Australia, the reason has been different for developing conceptual framework of
financial reporting in accordance with AASB. The reason was the decision of the respective
authority to ensure global competition, which mandated the requirement of adopting the

4CONTEMPORARY ACCOUNTING THEORY
conceptual framework for financial reporting, as per IASB (Bebbington, Unerman &
O’Dwyer, 2014).
Before the conceptual framework has been developed in UK, the rules-based
accounting standards were prevalent in the nation and the same did not bear resemblance to
the global accounting standards. Due to this reason, the decision was undertaken by the UK
authority to shift to principle-based accounting standards by implementing the IASB
conceptual framework for financial reporting (Brown & Dillard, 2014).
For the other global nations, the primary reason that worked significantly for them to
adopt the IASB conceptual framework for financial reporting was to ensure coordination
among the global accounting standards. The primary benefit to be obtained from the
conceptual framework for financial reporting of IASB is that it offers the global nations with
identical accounting standards for financial reporting purpose (Cheng et al., 2014).
Requirement (b):
Some concerns have been raised by the Australian accounting profession towards the
IASB conceptual framework in relation to financial reporting. Out of them, one concern is the
rise in volatility in fair value accounting owing to the rise in lobbying from the initiation of
the new conceptual framework in relation to financial reporting (Churet & Eccles, 2014).
Such volatility has adverse impact on the valuation of financial instruments, intangible assets
and others. Along with this, the measurement, recognition and disclosure procedures of
liabilities and assets have been affected significantly by the conceptual framework of IASB.
This is because the same has occurred with some significant changes in the procedures and
the stakeholders of the organisations have to encounter the economic ramifications of such
changes (De Villiers, Rinaldi & Unerman, 2014).

5CONTEMPORARY ACCOUNTING THEORY
After this, the conceptual framework of IASB has significant effect on non-profit
organisations operating in Australia. In majority of the cases, the profit-earning listed
organisations have adopted the conceptual framework. Since it is the regulatory requirement
of Australia for formulating accounting doctrines for each sector, there would be considerable
effect on the non-profit organisations owing to the enforcement of the conceptual framework
of IASB (Dumay et al., 2016).
Requirement (c):
From the academic perspective, offering a class of accounting standards and
principles is the significant advantage of the conceptual framework. However, concepts have
been expressed regarding the conceptual framework quality owing to some significant
drawbacks (Flower, 2015). Time and need for huge investment are the significant drawbacks
of the conceptual framework, as they pose considerable difficulties to the developing nations
for adopting the same. After this, the conceptual framework quality is impacted in the
presence of significant strictness in the standards, in which it is not possible to incorporate
new accounting ideas and concepts in the current framework of accounting.
In addition, the conceptual framework quality is faceted when there is significant
clash of accounting guidelines with the already existing ones (Clayton, Rogerson & Rampedi,
2015). It is noteworthy to state the aspects that the new IASB conceptual framework has not
obtained entire acceptance from all parties and thus, the quality of conceptual framework is
not affected significantly. Hence, it could be witnessed that there are some significant causes
having impact on the conceptual framework quality and AASB has to take into consideration
these aspects (Frias‐Aceituno, Rodríguez‐Ariza & Garcia‐Sánchez, 2014).

6CONTEMPORARY ACCOUNTING THEORY
Requirement (d):
I. After analysing the annual report of Sensex Energy Limited in 2018, it has been found that
the organisation has prepared four financial statements. They include consolidated income
statement of comprehensive income, consolidated statement of financial position,
consolidated statement of cash flows and consolidated statement in changes in equity. The
organisation has disclosed financial footnote that it has followed the conceptual framework of
IFRS and AASB that IASB has issued in order to prepare the financial statements. In
accordance with the financial statements, the significant elements include income, assets,
expenses, liabilities and expenses (Senexenergy.com.au, 2019).
II. Based on the latest annual report of Sensex Energy Limited, the organisation has
conducted measurement and recognition of revenue at fair value of consideration received or
receivable to the degree that there is chance that the organisation would gain the future
economic advantages.
For assets, trade receivables with a term of 30-60 days are realised and they are
carried at the actual amount of invoice minus any allowance. The valuation of inventory is
made at lower of net realisable value or cost. Property, plant and equipment are stated at
historical cost minus accumulated depreciation and accumulated impairment losses. The
recognition of goodwill is gauged initially at cost, which is the excess of fair values of
assumed liabilities and identified assets. The other intangibles are realised at fair value in the
initial stage, after which they are carried at cost minus accumulated impairment losses and
accumulated amortisation.
For liabilities, amortised cost is used for carrying trade payables. Fair value is used for
initial recognition of interest-bearing liabilities. Sensex Energy Limited is involved in
categorising its leases into operating lease and finance lease depending on the agreements of

7CONTEMPORARY ACCOUNTING THEORY
lease. The provisions are realised by the organisation when there is any obligation arising out
of the past event.
III. In accordance with the annual report of Sensex Energy Limited in 2018, the organisation
has disclosed the most pertinent information associated with its liabilities, assets, expenses,
income and equity in the financial reports as well as notes to the financial statements.
Moreover, the needed accounting standards have been adopted by the organisation in order to
assure faithful representation of such information (Higgins, Stubbs & Love, 2014). Since
Sensex Energy Limited has offered information for two financial periods, the disclosed
financial information could be compared effectively. The presence of notes raises the
understandability and verifiability of the financial statement users and such information is
provided timely. All such aspects denote towards the fact that all qualitative features of
information are highlighted in the financial reports of Sensex Energy Limited
(Senexenergy.com.au, 2019).
Part B: Integrated/sustainability reporting
Requirement (a):
The integrated reporting framework of IIRC as well as the sustainability reporting
principles of GRI has one common goal, which is to assure environmental and social
development. However, these two reporting frameworks are observed to have differences in
procedures. The GRI sustainability reporting makes sound communication of approaches
undertaken by the organisations for minimisation of negative effects of its business activities
on the community, environment and society (Kerr, Rouse & De Villiers, 2015). On the other
hand, it could be observed that integrated reporting results in reporting financial as well as
non-financial information of the organisations with the intention of developing higher value
for the shareholders in future (Integratedreporting.org 2019). Therefore, the integrated reports

8CONTEMPORARY ACCOUNTING THEORY
assist in providing financial and non-financial performance of the organisations to the
investors. On the contrary, sustainability reporting assists in highlighting the relationship
between sustainability-related commitments of the organisation with their implemented
sustainability policies.
The above discussion denotes the primary differences between integrated reporting
and sustainability reporting. In this regard, it is noteworthy to cite that the sustainability
reporting framework plays a pivotal role to present the adopted policies of the business
organisations for reduction of different community, social and environment-related issues
(Serafeim, 2015). On the other hand, integrated reporting conducts the similar function in an
advanced way. The integrated reporting framework assists in representing the processes
where the organisations develop long-term values for the stakeholders by communicating
information on financial and non-financial performance (Sierra‐García, Zorio‐Grima &
García‐Benau, 2015). Due to this reason, six-capital concept has been used by integrated
reporting for considering both financial and non-financial performance aspects. Therefore,
significant differences between the two frameworks have to be taken into account.
Requirement (b):
Conventional accounting is subject to a number of benefits and drawbacks in
accordance with sustainability reporting. There might be increased insight of the
opportunities and risks from the consideration of financial and non-financial aspects, which is
a significant benefit of the traditional accounting system. In accordance with sustainability
reporting under the system of accounting, the stakeholders could have an insight of the
strategies of the organisations for taking into account the business effects (Simnett &
Huggins, 2015). At the time of taking into account the limitations, it could be witnessed that
traditional accounting within the framework has the chance of misleading the external

9CONTEMPORARY ACCOUNTING THEORY
stakeholders because of the significant emphasis that sustainability reporting has placed in
reporting internal performance information of the organisations.
The benefits and drawbacks could be observed in conventional accounting within the
integrated reporting framework. It is noteworthy to state that traditional accounting within
integrated reporting incorporates integrated thinking in the entire system of accounting,
which results in providing transparency and clarity on performance and issues of the
organisations (Stacchezzini, Melloni & Lai, 2016). As a result, there would be enhanced
profitability of the business organisations by providing information on financial as well as
non-financial performance of the organisations. When taking into account the limitations, it
has to be stated that the organisations are required altering the method of accumulating
financial and non-financial data after the silos are broken down. Moreover, the accountants
within the traditional accounting system encounter significant issues for defining the
performance measure owing to the consideration of financial as well as non-financial
performance of the organisations (Stent & Dowler, 2015).
Requirement (c):
There could be application of some theories to describe the concepts of both
sustainability reporting and integrated reporting.
Integrated reporting:
In order to analyse the integrated reporting concept, there could be the application of
agency theory as well as stakeholder theory. According to the stakeholder theory, the
management of an organisation has to consider the interest of each stakeholder equally,
instead of the shareholders. Agency theory denotes that the management of an organisation is
the agent of the shareholders and its responsibility includes maximisation of the wealth of the
shareholders. According to the theories, the main reason behind the involvement of integrated

10CONTEMPORARY ACCOUNTING THEORY
reporting is to fulfil the requirements of the shareholders as well as other stakeholders for
gaining information on sustainability performance of the organisations (Stubbs & Higgins,
2014).
Sustainability reporting:
For sustainability reporting, there could be application of two theories, which
comprise of stakeholder theory and legitimacy theory. The legitimacy theory concept cites
that the organisations are involved in disclosing social and environmental performance
compulsorily for maintaining societal sustainability. Based on the above two theoretical
concepts, it could be cited that the business organisations report both financial and non-
financial performance information to all stakeholders with the intent of assuring valid
survival within the societies. This is deemed to be a vital aspect to be taken into consideration
by the business organisations (Stubbs & Higgins, 2014).
Requirement (d):
Integrated Reporting Index
Responsibility: Statement from individuals responsible for governance
Strategic concentration: Insights of the strategies
Relationship with the stakeholders: Involvement with the stakeholders
Materiality: Overview of matters impacting the ability of the value creation
Governance: Information related to governance structure
External and organisational review: The activities of the organisation and its position
Risk and opportunity: Opportunities and risks engaged in the process of value creation
Business model: Information related to the business model already implemented
Preparation basis and presentation: Basis through which there is ascertainment of material
issues

11CONTEMPORARY ACCOUNTING THEORY
Performance: Information related to the fulfilment of strategic goals
Table 1: Integrated reporting index
(Source: Integratedreporting.org 2019)
Information disclosure of Exxaro Resources Limited:
It could be observed that Exxaro Resources Limited has disclosed its integrated
business report in 2018 by maintaining adherence to the IIRC. The integrated report takes
into account the responsibility statement from the individuals responsible for governance.
These individuals constitute of Chief Executive Officer, Chairman and Finance Director of
the organisation (Exxaro.com, 2019). After this, the organisation has provided a detailed
overview of its strategies in the strategy section. Besides, adequate disclosure has been made
regarding stakeholder relationship through disclosure of the engagement platforms. Under the
“Material Issues” section, pertinent information regarding the material issues coupled with
the method of choosing those issues has been reported and the section includes related capital
and stakeholders with such issues (Atkins & Maroun, 2015). The organisation has disclosed
its business model comprising of main relationships and resources, strategic movement
affecting the business model, value chain, high material risks and effect on capital.
After this, Exxaro Resources Limited has undertaken sound disclosure of business
opportunities and risks that constitute of a probability table coupled with providing details of
the significant risk exposures of the organisation. It has provided region-wide disclosure of
performance compared to its strategic goals. Thus, it could be stated that Exxaro Resources
Limited has published all pertinent information in accordance with the index.

12CONTEMPORARY ACCOUNTING THEORY
Requirement (e):
From the official website of Exxaro Resources Limited, it could be seen that the
organisation is involved in preparing integrated reports that cover sustainability social
reporting as well. The integrated report covers detailed overview of the corporate social
responsibility as well as sustainability initiatives of the organisation.
It could be observed from the integrated report of Exxaro Resources Limited in 2018
that the organisation has disclosed information on sustainability reporting in its different
pages of the integrated report. This report is prepared only for providing non-financial
information to the stakeholders of the organisation. Moreover, it has disclosed its financial
information separately by publishing other financial statements. By comparing the corporate
social responsibility reporting of Exxaro Resources Limited with the index above, it could be
witnessed that the organisation has disclosed different vital information and other aspects.
Some significant aspects include material issues, business strategy, risk management,
stakeholder involvement and others (Exxaro.com, 2019).
However, when contrasting the corporate social reporting of Exxaro Resources
Limited with Sensex Energy Limited, it could be observed that both organisations are
efficient, since they have adopted the integrated reporting framework. On the other hand, it
could be stated that Exxaro Resources Limited has placed adequate emphasis on non-
financial information, which is observed to be missing in case of Sensex Energy Limited.
Thus, Exxaro Resources Limited has maintained adequate balance when it comes to reporting
both financial and non-financial information, which is compulsory under sound financial and
corporate social reporting.

13CONTEMPORARY ACCOUNTING THEORY
Conclusion:
Based on the above discussion, it could be stated that Exxaro Resources Limited has
implemented the doctrines of the new conceptual framework for financial reporting purpose.
Certain major differences could be found between integrated reporting framework and
sustainability reporting framework; however, the common objective is the overall
sustainability-related development of the organisations. Moreover, Exxaro Resources has
adopted sound reporting framework for corporate social reporting, while Sensex Energy
limited is observed to place more emphasis on financial aspects. Hence, in terms of
comparison, integrated reporting is followed better by Exxaro Resources Limited than Sensex
Energy Limited.
It could be observed that Exxaro Resources Limited has disclosed its integrated
business report in 2018 by maintaining adherence to the IIRC. The integrated report takes
into account the responsibility statement from the individuals responsible for governance.
These individuals constitute of Chief Executive Officer, Chairman and Finance Director of
the organisation. When contrasting the corporate social reporting of Exxaro Resources
Limited with Sensex Energy Limited, it could be observed that both organisations are
efficient, since they have adopted the integrated reporting framework. On the other hand, it
could be stated that Exxaro Resources Limited has placed adequate emphasis on non-
financial information, which is observed to be missing in case of Sensex Energy Limited.
Thus, Exxaro Resources Limited has maintained adequate balance when it comes to reporting
both financial and non-financial information, which is compulsory under sound financial and
corporate social reporting.

14CONTEMPORARY ACCOUNTING THEORY
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15CONTEMPORARY ACCOUNTING THEORY
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16CONTEMPORARY ACCOUNTING THEORY
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