Contemporary Accounting Theory

This report discusses the history and development of the Conceptual Framework for Financial Reporting and the concerns and benefits associated with its use. It also explores how Clearview Wealth Limited (CVW) applies the conceptual framework in their financial statements. Additionally, the report compares sustainability reporting guidelines and the International Integrated Reporting Framework.

Running Head: Contemporary Accounting Theory 1
Contemporary Accounting Theory
Name
Institution
Date

Contemporary Accounting Theory 2
Executive Summary
A number of bodies such as IASB and AASB and countries such as U.K, Australia, and United
States have utilized conceptual frameworks whilst formulating accounting standards. As such,
majority of the public firms have been in position to develop reliable and accurate financial
reports due to the use of conceptual frameworks for financial reporting. In spite of their benefits,
conceptual frameworks are also associated with some limitations which have given rise to
concerns among accounting professionals and academicians. On the contrary, many public firms
like CVW and RMI are also utilizing sustainability and integrated reporting practices to attract
potential investors as a way of meeting their long term survival goals. Most importantly, the
information depicted in sustainability and integrated reports are helpful in facilitating
comparisons between two or more companies.

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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Part A: Conceptual framework........................................................................................................3
a) Review of the history and development of the Conceptual Framework for Financial
Reporting......................................................................................................................................3
b) Explanation of Australian accounting profession’s concerns regarding the Conceptual
Framework...................................................................................................................................6
c) Discussion of academics’ concerns about the quality (potential benefits and limitations) of
the Conceptual Framework..........................................................................................................7
d) Explanation of how the conceptual framework has been applied by Clearview Wealth
Limited (CVW.............................................................................................................................8
Part B: Integrated/sustainability reporting.......................................................................................9
a) Comparison of Sustainability Reporting Guidelines and International Integrated Reporting
Framework...................................................................................................................................9
b) Rigor of the conventional accounting, based upon the Conceptual Framework for contents
of sustainability as well as integrated reports............................................................................10
c) Applicability of the theories to explain contents of sustainability as well as integrated
reports.........................................................................................................................................11
d) A table of various components of an integrated report and discussion of whether...............12
Conclusion.....................................................................................................................................14
References......................................................................................................................................16

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Introduction
Conceptual framework is simply an analytical tool that is made up of variations and contexts
which are utilized to depict a meaning about a given phenomenon. It serves a major role of
combining ideas and making conceptual distinctions in a manner that improves application of a
real situation. A conceptual framework is used in financial reporting, social sciences as well as
marketing (Iasplus.com, 2019). This report will focus on the use of conceptual framework in
financial reporting. In regards to financial reporting, a conceptual framework can be considered
to be a pivotal tool that aids in defining concepts that are generally used to in improving all
procedures involved in financial reporting (Annand, 2010). In addition, this report will involve
conducting research about various elements that are used in external reporting practices by
corporate companies. As such, secondary resources such as textbooks, websites, sustainability
reports, integrated reports, journals as well as annual reports of companies under considerations
will be utilized to collect data for this report. Data analysis will be undertaken using a qualitative
approach so as to depict reliable deductions about the use of conceptual frameworks in financial
reporting. In order to widen understanding of the users about the study, the report will be
presented in two parts that is Part A and Part B as discussed below.
Part A: Conceptual framework
a) Review of the history and development of the Conceptual Framework for Financial
Reporting
Historically, none of the public or private firms in United States was associated with the
function of formulating accounting standards prior to the crash of the stock market in 1929. It
was in 1934 that Securities and Exchange Commission (SEC) gained an opportunity to assess
and evaluate the public firms after the crash of the market stock under Securities and Exchange

Contemporary Accounting Theory 5
Act. In the due course, the Financial Accounting Standards Board (FASB) was created by SEC
to take over the responsibility of developing standards of accounting for all public firms in
United States (Skousen, 2010). Most importantly, the incorporation of conceptual framework in
financial reporting practices within United States was started in 1973. The framework provided
theoretical foundations that standards on accounting were based on to shape financial reporting
practices of public firms. As such, many concept statements were formulated by FASB to define
the conceptual framework and its usage in financial reporting practices of public firms.
Qualitative traits of financial information and how information on cash flows was used were
some of the concept statements that were formulated by FASB to define the conceptual
framework (Patricia and Nandhini, 2013). Therefore, Generally Acceptable Accounting
Principles (GAAP) was formed from the incorporation of the conceptual framework in the
financial reporting of public firms in United States.
On the other hand, United Kingdom undertook the initiative to create its own concept
framework to shape the accounting practices of its public firms in 1999. As such, Statement of
Principles were formed from the creation of the conceptual framework in U.K that defined the
kind of procedures that public firms were required to follow whilst engaging in financial
reporting (Courses.lumenlearning.com, 2019). Statement of Principles was viewed as an
accounting standard which was to prevent U.K from lagging behind as far as usage of conceptual
framework in financial reporting is concerned. Most significantly, U.K created its conceptual
framework basing on the conceptual frameworks that had been issued in United States and New
Zealand that had enabled these two nations to achieve globalization (David and Alisdair, 2011).
Therefore, creation of conceptual framework in U.K lead to formation of Statement of Principles
as standards for shaping financial reporting practices of listed firms in the nation.

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In regards to Australia, concept framework was viewed as a tool that was made up of
various concepts about statements of accounting like information on elements of financial
statements. These statements offered relevant information about the nature and purpose of
implementing conceptual frameworks in financial reporting among Australia's public firms
(Ifrs.org, 2018). Most significantly, conceptual framework was created in 2004 by Australian
Accounting Standards Board (AASB) to shape and improve financial reporting practices of
Australia's public firms. Also, creation of conceptual framework was aimed at easing
interpretation and development of opinions by users of financial information about the financial
reports of public firms (Aasb.gov.au, 2015). Therefore, creation of conceptual framework for
financial reporting helped to ensure that accounting practices of public firms in Australia were
consistent to the principles of AASB.
In a worldwide perspective, conceptual framework as an analytical tool was created in
1989 to shape financial reporting practices of public firms across the world. The tool was
approved and authorized by the board of Inter-Agency Standards Committee. Conceptual
framework was initially adopted into financial reporting in 2005 and approved in 2010 by the
International Accounting Standards Board (IASB). The main aim of creating conceptual
framework by IASB was to formulate International Financial Reporting Standards (IFRS) to help
shape financial and accounting standards of public firms across the world. IASB took into
consideration elements such as recognition and measurement criteria to facilitate use of
conceptual framework in financial reporting of public firms across the world (Lynsie, 2013).
Therefore, conceptual frameworks are being used in IFRS to ensure that global public firms are
consistent in their financial reporting practices exhibited through accurate and reliable financial
reports.

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b) Explanation of Australian accounting profession’s concerns regarding the Conceptual
Framework
Australian accounting profession is concerned with the prevalence of political interferences in
the implementation of conceptual framework in financial reporting among its public firms. The
above concern arises from the fact that conceptual frameworks are centered on combination of
thoughts that are created by a number of professionals which leads to disparities in thoughts
(Riggan, 2012). As such, it is these disparities in thoughts about conceptual framework among
professionals that acts as a source for political interferences in their implementation. These
interferences are exhibited by board members of IASB during the decision making process about
how best conceptual frameworks can be applied to yield desirable financial reporting practices.
In the due process, there are high prospects that some crucial thought may be ignored due to
political interests of the board members which may greatly affect the effectiveness of the use of
conceptual framework in financial reporting (Swann, 2012). For example, multiple
disagreements can be exhibited when the IASB decides make use of conceptual framework to
identify feasible solutions to measurement concerns. As a result, the board members may have
disagreements due to disparities in political interests about how elements of financial statements
like assets and liabilities can be measured because economic conditions are ever changing within
Australia. Moreover, disagreements among board members significantly affect the degree of
effectiveness of using conceptual frameworks in financial reporting because a number of crucial
elements may be ignored due to political interests among the IASB team (Annand, 2010). From
the above discussion, it can be seen that political interferences during the process of decision
making on how conceptual frameworks can be implemented decrease on the degree of
effectiveness of these tools in financial reporting.

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c) Discussion of academics’ concerns about the quality (potential benefits and limitations)
of the Conceptual Framework
Some of the potential benefits associated with the use of conceptual framework in
financial reporting practices among public firms include; Conceptual framework helps in
ensuring that recognition and measurement criteria for incomes, assets, liabilities as elements of
financial statements are determined in a manner that is consistent to accounting standards. As
such, the tool is essential in helping creators and users of financial and accounting standards so
as to ensure formulation of accurate financial reports among public firms (Warfield, 2011). Due
to the fact that conceptual frameworks play a role in guiding creators of accounting standards, it
offers a platform for discussions about accounting among board members of IASB. During
discussion, the board members can be able to identify and address existing loopholes in
accounting and financial reporting practices of the public firms (Burns and Scapens, 2010). For
example, false documentation of business transactions or financial statements can be identified
and addressed only through use of conceptual frameworks. Therefore, conceptual frameworks
help in guiding creators of accounting standards and addressing accounting problems to enhance
financial reporting practices of public firms.
However, conceptual frameworks are challenging to develop because of the varying
levels of development among countries across the world. As such, developed countries like
Australia and United States have been in position to develop and maintain their own conceptual
frameworks which has not been the case with low developed countries. The above is due to the
fact that low developed countries find it costly to develop their own conceptual frameworks
because of lack of qualified experts to execute the complex procedures associated with the
development of these tools (Jose and Jian-Bo, 2017). As a result, developed countries are

Contemporary Accounting Theory 9
effectively utilizing conceptual frameworks in their financial reporting practices which have
attracted more investments in public companies unlike the least developed countries.
d) Explanation of how the conceptual framework has been applied by Clearview Wealth
Limited (CVW)
i)
Consolidated Statement of Financial Position and Consolidated Statement of Profit or Loss and
other Comprehensive Income are the tow statements that have been prepared as per the
conceptual framework at CVW. Assets and Liabilities are the major components in CVW's
consolidated statement of financial position. Revenue from continued operations, operating
revenue before net fair value gains on financial assets and profit before income tax expense are
the major components in CVW's consolidated statement of Profit or Loss and other
comprehensive income (Clearview.com.au, 2018).
ii)
In regards to recognition principles, revenues were recognized in the consolidated statement of
profit or loss and other comprehensive incomes whereby revenues from continued operations are
greater than expenses from continued operations. On the contrary, assets such as receivables,
Goodwill, Investments among others are being recognized in CVW's consolidated statement of
financial position whereby their values have been reliable measured. Also, liabilities are also
being recognized in the consolidated statement of financial position of CVW whereby the
outflow of resources such as payables, provisions and deferred tax liabilities have economic
values that are to be reliably settled. In regards to measurements bases, revenues, assets and
liabilities have been based on their historical costs as indicated in CVW's consolidated statement

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of Profit or Loss and other comprehensive income and consolidated statement of financial
position respectively (Clearview.com.au, 2018).
iii)
Honest representation is the main qualitative characteristic of information exhibit in CVW’s
various financial reports. Honest representation has been always exhibited in terms of despotic
indication of the relevant information concerning the company's finances which enhances
knowledge of investors and auditors out its financial position. It is evident that CVW’s financial
reports offer additional information in form of notes about the assets and liabilities which are
contained in its consolidated statement of financial position (Clearview.com.au, 2018).
Part B: Integrated/sustainability reporting
a) Comparison of Sustainability Reporting Guidelines and International Integrated
Reporting Framework
Global Reporting Initiative (GRI) and International Integrated Reporting Council (IIRC) are two
bodies that have similarities and differences as far as sustainability reporting guidelines and
International Integrated Reporting (IIR) frameworks are concerned respectively.
Similarities
Both sustainability reporting guidelines and IIR framework are more centered on the relationship
between a firm and its shareholders during times of determining the likely long term events of
the firm. More so, it is the shareholders who offer financial contributions towards facilitating the
present undertakings of a firm so that it can achieve its long term goals and objectives.
Additionally, both sustainability reporting guidelines and IIR framework have an objective of
identifying the viable techniques that can assist a firm in creating value and achieving

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sustainability over a long period of time (Integratedreporting.org, 2013). The above is the main
reason as to why sustainability reporting guidelines and IIR framework are concerned with
determining the likely long term events of the firms and its contribution to the global economy.
Difference
Guidelines for sustainability reporting are based on rules to outline various sequential
instructions that a firm is supposed to follow in order to achieve its set sustainability objectives.
These instructions should be orderly followed one after the other by a firm to ensure that all
necessary efforts are devoted to achieve long term sustainability objectives. On the contrary, IIR
framework is based on principles which are at striking a pivot between flexibility and
prescription that consider disparities that exists between two or more firms (John, 2011). In the
due course, the frameworks helps to ease comparisons between two or more firms as far as
acquisition of relevant requirements of information are concerned.
b) Rigor of the conventional accounting, based upon the Conceptual Framework for
contents of sustainability as well as integrated reports
Conventional accounting can be considered as a tool that helps to deliver relevant
information to the investors about the performance of their injections into the undertakings of the
firm. The above tool is essential in helping a firm to significantly utilize cost minimizing
techniques so as to achieve maximum possible returns from the injections of the investors.
Conventional accounting offers a benefit of enhanced flexibility to a firm that focuses on
conceptual framework for contents of sustainability as well as integrated reports (Srikant and
George, 2012). The above benefit is realized because conventional accounting is highly
adaptable which makes it easy for a firm to adjust to dynamic needs of sustainability as well as
integrated reporting. Most importantly, conventional accounting enhances the firm's ability to

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have control over its internal environment so as to achieve long term sustainability and integrated
reporting goals (Ayala and Ibárgüen, 2012).
In spite of the above discussed benefits, conventional accounting is associated with high
costs which act as a limitation to a firm in its attempts to realize maximum possible returns from
its undertakings. High costs arise during the implementation stage of the tool which requires
experts who tend to be expensive to recruit to execute the complex procedures of the tool. These
complex procedures arise from the fact that conventional accounting requires critical
examinations by the professionals so as to effectively utilize conceptual frameworks to deliver
reliable financial reports (Paul and Norman, 2010). Therefore, conventional accounting greatly
affects a firm’s potential to realize maximum possible returns from its undertakings in the long
run.
c) Applicability of the theories to explain contents of sustainability as well as integrated
reports
In order to explain the contents of sustainability as well as integrated reports, an institutional
theory is always applied by the researchers. Institutional theory assists a firm to execute its
activities basing on a specific value based social phenomenon that defines the firm’s actions in
its operations environment (Magee and Cahill, 2013). As such, a firm can be able to realize
significant enhancements in its survival efforts when it makes use of institutional theory to
explain contents of sustainability as well as integrated reports. Just like any other theory,
institutional theory is also associated with a limitation of deteriorating a firm's options as the
theory is more focused on the social atmosphere of a firm's undertakings (Jaswith, 2011). As a
result, a firm is likely to be limited from exploiting all the available options to enhance its
survival efforts because it will be restricted to specific sustainability and integrated values.

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d) A table of various components of an integrated report and discussion of whether and
how the selected South African company has disclosed information against each of those
components
Components of an Integrated Report (IR) Discussion on disclosure of Rand Merchant
Investment Holdings (RMI) on every
component of IR.
Strategy and resource allocation Rand Merchant Investment Holdings RMI also
disclosed information on the external
environment outlook and performance as a
factor which is helping it to allocate its
resources. The change in political atmosphere
has enhanced the confidence of consumers and
investors in its undertakings whereby RMI has
been able to attract about $100billions in its
new investments. These new investments are
being allocated in its subsidiaries like Hastings,
Discovery and Luno. The above strategy is
likely to enhance the company's output and
customer base as well as its competitive
advantage in the long run (sharenet.co.za,
2018)
Outlook and challenges facing the company RMI discloses that the prevalent increases in

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and their implication the unemployment rates in South Africa are
greatly affecting its business undertakings. The
above factor has greatly reduced demand for its
products due to reduced purchasing power
among its potential clients. High
unemployment rates imply that the RMI may
not be able to realize potential revenues due to
continuous declines in sales (sharenet.co.za,
2018)
Governance structure and how this supports its
ability to create value
RMI has a strategy of creating a consistent
value for its shareholders through modernizing,
diversifying and optimizing its investments
portfolios which include; Hastings,
OUTsurance, Entersekt, Luno and Discovery
among others. These are aimed at managing all
activities aimed at delivering consistently high
dividends to the firm’s shareholders
(sharenet.co.za, 2018)
Reporting practices of Clearview Wealth Limited and integrated reporting practices of Rand
Merchant Investment Holdings disclose information about strategy and resource allocation so as
to achieve their long term goals. Also, both companies disclose governance structure and how it

Contemporary Accounting Theory 15
supports their ability to create value as a way of achieving desirable profits in their undertakings.
The above factors are being facilitated by contributions of the shareholders and favorable
political environments which are encouraging continuous attractions of investors. However,
differences exist between the two companies when reports concerning Outlook and challenges
facing the company and their implication are considered. RMI considered high unemployment
rates in South Africa as a factor greatly affecting its undertaking while CVW identifies high rates
of inflation as a factor which is significant affecting its undertakings (Magee and Cahill, 2013).
Conclusion
Conceptual frameworks play a significant role in ensuring that financial reporting practices are
executed in a way that is consistent with the set accounting standards. It is through conceptual
framework that public firms can make accurate financial reports that can be used by investors to
determine viability of devoting their resources into a given firm. Developed countries such as
U.K, U.S and Australia have developed their own conceptual frameworks as a way of improving
accounting standards of their public firms unlike the low developed countries. However,
incorporation of conceptual frameworks into financial reporting has led to emergence of
concerns among Australia accounting profession and academicians because the tool is also
associated with some limitations. Additionally, a number of companies like RMI and CVW are
engaging in sustainability and integrated reporting as a way of enhancing their survival in the
competitive business environment. These reports have served comparison purposes among users
of financial information in determining viability and potential of various firms across the world.

Contemporary Accounting Theory 16

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Contemporary Accounting Theory 18
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Contemporary Accounting Theory 19
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