Contemporary Accounting Theory

This report provides details about the development of conceptual framework in accounting, its benefits, limitations, and concerns. It also analyzes the financial reports prepared by an Australian entity and a South African entity. The report covers topics like the history of conceptual framework, concerns for its application, academic concerns, and the reports prepared by the entities.

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary accounting theory
Name of the student
Name of the university
Student ID
Author note

1CONTEMPORARY ACCOUNTING THEORY
Table of Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................3
Part A – Conceptual Framework.....................................................................................................3
(a) History and development of conceptual framework.........................................................3
(b) Concerns for conceptual framework application for financial reporting..........................4
(c) Academic concerns for the quality of CF.........................................................................5
(d) Reports prepared by Australian entity and South African entity......................................7
Part B - Integrated and Sustainability Reporting...........................................................................12
(a) Sustainability reporting Guidelines and International Integrated Reporting
Framework…………………………………………………………………………………….12
(b) Rigour of Conventional Accounting...............................................................................12
(c) Applicability of theories for explanation of the contents of Sustainability and Integrated
Reports.......................................................................................................................................13
(d) Integrated Report Index..................................................................................................13
(e) Integrated Report of Djerriwarrh Limited.......................................................................16
Conclusions....................................................................................................................................17
Reference.......................................................................................................................................18

2CONTEMPORARY ACCOUNTING THEORY
Executive summary
Australian company that is Djerriwarh and one South African entity that is Capitec Bank will be
considered for analysing the CF principles used by these entities for preparing their financial
reports in Part A of the report. It will further highlight the academic concerns involved with the
conceptual framework and the advantages and limitations associated with it. In Part B, it will
give attention to the integrated or sustainability reports prepared by these entities. For covering
this part the report will carry out the comparison as well as contrast the guidelines of
sustainability reporting stated by GRI (Global Reporting Initiative) and IIRF (International
Integrated Reporting Framework) as per IIRC (International integrated reporting council). The
report will further discuss the usefulness and limitations associated with contents of the
sustainability.

3CONTEMPORARY ACCOUNTING THEORY
Introduction
The main purpose of the report is to provide details regarding the development of
conceptual framework and benefits, limitations and various concerns associated with it. The
report will consider one Australian company that is Djerriwarh and one South African entity that
is Capitec Bank for evaluating how these entities are using the conceptual framework (CF) for
preparing their financial reports. Further, the report will focus on whether they prepare the
integrated reports or not and the topics covered by them in integrated report. The report will
mention the key reports prepared by these entities as per the requirement of CF (Aasb.gov.au,
2019).
Part A – Conceptual Framework
(a) History and development of conceptual framework
Before 1929, no public or private groups were responsible for the accounting standards.
However, after 1929 while the stock market crashed, Securities and Exchange Act was passed in
1934. It resulted into SEC commission for supervising the public entities. SEC designated FASB
which held responsible for setting the accounting standards for the public entities in USA. The
project of Conceptual framework by FASB, started in 1973 for developing solid theoretical basis
to develop the accounting standards in USA (Botosan, 2019). As stated by Caroline Becker for
UK, it was very crucial to create the conceptual framework. Increasing needs from global
accounting, growing economic cooperation globally and influence from USA led to development
of statements of Principles important for UK. Underlying reason for development of conceptual
framework in UK is that it did not want to lag behind in context of accounting method (Caroline,
2019). Further, UK was shifting from the rule based standards to the principle based standards.
Hence, it required introduction of conceptual framework for UK. Since the year 1999 UK started

4CONTEMPORARY ACCOUNTING THEORY
using its own conceptual framework. The CF in Australia was considered to contain numerous
accounting concepts with number of statements for defining nature, purpose, subject and wide
content of general purpose of financial reporting for private as well as public sector
(Researchbank.rmit.edu.au, 2019). However, the major development for CF started only after
1980 though it started developing since 1970 (Rensburg & Botha, 2014). The major purpose of
financial reporting in Australia, UK, USA and globally is to offer accounting information issued
by organizations to assist the users in making informed and rational decisions. Main objective of
the regulators and accountants is to achieve the objectives those are influenced by the accounting
concepts with the purpose of financial reports preparations (Eizenberg & Jabareen, 2017).
However, the entire world including the nations like UK, Australia, USA are going through the
same process in context of the treatment of accounts. Further, growing numbers of stakeholders
are in demand of comparable, relevant, understandable and reliable information included in the
financial statement which can assist them to make crucial financial and investment decisions
(Díaz et al., 2015).
(b) Concerns for conceptual framework application for financial reporting
CF sets out the ideas and concepts that provide the basis for presentation and preparation
of the financial reports for the purpose of usage by the external users. CF issued by IASB offers
concepts supporting the models, judgments and estimates. It further addresses the objective for
financial reporting, definition, measurement and recognition for the items included in the
financial statements, useful information’s qualitative characteristics and the concepts of capital
as well as capital maintenance (Deegan & Islam, 2012). However, some major concerns
regarding CF are as follows –

5CONTEMPORARY ACCOUNTING THEORY
 There will always exists a conflict among the existing accounting standard those were set
by the accounting standards setters previously and the CF as the principles of CF may
differ with the existing standards in context of principles and nature.
 Small companies may be in the view that the CF principles are only beneficial for the big
entities only and may not be able to serve the purposes of the small entities. Hence the CF
is not acceptable for all the entities (Kirkman, 2014).
 It is not easy for setting up and is time consuming. Hence, the developing countries may
find it costly and not keen to apply the same. Further, one single CF is not able to fulfill
wide range of demands.
 It comes with the high level of rigidity and the users are not in a position to amend it as
per their requirements. Hence, the users are not in a position to incorporate any changes
or any new ideas which is another major concern in using CF for preparing the financial
statements (Lewandowski, 2016).
(c) Academic concerns for the quality of CF
CF is the integral part of financial reporting as it offers the basis based upon which the
accounting standards are developed and items like expenses, revenues, assets, equities and
liabilities are reported under the financial statements (Searcy & Buslovich, 2013). Potential other
benefits of CF are mentioned below –
 Developing the standards with the backing of CF is more economical and easier as the
basic principles and for preparing the financial reports are already established. These
principles can further be applied in the scenario where no guide and accounting standards
exist and conflict of interest is there based on which the policies is to applied under

6CONTEMPORARY ACCOUNTING THEORY
particular scenario. Hence, the policies generated from already established CF will be less
criticized (Macve, 2015).
 Without CF the setters of the standards are often exposed to the external pressure from
various interest groups that results into ambiguous guidelines and rules. With the defined
CF the reason for the particular standard is clearer and it can make the preparers of
financial statements more accountable to the users. Further, the users are in a position to
recognize the departure from the set principles (Schaltegger & Burritt, 2017).
 It helps is developing the concepts in the orderly sets that can be used for making the
financial accounting as well as reporting that is logical, consistent and with enhanced
compatibility with the internationally enabled standards through economic development
in accounting context, consistency and overall improvement in communication (Maas,
Schaltegger & Crutzen, 2016).
On the other hand, the limitations of CF are as follows –
 CF focuses on the significant information’s usefulness that is included in the financial
reports however interest regarding information that enables assessing the management’s
stewardship is not accommodated. Further, accounting principles are only focused into
transactions and economic phenomena that are expressed in terms of money are
criticized. Apart from that belief is there for other aspects of the operation including
impact on the entity on wider community as well as natural environment those are
considered as significant while making the investment related decisions (Morioka & de
Carvalho, 2016).
 CF is too general in context of its principles and nature as it relied heavily on different
assumptions. Hence, it may provide little assistance while the financial reports are

7CONTEMPORARY ACCOUNTING THEORY
actually produced. Further, it leads to development of the accounting standards that is
considered to be exposed to fraud and are theoretical as well as academic. Further these
standards in practice may also lead to making the provisions of financial reporting
complex for users and preparers of financial reports (Macve, 2015).
 Requirements of wide number of users are large and diverse and it may require different
kind of standards and CF. However, it is complex as it requires to cover diverse and
numerous requirements. Further, for searching the simplicity and common grounds, CF is
required to cover wide range of generalizations that suffers inadequacies. It further
requires establishments of particular rules for governing the instances for the
inadequacies of CF (Morioka & de Carvalho, 2016).
(d) Reports prepared by Australian entity and South African entity
(i) Various reports prepared by the entities in accordance with the CF requirements are
as follows –
Djerriwarh –
It prepares the below mentioned 5 reports –
 Income statement – income statement of the entity reports the income from various
sources like revenue from the bank bills and deposits, revenue from other sources, and
revenue from distributions and dividends. It further reports the gains from trading
portfolio, share of the net profit generated from associates and revenue generated from
the options written portfolio. Apart from that it reports various expenses like finance
expenses, administration expenses. It further reveals the net profit after deducting the
income tax expenses (Djerriwarrh.com, 2019).

8CONTEMPORARY ACCOUNTING THEORY
 Statement of comprehensive income – it includes profit for the year and details for other
comprehensive income generated by the entity (Djerriwarrh.com, 2019).
 Balance sheet – it includes details of assets, liabilities and equities. Total assets are
segregated into current assets and non-current assets and total liabilities are segregated
into current liabilities and non-current liabilities.
 Statements of changes in equity – it stated the details regarding the opening equity
amount, adjustments during the year and closing equity amount.
 Cash flow statement – it stated the details regarding the cash generated by the entity
from operating activities, cash expensed for investing activities and cash expensed for
financing activities. It further, provides the closing cash balance after making required
adjustments with the opening balance (Djerriwarrh.com, 2019).
Capitec Bank –
It prepares the below mentioned 5 reports –
 Consolidated income statement – income statement of the entity reports the income from
various sources like revenue from leading insurance and investment including loan free
income, insurance income and interest income, investment and lending expenses
including loan free expenses and interest expenses. It further reports fee income from
transaction, fee expenses from transactions and dividend income. It reported the share of
the net profit generated from associates and finance expenses. It further reveals the net
profit after deducting the income tax expenses (Resources.capitecbank.co.za, 2019).
 Consolidated statement of other comprehensive income – it includes profit for the year
and details for other comprehensive income generated by the entity.

9CONTEMPORARY ACCOUNTING THEORY
 Balance sheet – it includes details of assets, liabilities and equities. Total assets are
segregated into current assets and non-current assets and total liabilities are segregated
into current liabilities and non-current liabilities.
 Consolidated statements of changes in equity – it stated the details regarding the opening
equity amount, adjustments during the year and closing equity amount.
 Cash flow statement – it stated the details regarding the cash generated by the entity
from operating activities, cash expensed for investing activities and cash expensed for
financing activities. It further, provides the closing cash balance after making required
adjustments with the opening balance (Resources.capitecbank.co.za, 2019).
(ii) Measurement and recognition principles applied for liabilities, assets and revenues
Djerriwarh –
 Assets – non-current assets are recognised as the held for sale and are valued at the
carrying amount or fair value after deducting the selling costs, whichever is lower. On the
other hand the current assets like trade receivables initially are recognised under the
balance sheet at the fair values and consequently the item is measured at amortised cost
applying the effective rate of interest and the amount is reduced by the amount of
impairment charges (Djerriwarrh.com, 2019).
 Liabilities – liabilities including trade payables are initially recognised at the fair values
and the same is reduced by the amount of transaction cost and consequently is carried out
at the amortised cost.
 Revenues – revenues are reported at the fair values for the consideration that is received
or receivable after GST deduction (Djerriwarrh.com, 2019).

10CONTEMPORARY ACCOUNTING THEORY
Capitec Bank –
 Assets – the company does not quote its current asset in the active market. Current assets
like trade receivables are consequently measured at amortised cost applying the effective
rate of interest after the initial recognition and the amount is reduced by the amount of
impairment charges.
 Liabilities – liabilities including trade payables are initially recognised at the fair values
and the same is reduced by the amount of transaction cost and consequently is carried out
at the amortised cost.
 Revenues – revenues are reported at the fair values for the consideration that is received
or receivable after GST deduction (Resources.capitecbank.co.za, 2019).
(iii) Qualitative characteristics of financial information
Djerriwarh –
The company is the ‘for profit company’ and prepares its financial reports in accordance
with the requirements of Corporation Act 2001 and the AASB conceptual framework. All the
items presented in its financial statements are categorised under appropriate head and the break –
up for each of the amount reported in the financial statements are properly disclosed through
notes. Further, all the items under the financial statements are segregated appropriately, for
instance the Total assets are segregated into current assets and non-current assets and total
liabilities are segregated into current liabilities and non-current liabilities (Djerriwarrh.com,
2019).
Capitec Bank –

11CONTEMPORARY ACCOUNTING THEORY
The company is the ‘for profit company’ and prepares its financial reports in accordance
with the requirements of IFRS released by IASB, Southb African Institute of Chartered
Accountants, guidelines for financial reporting issued by accounting practice committee. All the
items presented in its financial statements are categorised under appropriate head and the break –
up for each of the amount reported in the financial statements are properly disclosed through
notes. Further, all the items under the financial statements are segregated appropriately, for
instance the Total assets are segregated into current assets and non-current assets and total
liabilities are segregated into current liabilities and non-current liabilities
(Resources.capitecbank.co.za, 2019).
Hence, both the entity’s financial statements exhibit true and fair view of the information
and comply with the qualitative requirement of conceptual framework.

12CONTEMPORARY ACCOUNTING THEORY
Part B - Integrated and Sustainability Reporting
(a) Sustainability reporting Guidelines and International Integrated Reporting
Framework
The guidelines provided by the GRI sustainability states the disclosures of standard as
well as manual of reporting principles and implementations in order to prepare sustainability
reports by companies which is irrespective of its sizes, sectors and location. It provides the
guidelines that are helpful for all the parties who are interested in governance disclosures of
environmental, economic, social performances and impacts of environment on organization
(Globalreporting.org. 2019).
International Integrated Reporting Framework provides the approach for application of
integrated reporting according to IIRC. This approach helps in guiding the principle and rules
that are used for the governance of integrated reporting substance and establishing contents
elements (Integratedreporting.org. 2019).
Therefore, for the purpose of corporate reporting, GRI and IIRF provides the vision that
are more or less similar for the analysis of the corporate reporting and under which the clarity as
well as the alignment is applicable for corporate reporting framework results into the much
improved effectiveness and efficiencies.
(b) Rigour of Conventional Accounting
The strength and weaknesses of conventional accounting are as follows:
Strength
 The approach of conventional accounting is simple and easy to use.

13CONTEMPORARY ACCOUNTING THEORY
 The approach of this accounting is used on the consistent basis that helps in enhancing
the financial statements comparability.
 Apart from the accounting information objectivity, this approach also helps in
maintaining. Moreover, data can be protected against manipulations because of
objectivity basis reporting (Brown & Dillard, 2015).
Weaknesses
 Under this, changes in the price level are ignored and therefore, it fails in reflecting the
true value of organization.
 The replacement cost of assets exceeds their original cost, it is because the depreciation
are charged on the historical costs of the assets (Edwards, 2014).
(c) Applicability of theories for explanation of the contents of Sustainability and
Integrated Reports
For the incorporation of the sustainability reports, the key challenges that are associated
with it are data collection, selection of the content and the timing as well as reporting of the
items. In the integrated reports, there are most of the companies that provides disclosures
regarding material information (van Bommel, 2014). According to Ronel Rensburg, there are
less numbers of stakeholders that are concerned only about integrated reports for the analysis of
company’s investments. According to Cory Searcy, the content of the report are determined by
doing the internal evaluation as well as following the standards and the other methods (Beare,
Buslovich & Searcy, 2014).
(d) Integrated Report Index
Content element Major segment of report Explanation
Basis of preparation and  Management and how the company determine

14CONTEMPORARY ACCOUNTING THEORY
presentation governance
 Materiality analysis
the material matters on
material matters regarding
KPIs and characteristics
Business model  Letter of the CEO
 Management and
governance
company’s business model,
to what extent the entity is
flexible
Performance  Summary of key data
 People
 Hedging communities
 Value creation
how the company is
performing against the
established strategy, and key
outcomes of capital
Future outlook  Letter from CEO uncertainties as well as
challenges expected to be
encountered while pursuing
the strategy, potential
implication on business
model, future outcomes and
performance
Organizational Overview and
external Environment
 Letter from CEO
 About the company
 Materiality analysis
what the organisation does,
and the circumstances under
which it operates
governance  Leadership
 Management and
governance
 GRI index
governance structure of the
entity, how does the same
supports the ability of the
entity to create value
opportunities and risks  Letter from CEO
 Management and
governance
 Value creation
Major opportunities and
risks, impact of risks on the
ability of the entity in
creating long, short and
medium term value and how
the organisations handling
them
Capitec Bank Holdings Limited
Following are the components of the integrated report of the company:

15CONTEMPORARY ACCOUNTING THEORY
 Organizational Overview: The business of the company is based on four fundaments
that is simplicity, affordability, accessibility and personalized experience. The company
provides single solution that is global one for all their clients, which is regardless of the
assets or income level.
 Company’s Operating Environment: The business of the company operates in the
environment of economic trends of South Africa, growth prospects as well as political
stability. The company maintains healthy relations with their stakeholder that leads to
providing better lives to all parties involved in the business (Resources.capitecbank.co.za,
2019).
 Leadership Reviews: The company enables the clients for improving the financial
condition by providing the experience, which is accessible, personalized, affordable and
consistently simple.
 Oversights and Leadership Team: The skills and experience of the company’s
executive management committee and board of directors provide the effective as well as
ethical leadership, which is one of the major factor of the success of the company (Cheng
et al. 2014).
 Risk Management: The framework of the risk management of the company helps in
governing the risk management by improving the risk culture, which includes credit risk,
business risk, market risk, reputational risk, operational risk and liquidity and capital
management.
 Company’s Employees: The employees of the company delivers the strategic objectives
of the company by following and working according to the values of the company
(Resources.capitecbank.co.za, 2019).

16CONTEMPORARY ACCOUNTING THEORY
 Remuneration Report: The company remunerates their employees by rewarding the
actions, which advances the interests of the stakeholders by the pay mix consist of the
guaranteed pay as well as short and long-term incentive.
 Social Responsibility: For meeting the social challenges, the company focuses on both
skills and education development.
 Annual Financial Statements: The company delivers simple, affordable as well as
transparent solutions to their clients by providing the information about current and past
performance through financial statements (Resources.capitecbank.co.za, 2019).
(e) Integrated Report of Djerriwarrh Limited
Djerriwarrh Limited does not prepare Integrated Report. However following details and
components are included in the annual report of the company:
 Company’s Overview- Under this section, the company provides the review of the CEO
and chairman, company’s strategy and report of the director.
 Business Model- This segment of the report includes the resources used by the company
and procedures of the value addition.
 Performances- Under this, the performance of the company for the current and previous
year are discussed (Djerriwarrh.com, 2019).
 Governance- This segment of the report discusses regarding the composition of board
their roles and responsibilities, sustainability business as well as remuneration report of
the company.
 Preparation basis: This segment of the report provides the disclosures regarding basis of
preparation and presentations of the financial statements.

17CONTEMPORARY ACCOUNTING THEORY
 Risk Management- The company provides the information about the major risk factors of
the company as well as how it manages them (Djerriwarrh.com, 2019).
Conclusions
Hence, it is concluded from the analysis that for the preparation of financial reports, both
companies, Capitec Bank Holdings Limited and Djerriwarrh Limited uses conceptual
framework. Moreover, both the companies provides the same information of the components
such as company’s overview, business model, performances, risk management and governance
under two different reports such as Australian company provides annual report and South
African company provides Integrated report. In addition, these reports aim for providing
relevant, reliable and comparable information.

18CONTEMPORARY ACCOUNTING THEORY
Reference
Aasb.gov.au. (2019). Retrieved 27 May 2019, from https://www.aasb.gov.au/Work-In-
Progress/Submissions-from-AASB.aspx
Beare, D., Buslovich, R., & Searcy, C. (2014). Linkages between corporate sustainability
reporting and public policy. Corporate Social Responsibility and Environmental
Management, 21(6), 336-350.
Botosan, C. (2019). Pathway to an Integrated Conceptual Framework for Financial
Reporting. The Accounting Review, Forthcoming July.
Brown, J., & Dillard, J. (2015). Opening accounting to critical scrutiny: towards dialogic
accounting for policy analysis and democracy. Journal of Comparative Policy Analysis:
Research and Practice, 17(3), 247-268.
Caroline B. (2019). GRIN - The Conceptual Framework in the United Kingdom and the
Introduction of the Statement of Principles. Grin.com. Retrieved 27 May 2019, from
https://www.grin.com/document/37091
Cheng, M., Green, W., Conradie, P., Konishi, N., & Romi, A. (2014). The international
integrated reporting framework: key issues and future research opportunities. Journal of
International Financial Management & Accounting, 25(1), 90-119.
Deegan, C. & Islam, M.A., (2012), ‘Corporate Commitment to Sustainability—Is It All Hot Air?
An Australian Review of the Linkage between Executive Pay and Sustainable
Performance’, Australian Accounting Review, vol. 22, no. 4, pp 384–97.

19CONTEMPORARY ACCOUNTING THEORY
Díaz, S., Demissew, S., Carabias, J., Joly, C., Lonsdale, M., Ash, N., ... & Bartuska, A. (2015).
The IPBES Conceptual Framework—connecting nature and people. Current Opinion in
Environmental Sustainability, 14, 1-16.
Djerriwarrh.com (2019). Annual Reports, Notice of AGM and Proxy Form - Djerriwarrh
Investments Limited. Retrieved 7 June 2019, from
https://www.djerriwarrh.com/asx/djw/djerriwarrh-investments/news/2018-annual-reports-
notice-of-agm-and-proxy-form-1960186.html
Edwards, J. R. (Ed.). (2014). Twentieth Century Accounting Thinkers (RLE Accounting).
Routledge.
Eizenberg, E., & Jabareen, Y. (2017). Social sustainability: A new conceptual
framework. Sustainability, 9(1), 68.
Globalreporting.org. (2019). Retrieved 7 June 2019, from
https://www.globalreporting.org/resourcelibrary/GRIG4-Part1-Reporting-Principles-and-
Standard-Disclosures.pdf
Integratedreporting.org. (2019). Retrieved 7 June 2019, from
http://integratedreporting.org/resource/international-ir-framework/
Kirkman, P. (2014). Accounting Under Inflationary Conditions (RLE Accounting). Routledge.
Lewandowski, M. (2016). Designing the business models for circular economy—Towards the
conceptual framework. Sustainability, 8(1), 43.

20CONTEMPORARY ACCOUNTING THEORY
Maas, K., Schaltegger, S., & Crutzen, N. (2016). Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production, 136,
237-248.
Macve, R. (2015). A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Morioka, S. N., & de Carvalho, M. M. (2016). A systematic literature review towards a
conceptual framework for integrating sustainability performance into business. Journal of
Cleaner Production, 136, 134-146.
Rensburg, R., & Botha, E. (2014). Is Integrated Reporting the silver bullet of financial
communication? A stakeholder perspective from South Africa. Public Relations
Review, 40(2), 144-152. doi:10.1016/j.pubrev.2013.11.016
Researchbank.rmit.edu.au. (2019). Retrieved 29 May 2019, from
https://researchbank.rmit.edu.au/eserv/rmit:9813/Myers.pdf
Resources.capitecbank.co.za. (2019). Retrieved 7 June 2019, from
https://resources.capitecbank.co.za/capitec_bank_integrated_annual_report_2018.pdf
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Searcy, C., &Buslovich, R. (2013). Corporate Perspectives on the Development and Use of
Sustainability Reports. Journal Of Business Ethics, 121(2), 149-169.
doi:10.1007/s10551-013-1701-7

21CONTEMPORARY ACCOUNTING THEORY
van Bommel, K. (2014). Towards a legitimate compromise? An exploration of integrated
reporting in the Netherlands. Accounting, Auditing & Accountability Journal, 27(7),
1157-1189.