Contemporary Accounting Theory

This document provides study material on contemporary accounting theory, including concepts, recognition and measurement criteria, and qualitative characteristics. It discusses the preparation and presentation of financial statements, recognition and measurement of revenue, assets, and liabilities, and the qualitative characteristics of financial information. The document also includes a comparison of integrated reporting practices of Asaleo Care Limited and Sasol Limited.

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

1CONTEMPORARY ACCOUNTING THEORY
Table of Contents
Part A.........................................................................................................................................2
Question (a)............................................................................................................................2
Answer to Requirement (i).................................................................................................2
Answer to Requirement (ii)................................................................................................2
Answer to Requirement (iii)...............................................................................................3
Part B..........................................................................................................................................3
Question (a)............................................................................................................................3
Question (b)............................................................................................................................5
References..................................................................................................................................6

2CONTEMPORARY ACCOUNTING THEORY
Part A
Question (a)
Answer to Requirement (i)
Asaleo Care Limited has prepared and presented their annual report for the year 2018.
As disclosed in Note 6.7 (a) in the 2018 Annual Report of Asaleo Care Limited, the financial
statements of the firm are general purpose financial statements and the firm prepared them by
complying with the requirements of Corporations Act 2001, Australian Accounting Standards
(AASB) and the interpretations of the International Accounting Standards Board (IASB)
(asaleocare.com, 2019). These financial statements have also adhered to the requirements of
the International Financial Reporting Standards (IFRS) issued by the IASB. It shows that all
the financial statements have been prepared as per the conceptual framework
(asaleocare.com, 2019). The major components are consolidated statement profit or loss and
other comprehensive income, consolidated balance sheet, consolidated statement of change in
equity and consolidated statement of cash flows (asaleocare.com, 2019).
Answer to Requirement (ii)
According to Paragraph 4.3 of the AASB Conceptual Framework, a business entity
is needed to consider two condition for the recognition of an item. First, there is a probability
that any future allied with the item will flow to or from the entity; and second, the item has a
cost value that can be reliability measured (aasb.gov.au, 2019). After that, as per Paragraph
6.3 (b) of the AASB Conceptual Framework, there are three categories of easement; they are
Cost-based measurement, Current market prices including fair value and Other cash-flow-
based measurements (aasb.gov.au, 2019).
Revenue – Asaleo Care Limited recognizes revenue when the control of the goods are
transferred to the customers and the company expects to receive the consideration amount in
exchange of the goods. This same recognition criteria is followed for revenue from sale of
goods, interest income, dividends and inter-segment revenue. Asaleo Care Limited measures
their revenues at fair value of the consideration received or receivable that is the amount of
sales invoice. It implies that Asaleo Care Limited has followed the recognition and
measurement criteria of the conceptual framework (asaleocare.com, 2019).
Assets and Liabilities – Asaleo Care Limited has mentioned in the notes to the financial
statements that the company has used the historical cost method for the preparation of the
financial statements where they have also used fair value measurement base. Asaleo Care

3CONTEMPORARY ACCOUNTING THEORY
Limited has used both the cost method and fair value methods for the measurement of their
assets and liabilities (asaleocare.com, 2019). For example, inventories are measures at lower
of cost and net realizable value; trade receivable are measured at fair value after the
confirmation of the fact that the future benefits will flow to the company; property, plant and
equipment are measured at cost value after the deduction of accumulated depreciation and
impairment losses; trade payables are recognized at fair value and measured at amortize cost;
and the borrowings are initially recognized at fair value and measured at amortized cost. This
implies that Asaleo Care Limited has followed the conceptual framework for the recognition
and measurement of their assets and liabilities (asaleocare.com, 2019).
Answer to Requirement (iii)
The qualitative characteristics are relevance, faithful representation, comparability,
understandability, timeliness and verifiability (Barth, 2013). In the 2018 Annual Report,
Asaleo Care Limited has provided all the relevant information of the financial items by
complying with the required accounting principles and standards (asaleocare.com, 2019).
This ensures the presence of fundamental qualitative characteristics. In addition, timely
provided financial information of Asaleo Care Limited includes the required notes that help
in effectively understanding and verifying the accounting treatments of various items
undertaken by the firm. Provided information can be easily compared with the different
timeline of the same company and other companies. These ensures the presence of enhancing
qualitative characteristics (asaleocare.com, 2019).
Part B
Question (a)
There is a checklist of various components that an entity needs to follow for the
development of an integrated report and this is shown below:
Index
1. Responsibly for an integrated report Inclusion of statement from those charged
with governance
2. Strategic focus and future orientation Insight about the organizational strategy
3. Stakeholder Relations Nature and quality of relationship with the
stakeholders
4. Materiality Inclusion of material matters affecting the
ability of value creation

4CONTEMPORARY ACCOUNTING THEORY
5. Organizational Overview and
external environment
Operation of the firm and under which
circumstances in operate
6. Governance Insight about the governance structure
7. Business Model Details of the business model
8. Risks and opportunities Insight on the risks and opportunities faced
by the firm
9. Performance Insight on the extent of achievement of
strategic objectives
10. Basis of Preparation and
presentation
Insight on the process to determine material
issues
Table 1: Index of Integrated Reporting
(Source: integratedreporting.org, 2019)
Sasol Limited – It can be seen that Sasol Limited has prepared the 2018 Integrated Report
through following the guidance of the International Integrated Reporting Framework
published by the International Integrated Reporting Council (IIRC) and this integrated report
of Sasol Limited has all the above-mentioned components of integrated reporting (sasol.com,
2019).
Under the ‘CONTENT’ section, there is a director’s approval statement on this
integrity report signed by the Chairman, Chairman of the Audit Committee and Joint
President and Chief Executive Officers. Details of the strategies can be seen under the section
named ‘OUR VALUE-BASED STRATEGY’ (sasol.com, 2019). Under the section named
‘GOVERNANCE AND STAKEHOLDER MANAGEMENT’, Sasol Limited has provided
information on the components like business risks and their management, determination of
material issues, stakeholder engagement and governance structure such as details on Board of
Directors and Group Executive Committee (sasol.com, 2019). This report includes the
information of the business of the firm and in which circumstance they operate. Under the
section named ‘MATERIAL MATTERS’, Sasol Limited has shown the steps for the
determination of material issues. Under the section ‘PERFORMANCE OVERVIEW’,
overview of the Sasol Limited’s performance can be seen (sasol.com, 2019).

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Question (b)
Asaleo Care Limited does not prepare any integrated report, but the company uses its
annual report for the purpose of corporate social responsibility reporting in addition to
financial performance reporting.
As per the comparison of the Australian company with the above index, certain
differences are there. The main contents of the corporate social responsibility reporting of
Asaleo Care Limited are people and culture, occupational health and safety, sustainability and
community (asaleocare.com, 2019). It implies that Asaleo Care Limited has disclosed about
their initiatives against these components of corporate social responsibility reporting. The
main reason behind the difference between the corporate social responsibility reporting
contents of Asaleo Care Limited with the index is that the company has not adopted any
framework for the separate publication of their sustainability or integrated report
(asaleocare.com, 2019).
As per the comparison between the integrated reporting contents of Sasol Limited and
the corporate social responsibility reporting of Asaleo Care Limited, Asaleo Care Limited has
only provided information about their adopted strategies against the corporate social
responsibility issues around sustainability, community and others, but Sasol Limited has
shown how their corporate social responsibility related strategies lead to the long, medium
and short-term value creation (sasol.com, 2019). Moreover, due to the adoption of the
integrated reporting strategy of the International Integrated Reporting Framework by IIRC,
Sasol Limited has been able in covering wider issues of sustainability reporting while Asaleo
Care Limited has covered a few areas of corporate social responsibility reporting
(asaleocare.com, 2019). There is a perfect balance between the financial and non-financial
reporting in Sasol Limited where Asaleo Care Limited has put more emphasis on financial
information than non-financial information (De Villiers, Rinaldi & Unerman, 2014).

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References
Aasb.gov.au. (2019). A Review of the IASB’s Conceptual Framework for Financial
Reporting. Retrieved 6 June 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/ITC29_07-13.pdf
Barth, M. E. (2013). Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), 331-352.
De Villiers, C., Rinaldi, L., & Unerman, J. (2014). Integrated Reporting: Insights, gaps and
an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7),
1042-1067.
Fy2018.asaleocare.com. (2019). ANNUAL REPORT 2018. Retrieved 6 June 2019, from
https://fy2018.asaleocare.com/wp-content/uploads/2019/03/Asaleo-Full-Annual-
Report.pdf
Integratedreporting.org. (2019). THE INTERNATIONAL <IR> FRAMEWORK. Retrieved 6
June 2019, from https://integratedreporting.org/wp-content/uploads/2013/12/13-12-
08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf
Sasol Ltd. (2019). Integrated Report 30 June 2018. Retrieved from
https://www.sasol.com/sites/default/files/financial_reports/Sasol%20IR_Web.pdf