Contemporary Accounting Theory

This report focuses on the development and history of conceptual framework, concerns of Australian accounting profession, and academic concerns regarding quality of conceptual framework for financial reporting. It also discusses sustainability reporting guidelines and the strengths and limitations of conventional accounting.

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary accounting theory
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Executive summary
From the report presented below it can be sated that background of conceptual framework is that
each country including UK, USA, Australia and on global basis the accountants are going
through the same thought process regarding accounting. Large numbers of stakeholders are
interested in understandable, reliable and comparable financial statements that can be used by
large numbers of users. Main objective of sustainability reporting is to establish the guiding
principles and content element that governs the entire substance of the integrated reporting.
Further, it explains fundamental concepts required for strengthening the same. Considering the
integrated reporting index it is found that Iress Ltd from Australia does not prepare integrated
report whereas South African company Naspers Ltd prepares the same and covers all the
required aspects.

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Table of Contents
Introduction......................................................................................................................................3
Part A – Conceptual framework......................................................................................................3
(a) Literature review regarding development and history of conceptual framework.............3
(b) Concerns of Australian accounting profession regarding application of conceptual
framework....................................................................................................................................4
(c) Academic concerns regarding quality of conceptual framework for the financial
reporting.......................................................................................................................................5
(d) Application of conceptual framework...............................................................................7
Part B – Integrated / sustainability reporting...................................................................................9
(a) Sustainability reporting guidelines as per GRI and IIRC.................................................9
(b) Strengths and limitations of conventional accounting....................................................10
(c) Theories for explaining the contents of sustainability and integrated reports................12
(d) Index of different components of integrated report........................................................12
(e) Integrated report of Iress Ltd..........................................................................................14
Conclusion.................................................................................................................................14
Reference.......................................................................................................................................16

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Introduction
Purpose of the study is to concentrate on development and history of conceptual
framework. It will further, highlight the concerns of Australian accounting profession regarding
application of conceptual framework and will list down the academic concerns regarding quality
of conceptual framework for the financial reporting. In the next segment the report will focus on
sustainability reporting guidelines as per GRI and IIRC and will list down the strengths and
limitations of conventional accounting. It will further focus on the Theories for explaining the
contents of sustainability and integrated reports. The report will also present the index of
different components of integrated report and whether the companies are following the same.
Part A – Conceptual framework
(a) Literature review regarding development and history of conceptual framework
Conceptual framework for the purpose of financial reporting is issued by IASB
(international accounting standard board) in 1989 for assisting in the presentation along with
preparation of the annual statements. It sets out concept that is used for shaping presentation and
preparation of the financial statements for the purpose of using it by the external users. In USA
the conceptual framework is proposed to rule the environment of financial reporting through
defining the purpose, nature, content and subject of financial reporting environment applied for
general purposes stipulating the function, limits and nature of the financial reporting and
accounting (Díaz et al., 2015). As stated by Stephen Zeff, over the past few years various
accounting standards in UK were rule based as against principle based. The accounting standards
based on rule offers exceptionally detailed rules that virtually contemplate all the application of

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the standard. It makes the standards more difficult for the preparers as well as the auditors in
evaluating consistency of overall impact with objectives of the standards (Eizenberg & Jabareen,
2017). Hence, requirement was there for creating the conceptual framework. Growing
international needs for accounting, influence on USA and the growth in global economic
cooperation made development of statement important for UK (Lewandowski, 2016). Australia
started developing conceptual framework during the year 1970 however main work associated
with conceptual framework did not started till the year 1980. The accepted objectives for
financial accounting in Australian conceptual statement are prepared on the basis of the work of
AICPA (Researchbank.rmit.edu.au, 2019). As per Caroline Becker, background of conceptual
framework is that each country including UK, USA, Australia and on global basis the
accountants are going through the same thought process regarding accounting. Large numbers of
stakeholders are engrossed in understandable, reliable and comparable financial statements that
can be used by large numbers of users.
(b) Concerns of Australian accounting profession regarding application of conceptual
framework
Some issues are involved with the conceptual framework which is of major concerns for
the accounting profession in Australia. These issues are as follows –
 It is exceptionally difficult to establish the framework. The developed and the rich
countries may set up the own conceptual framework. However, the countries those are
still in developing stage that is extremely (Aasb.gov.au, 2019).
 It is rigid as it creeps into the practices of standard accounting owing to framework
implementation. It makes introduction of new ideas impossible into system. Further, the

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conceptual accounting is involved with various inflexibility as some of the aspects is not
able to provide much direction for accounting (Aasb.gov.au, 2019).
 Another concern with the conceptual framework is following its concept may create
conflict among the practice that is prescribed by previous accounting standards and latest
conceptual framework. Moreover, the existing standards vary with fundamental
conceptual framework that leads to conflict.
 Apart from above, another concern is that it may be the case that the opportunity
provided by conceptual framework may be rejected by some of the parties. It may be
beneficial to some interested groups only who are identified as the users. Conversely,
conceptual framework may offer some opportunities those are not acceptable to the other
parties. Hence, the same conceptual framework may not work for all parties
(Aasb.gov.au, 2019).
(c) Academic concerns regarding quality of conceptual framework for the financial
reporting
Potential advantages of conceptual framework in context of academics are as follows –
 Developments of the concepts are made in orderly manner that makes the financial
reporting as well as accounting logical and consistent that will increase the compatibility
of the standard internationally and the same is facilitated through economic development
and consistency of accounting and the overall improved communication (Maas,
Schaltegger & Crutzen, 2016).
 Development of the standard with backing of the conceptual framework is become easier
as well as more economical in context of cost as founding the basic principles are debated
as well as established already. These principles can be successfully applied under the

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circumstances where the pertinent accounting standards or related guide do not exist and
where interest conflict may arise regarding the application of policies in specific
instances. However, the policies established under conceptual framework will be less
criticised.
 Without the conceptual Framework, the standard setters will be exposed to external
pressure from the interest groups that will lead to ambiguous as well as hazard guidelines
and rules. However, with the defined framework and the explanation of reasoning behind
particular standard the standard setters will become more accountable to the users of
financial reporting and statement as with these users will be aware and will be able in
recognising the departure from the set out principles (Morioka & de Carvalho, 2016).
Overall, conceptual framework significantly contributes to the academic credibility as
well as public confidence regarding the financial reporting with regard to reliability, relevance
and consistency through employing the uniform as well as clearly defined principles.
Potential limitations of conceptual framework in context of academics are as follows –
 Conceptual framework can be considered as too general by its nature and the principal
are relied upon on wide range of assumptions. Hence, it may be less valuable while
producing the financial statement actually and it may result into development of the
accounting standards that are very academic, susceptible to fraud and theoretical. This
standard however in practice makes the provisions of the financial information complex
for the preparers as well as for the users of financial statements. Moreover the concepts
may be refined and can be pure however as these are involved with difficulty and

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complexity to understand usefulness of the financial statement can be viewed as less
valuable (Botosan, 2019).
 Requirements of the users are wide and hence there is requirement for wide variety of
standard where the conceptual framework cannot cover the wide range of requirements
without involving complexities. In search for the common ground as well as simplicity
and gaining the desired wide level of acceptance conceptual Framework is required to
cover various generalizations that suffer inadequacies. This requires the development of
particular rules for governing instances involving the inadequacies (Macve, 2015).
(d) Application of conceptual framework
(i) Statements or report prepared by the entities
Iress Limited –
The company prepares the following reports in accordance with the requirements of
conceptual framework –
Financial statement Major components
Consolidated Statement stating Profit or Loss and
Other Comprehensive Income
Revenues and expenses
Consolidated Statement of Financial Position Assets, liabilities and equity
Consolidated Statement of Changes in Equity comprehensive income and adjustments
Consolidated Statement of Cash Flows Net cash inflow from operating activities, Net cash
outflow from investing activities, Net cash outflow
from financing activities
Naspers Ltd –
The company prepares the following reports in accordance with the requirements of
framework –

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Financial statement Major components
Summarised consolidated income statement Revenues and expenses
Summarised consolidated statement of financial
position
Assets, liabilities and equity
Summarised consolidated statement of changes in
equity
comprehensive income and adjustments
Summarised consolidated statement of cash flows Net cash utilised in operating activities, Net cash
generated from investing activities, Net cash
utilised in financing activities
(ii) Recognition principle and measurement
Iress Ltd –
The company applies the amended IFRS for the recognition criteria of assets, liabilities,
expenses, incomes under the framework. However, the changes are applicable from the financial
year that will commence from 1st January 2020 where criteria are consistent with particular
requirement of accounting standard (Iress.com, 2019).
Naspers Ltd –
It further requires the financial statement to be prepared in compliance with framework
concepts as well as the measurement as well as recognition criteria as per the requirement of
IFRS, SAICA financial reporting guides that was released by the accounting practices committee
and the financial pronouncement issued by financial reporting standard council (Naspers.com,
2019).
(iii) Qualitative characteristics
Iress Ltd –

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The company is for profit organisation that is Australian domiciled. The entire year’s
financial report is the general purpose financial report comprised of the entity and its
subsidiaries. For the year closed at 31st December 2018 the entity’s annual statement has been
prepared with the required of Corporation Act AAS and its interpretation and IFRS. Further, the
company’s financial statements are prepared with true and fair manner (Iress.com, 2019).
Naspers Ltd –
The consolidated financial statement of the entity is prepared in compliance with the
requirement of JSE Limited listing that is relevant to provisions of Companies Act. Accounting
policies are applied consistently while the consolidated annual statements are prepared from
which summarised consolidated financial results are derived. Further, the company’s financial
statements are prepared with true and fair manner (Naspers.com, 2019).

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Part B – Integrated / sustainability reporting
(a) Sustainability reporting guidelines as per GRI and IIRC
Integrated reporting offers the entities with the broad perspective regarding risks and the
GRI encourages using the GRI standards who wants to do the integrated reporting. United
through the shared vision that the businesses shall focus on the value creation over long, medium
as well as shorter term, IIRC as well as GRI both continue working together with the alignment
of GRI standards and international framework for improving the corporate reporting (Global
Reporting Initiative, 2019).
IIRC and GRI both work together as the strategic partner and share the common vision
for analysis of Corporate reporting under which the clarity as well as the alignment of Corporate
reporting framework, requirements and the standard drive consistency and comparability that
leads to improve effectiveness and efficiency in practice of corporate
reporting(Integratedreporting.org, 2019). Further, both the organisations identify significance of
the corporate reporting while promoting the sustainable development. IIRC and GRE accepts the
complementarity of respective roles based on that sustainability reporting that is the central part
for integrated reporting G4 of GIR is the crucial starting point that ensure that the strong
sustainability metrics are involved under the integrated reports on the basis of international
Framework where the material is to create value over the time period. Both the organisations are
committed in identifying the approaches for alignment with the objectives of strengthening the
corporate reporting (Integratedreporting.org, 2019). Further, they will continue to
communicating proactively with the market regarding the nature, role and alignment of each
other frameworks standard and guidelines to facilitate understanding as well as clarity in the

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environment of corporate reporting. Through the continuing collaboration their main objective is
to express possible common voice, wherever possible, regarding relevant aspects of the
respective activities and other associated matters regarding mutual interest.
Under GRI the presentation is segregated into 2 parts as follows –
 1st part comprised of the principles for reporting and the standards disclosure
requirements including standardised disclosures, reporting principles and criteria required
for the preparation of the sustainability reporting as per the requirements of the guidelines
2nd part states the manual for implementation including the explanations regarding
application of reporting principles, interpretation of various concepts and preparation of
disclosures for disclosing material information as per the required guidelines (Global Reporting
Initiative, 2019).
On the other hand, the IIRF is used for improving the integrated reporting as per of IIRC.
Its main objective is to establish the guiding principles and content element that governs the
entire substance of the integrated reporting. Further, it explains fundamental concepts required
for strengthening the same (Integratedreporting.org, 2019).
(b) Strengths and limitations of conventional accounting
Conventional accounting system involves traditional method for recording the accounting
information. It covers less detail regarding the transactions and the mathematical accuracy are
not guaranteed. Only 2 books that are the ledger and cash books are prepared under this
approach.
Advantages –

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 It can be used on consistent basis over the time period that improves the financial
statements comparability within as well as outside of the organisation
 It assists to maintain reliability along with objectivity of accounting information. It
prevents the data manipulation as the transactions are recorded on the objective basis
(Schaltegger & Burritt, 2017)
 Conventional accounting concept is simple and easy to use. Further, as the transactions
are reported at the original amount at which the same was acquired restatement in each
accounting period is not necessary.
Disadvantages –
 Losses or gains made on account of inventory holding can be associated with the
operating losses and gains that make it difficult to measure the actual operating
performances of the entity as holding losses and gains shall be excluded from operating
income or losses.
 Changes in the price level are not taken into consideration which in turn does not reflect
the true value of the entity (Kirkman, 2014)
 Fixed assets reported under the financial statement are reported at cost less accumulated
depreciation. It makes difficult for segregating the new assets purchased by the entity or
sold by it.
 As the conventional accounting approach does not reflect the actual profit, applicability
of tax becomes difficult. Hence, under the inflationary situation the profits as well as
value of assets are overstated.

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Hence, though the conventional accounting approach plays significant role in overall
welfare of society in accounting context, integrated reporting in association with conventional
accounting will improve the decision making procedures of the stakeholders, investors and other
users of the financial statements.
(c) Theories for explaining the contents of sustainability and integrated reports
Big entities are disclosing the material information on increasing basis regarding their
financial as well as non-financial capitals under the integrated reports. Main objective behind this
is to improve the legitimacy with the stakeholders and institutions as they are required to
communicate regarding all the aspects of the activities those create values, strategic priorities and
business models. As per the research conducted by Cory Searcy, among 20 entities only 5
entities were in practice of developing the fully integrated reports whereas rest 15 are in practice
of incorporating some of the sustainability aspects of in the annual reports (Deegan & Islam,
2012). Major challenges found in incorporating the sustainability reports are collection of data,
selection of content, timing and reporting the items at appropriate amount. It was further found
by the study of Ronel Rensburg, that the only few stakeholders apply the integrated reports as the
major source of investment.
(d) Index of different components of integrated report
Naspers Ltd disclosed the following in its integrated report –
 Organizational overview - under this it discussed about the review of the chair and review
of the CEO.
 Governance – under this it discussed about the board, governance for sustainable
business and remuneration report

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 Business model – under this it discussed about how they add value and the resources
they require (Naspers.com, 2019).
 Managing opportunities and risks – under this it discussed about key risks to the company
and how it manages the risks
 Performance – under this it talked about the performance of internet, media, video
entertainment, people and financial review
 Basis of preparation - under this it discussed about basis on which the financial
statements are prepared (Naspers.com, 2019).
Content element Major segment of report Explanation
Organizational Overview and the
external Environment
 Letter of 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
business model  Letter of CEO
 Management and
governance
 Value chain infographic
business model of the
organisation, to what extent the
entity is resilient
opportunities and risks  Letter of CEO
 Management and
governance
 Value creation
key opportunities and risks,
impact of those risks on the
ability of the entity in creating
long, short and medium term
value and how the organisations
handling them
Performance  Summary of key data
 Hedging communities
 People
 Value creation

how the entity performed against
the strategy, and he key
outcomes in context of capital
Future outlook  CEO letter uncertainties and challenges
likely to be encountered in
pursuing the strategy, potential
implication on business model

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and future outcomes and
performance
basis of preparation and
presentation
 Management and
governance
 Value chain infographic
 Materiality analysis
how the company determine the
material matters on material
matters regarding KPIs and
characteristics
(e) Integrated report of Iress Ltd
Iress Ltd does not prepare the integrated report rather it prepare the annual report that
includes the following aspects of integrated reporting –
 Organizational overview - under this it discussed about the review of the chair and review
of the CEO (Iress.com, 2019).
 Governance – under this it discussed about the board, governance for sustainable
business and remuneration report
 Managing opportunities and risks – under this it discussed about key risks to the
company and how it manages the risks (Iress.com, 2019).
 Performance – under this it talked about the financial performance of
 Basis of preparation - under this it discussed about basis on which the financial
statements are prepared.
On the other hand, Naspers Limited’s integrated report provides the details regarding
organizational overview, Governance, Business model, Managing opportunities and risks,
Performance and Basis of preparation (Naspers.com, 2019).
Hence, if both the above mentioned entities are compared it can be stated that the
Australian company does not prepare separate integrated report and includes the same under the

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annual report whereas South African company prepares the same and covers all the aspects.
However, both the companies cover the same aspects under their respective integrated report.
Conclusion
From the above it can be concluded that conceptual framework sets out concept that is
used for shaping presentation and preparation of the financial statements for the purpose of using
it by the external users. It significantly contributes to the academic credibility as well as public
confidence regarding the financial reporting with regard to reliability, relevance and consistency
through employing the uniform as well as clearly defined principles. Further, if the guidelines for
sustainability reporting is considered it can be stated that both IIRC as well as GRI both continue
working together with the alignment of GRI standards and international framework for
improving the corporate reporting.


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18CONTEMPORARY ACCOUNTING THEORY
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