Contemporary Accounting Theory

This report analyzes the conceptual framework for financial reporting and sustainability reporting. It discusses the adoption and application of the IASB conceptual framework, the benefits and limitations, and the use of the framework by Perpetual Limited. It also compares the sustainability reporting framework of GRI and the integrated reporting framework of IIRC. The report explores the strengths and limitations of conventional accounting in explaining sustainability and integrated reports, and discusses the connection between corporate social responsibility reporting and the stakeholder theory and legitimacy theory.

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

1CONTEMPORARY ACCOUNTING THEORY
Executive Summary
The findings of the report state that the companies all over the world adopted the conceptual
framework of IASB in order to improve their financial reporting since this provides the
companies with sale accounting standards. The findings of the report also state that it is
needed to consider the limitations, benefits and concerns related to the application of
conceptual framework for financial reporting in order to improve the overall quality. The
report also shows the major differences between integrated reporting framework and
sustainability reporting framework. The main theories related to the corporate social
responsibility reporting are the stakeholder theory and legitimacy theory. It can be seen from
the findings of the report that Old Mutual Limited has followed all the components of
integrated reporting.

2CONTEMPORARY ACCOUNTING THEORY
Table of Contents
Introduction................................................................................................................................3
Part A.........................................................................................................................................3
Answer to Requirement (a)....................................................................................................3
Answer to Requirement (b)....................................................................................................4
Answer to Requirement (c)....................................................................................................4
Answer to Requirement (d)....................................................................................................5
Part B..........................................................................................................................................6
Answer to Requirement (a)....................................................................................................6
Answer to Requirement (b)....................................................................................................7
Answer to Requirement (c)....................................................................................................8
Answer to Requirement (d)....................................................................................................9
Answer to Requirement (e)..................................................................................................10
Conclusion................................................................................................................................11
References................................................................................................................................12

3CONTEMPORARY ACCOUNTING THEORY
Introduction
The two crucial parts of the report undertakes the analysis of two crucial topics which
are conceptual framework for financial reporting and sustainability or integrated reporting.
Two selected companies for this report are Perpetual Limited that is an Australian company
and Old Mutual Limited that is a South African company. This report undertakes the analysis
of crucial aspects associated with these two topics like the history and development of IASB
conceptual framework for financial reporting, difference between sustainability reporting and
integrated reporting and others, use of IASB conceptual framework by the Australian
company, integrated reporting of the South African company and others.
Part A
Answer to Requirement (a)
The conceptual framework for financial reporting is considered as a set of agrees
principles in order to form the presentation of financial reports. The International Accounting
Standards Board (IASB) implemented the ‘Framework for the preparation and presentation of
Financial Statements’ in the year 1989 which was considered as the written conceptual
framework providing the concepts and principles governing the financial statements
preparations (Zhang & Andrew, 2014). It can be seen that the IASB and United States (US)
accounting standard setters that is the Financial Accounting Standard Board (FASB) have
been closely working on a merging project for the integration of FASB with the standard of
GAAP. Now, the presence of a new conceptual framework can be seen which has certain
revised chapters; such as objective of general-purpose financial statements, the reporting
entity, qualitative characteristics of financial information and others (Bohušová, 2014).
In July 2002, the Financial Reporting Council surprises the Australian financial
reporting community and the Australian Accounting Standards through the announcement of
fundamental changes in the process of standard setting (Murphy & O’Connell, 2013).
Australia witnessed the adoption of the policy of harmonization and convergence through the
adoption of the conceptual framework for financial reporting of the IASB by 1st January
2005. The Australian Accounting Standards Board (AASB) has decided to adopt the revised
conceptual framework of the IASB in 2018 (Ellwood & Newberry, 2016). In case of United
Kingdom (UK), the regulation-setters adopted the principles and standards of the conceptual
framework for financial reporting of Australia with the aim to move towards the principles-
based accounting standards and principles from rules-based accounting standards and

4CONTEMPORARY ACCOUNTING THEORY
principles. In most of the countries all over the world, the prime reason for the adoption of
the conceptual framework of IASB was to move toward certain similar accounting policies
and procedures for the companies all over the world (Brouwer, Faramarzi & Hoogendoorn,
2014).
Answer to Requirement (b)
The Australian accounting profession has shown certain concern related to the
application of IFRS/IASB conceptual framework for financial reporting. These are as below:
1. It needs to be mentioned that the business organizations need huge investment and
time for the application of this IASB conceptual framework and this aspect is
creating problems for the developing countries in arranging this huge investment for
the adoption purpose (Perera & Chand, 2015).
2. It is crucial to mention the fact that the standards and policies of IASB conceptual
framework have been applied in the presence of certain existing accounting
standards and principle. Thus, the presence of these two types of standards is
creating conflict with the existing standards which is considered as a negative aspect
in the proper application of the IASB conceptual framework (Macve, 2014).
3. Acceptance is considered as another major concern in the application of IASB
conceptual framework. It needs to be mentioned that all types of users of the
financial statements have not fully accepted the conceptual framework for financial
reporting of IASB which is a matter of concern in the effective application of the
IASB conceptual framework for financial reporting (Wingard, Bosman & Amisi,
2016).
Answer to Requirement (c)
As per the accounting profession, the IASB conceptual framework has certain
potential benefits and limitations. They are as follows.
Potential Benefits
1. The IASB conceptual framework enables the discussion on accounting issues in order
to guide the standard-makers to make the solutions of these problems available
(Barker, 2015).
2. This provided the accountants with all the basics for objectives and rationales.
3. This leads to the increase the reliability of financial reporting.

5CONTEMPORARY ACCOUNTING THEORY
4. This enhanced the communication between the accountants and the standard-setters
regarding different accounting issue (van Rensburg, Coetzee & Schmulian, 2014).
Potential Limitations
1. IASB conceptual framework can be too general in nature and its principles have huge
dependency on various assumptions and estimates. Thus, it can be of too little help at
the time of the preparation of financial statements and can contribute towards the
development of financial statements that are hugely based on theory and prone to
fraud (Bauer, O'Brien & Saeed, 2014).
2. Another major limitation of the IASB conceptual frameworks is the rigidity that seeps
into the companies’ accounting practices due to its implementation. Thus, it becomes
impossible for introducing new accounting ideas into the system. In addition, this
conceptual framework is associated with major inflexibility and thus, some crucial
aspects of this are unable in providing the necessary direction in the accounting
process. This rigid conceptual framework makes it tough for incorporating new ideas
(van Mourik, 2014).
Answer to Requirement (d)
i. According to Note 6-2 Basis of Preparation in the 2018 Annual Report of Perpetual
Limited, the financial reports of the firms are general purpose financial reports that
have been prepared in accordance with Australian Accounting Standards adopted by
the AASB and the Corporations Act 2001 (perpetual.com.au, 2019). These financial
statements have compliance with the International Financial Reporting Standards
(IFRS) adopted by the IASB. It indicates that all the financial statements of Perpetual
Limited are prepared as per the IASB conceptual framework (perpetual.com.au,
2019). The major components are consolidated statement of profit or loss and other
comprehensive income, consolidated statement of financial position, consolidated
statement of change in equity and consolidated statement of cash flows
(perpetual.com.au, 2019).
ii. It needs to be mentioned that Perpetual Limited has followed the principles of AASB
conceptual framework issued by the IASB for the recognition and measurement of
their assets, liabilities and equity (perpetual.com.au, 2019). According to the
accounting policies for revenue in Perpetual Limited, revenue recognition is done at
fair value of consideration received or receivable net of goods and service tax. The

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main parts of assets are receivables, property, plant and equipment and intangibles
(perpetual.com.au, 2019). Trade and others receivables are considered as receivables
and their initial recognition is done based on fair value and then they are measured at
amortized costs as per the effective interest rate method. Perpetual Limited measures
the property, plant and equipment at cost or deemed cost after the deduction of
accumulated depreciation and loss of impairment. Intangible assets are also measured
at cost less accumulated impairment losses. Borrowings is a major part of the liability
of Perpetual Limited and the recognition of borrowings is done at fair value net of the
incurred transaction costs. After the recognition, interest bearing borrowings are
stated at amortized costs (perpetual.com.au, 2019).
iii. There are five qualitative characteristics of financial information; they are relevance,
faithful representation, comparability, verifiability, timelines and understandability
(aasb.gov.au, 2019).
Perpetual Limited has maintained relevance through providing the most relevant
financial information about assets, liabilities and others in the financial statements.
The company has maintained faithful representation through complying with the
principles and policies of accounting conceptual framework (perpetual.com.au, 2019).
Timeliness is exhibited since they publish their financial statements and information
at the time of the decision-making process of the users. Since Perpetual Limited has
disclosed information about the current and previous years, it is helpful for the users
in comparing the financial information. The 2018 Annual Report of Perpetual Limited
has provided various notes to the financial statement which includes justification,
used assumptions and others with the aim to maintain the understandability and
verifiability of financial information (perpetual.com.au, 2019).
Part B
Answer to Requirement (a)
At the time to compare and contrast the Sustainability Reporting Guidelines of the
Global Reporting Initiatives (GRI) and the Integrated Reporting Framework of the
International Integrated Reporting Council (IIRC), it needs to be mentioned that both these
frameworks attempt in corporate social responsibility reporting in addition of financial
performance of the companies (Hughen, Lulseged & Upton, 2014). In this areas, both these
frameworks have same agenda that is corporate social responsibility reporting beyond the

7CONTEMPORARY ACCOUNTING THEORY
financial reporting. However, there are certain differences between these two frameworks.
These are mentioned below.
1. Sustainability reporting framework of GRI undertake the approach of the companies
to effectively manage the environmental and social problems that are material to
them. Through the sustainability reports, stakeholders come to know about the
adopted procedures by the firms for determining the materiality of these issues,
management of these issues and their performance against these issues (Fernandez-
Feijoo, Romero & Ruiz, 2014).
Integrated reporting framework can be regarded as the advanced version of
sustainability reporting framework because it communicates the adopted processes of
the firms for short, medium and long-term value creation through the integration of
traditional and sustainability risks. The integrated reports are considered as such
reports which shows both the financial and non-financial performance related
information of the companies in a same report (Stubbs & Higgins, 2014).
2. It needs to be mentioned that sustainability reporting targets wider range of
stakeholders than integrated reporting. Sustainability reporting is less likely to
emphasize on the connectivity between different capitals for the purpose of value
creation process (Fonseca, McAllister & Fitzpatrick, 2014).
In case of integrated reporting, the impact of a firm on different capitals is considered
as material when it majorly affects the quality, affordability and affordability of
capitals on which the companies depend. Integrated reporting framework considers
six types of capitals which are human, manufacturing, financial, social and
relationship, natural and intellectual capital (De Villiers, Rinaldi & Unerman, 2014).
Answer to Requirement (b)
The conventional accounting based upon the conceptual framework for financial
reporting has certain strengths and limitations for explaining the contents of sustainability and
integrated reports. These strengths and limitations are discussed below.
Strengths
 Conventional accounting under the conceptual framework for financial reporting uses
the traditional accounting principles and practices which takes into account the

8CONTEMPORARY ACCOUNTING THEORY
sustainable cost and natural resource inventory accounting. This conventional
accounting undertakes the envirmental asset and liability valuation.
 Major strength of this conventional accounting under the conceptual framework for
financial accounting can be seen in providing the information about the financial
performance of the companies (Weber, Diaz & Schwegler, 2014).
Weaknesses
 Conventional accounting under the conceptual framework has heavy dependency on
monetary units for measuring the environmental and social impact. This can be
considered as a weakness of this accounting system because it is not always possible
to measure the social and environmental performance on monetary basis.
 Sustainability is considered as a multi-dimensional method that cannot be directly
measured and thus, it needs a set of indicators with the aim to measure performance
towards sustainability objectives. The conventional accounting under the conceptual
framework for financial reporting does not have these non-financial indicators which
is considered as a major weakness of this accounting system.
 Conventional accounting under the conceptual framework for financial reporting does
not involve in providing the necessary disclosures related to social and environmental
issue along with the non-financial performance of the companies. This needs to be
considered as a major limitation of this conventional accounting practice (Hiremath et
al., 2013).
Answer to Requirement (c)
It needs to be mentioned that the business organizations get involved in the corporate
social responsibility reporting in the presence of two reasons; first, they assumed that cordial
relation with the stakeholders helps in increasing the financial returns; and second, since they
adopt the norms and expectations of the stakeholders, this develops a legitimacy instrument
for showing their adherence with the norms and expectations. This indicates towards the
connection of integrated or sustainability reports of corporate social responsibility reporting
of the firms with two theories which are Legitimacy theory and Stakeholder theory.
Stakeholder theory enriches the understanding of corporate social responsibility
reporting since the managements of the companies react to the stakeholder’ expectations. As
per this theory, organizations have the obligation to take into consideration the wants and
needs of their key stakeholders since they are the ones who offer the firms the required

9CONTEMPORARY ACCOUNTING THEORY
resources for accomplishing the business. For this reason, the companies are needed to ensure
the corporate social responsibility reporting through the publication of sustainability or
integrated reporting based on the individual needs of the stakeholders (Öberseder,
Schlegelmilch & Murphy, 2013).
Legitimacy theory states that the corporate social responsibility reporting is a major
strategy for the companies in order to be accepted and approved for this corporate social
responsibility reporting actions in the society. Through the disclosure of the corporate social
respobslity related information, companies convey a social appearance of responsibility,
legitimization of their behaviour and improvements in external reputation through the
publication of sustainability and integrated reporting for corporate social responsibly
reporting (Golob et al., 2013).
Answer to Requirement (d)
According to the IIRC Integrated Reporting Framework, it is needed for the
companies to take into account a certain index or checklist which consists of the needed
components that need to be considered in the development of integrated reporting. This in
index is shown below.
Components Details
1. Responsibility The presence of responsibility statement
2. Strategic Focus Discussion on the organizational strategies
3. Stakeholder Relationship Discussion on the strategies to engage with the
stakeholders (Stubbs & Higgins, 2014)
4. Materiality Discussion on materially determination and the
material issues of corporate social responsibility
reporting
5. Organizational and External
Overview
Discussion on the overview of business and external
environment
6. Governance Discussion on organizational governance
7. Business Model Discussion on the adopted business mode
8. Risk and Opportunity Discussion on the risks and opportunities faced by the
firms
9. Performance Discussion on the performance overview
10. Basis of Preparation Discussion on the base for the preparation of

10CONTEMPORARY ACCOUNTING THEORY
integrated report (Stubbs & Higgins, 2014)
It can be seen from the 2018 Integrate Report of Old Mutual Limited that the
management of the company has ensured the presence of all the indexed in their integrated
report. As per the report, the integrated report of the firm has been prepared in accordance
with the International Integrated Reporting <IR> Framework which satisfies the last
component of the above index (oldmutual.com, 2019). The report contains the responsibility
statement as per the first point from the Chairman and Chief Executive Officer of the group.
The details of Old Mutual Limited’s business and operating environment can be seen in this
report. Under the section named “Value Creation and Strategy”, the management of Old
Mutual Limited has provided information on the crucial aspects like details about the
strategies, information on the adopted business model, adopted strategies to engage with the
stakeholders, risk management which considered the major risk of the business of Old Mutual
Limited, the material issue of the company and risks as well as opportunities faced by the
company. Under the section named “Governance”, Old Mutual Limited has provided
information on governance approach, governance framework and others (oldmutual.com,
2019).
Answer to Requirement (e)
Perpetual Limited has not prepared any integrated report for the year ended 2018.
However, it can be seen that the company has disclosed their corporate social responsibility
related information in two reports. First, the company has included the corporate social
respobslity related information in their 2018 Annual Report under the section named
“CORPORATE RESPONSBILITY”. In addition, Perpetual Limited has published their 2018
Corporate Responsibility Report in which the company has disclosed all the required
information on corporate social responsibility reporting.
At the time of comparison, it needs to be mentioned that Perpetual Limited has not
adopted either of the sustainability reporting framework of GRI or IIRC, where Old Mutual
Limited has prepared their integrated report in accordance with the International Integrated
Reporting <IR> Framework. For this reason, the corporate social respobslity report of
Perpetual Limited does not have the above-mentioned components of the index. However,
Perpetual Limited has considered the crucial aspects of corporate social responsibility
reporting through their 2018 Corporate Responsibility Report such as their approach towards

11CONTEMPORARY ACCOUNTING THEORY
sustainability, business overview, contribution towards people and community and
approaches towards environment (perpetual.com.au, 2019). However, when comparing the
corporate responsibility report of Perpetual Limited with the integrated report of Old Mutual
Limited, it needs to be mentioned that the integrated report of Old Mutual Limited has
maintained a perfect balance between the disclosure of financial and non-financial
information of their business. This balance is missing in case of Perpetual Limited since the
corporate responsibility report does not include the financial information where the annual
report of the firm includes most of the financial information and less corporate social
responsibility related information. On the overall basis, it needs to be mentioned that the
integrated reporting of Old Mutual Limited is more efficient than the corporate responsibility
reporting of Perpetual Limited (oldmutual.com, 2019).
Conclusion
It can be seen from the above discussion that the IASB developed their first
conceptual framework for financial reporting in the year 1989 and then, it was revised in the
year 2018. It can be observed that Perpetual Limited has complied with the IASB conceptual
framework for financial reporting. It can be seen from the second part of the report that
Perpetual Limited has published corporate responsibility report in 2018 where Old Mutual
Limited has published integrated report through adhering with the International Integrated
Reporting <IR> Framework.

12CONTEMPORARY ACCOUNTING THEORY
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