Contemporary Accounting Theory

This report focuses on the application of conceptual frameworks in financial reporting and the concerns and benefits associated with it. It also discusses the application of the conceptual framework by Gold Road Res Limited (GOR) and compares sustainability reporting guidelines with the International Integrated Reporting Framework.

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

Contemporary Accounting Theory 2
Executive Summary
Accounting bodies like AASB and IASB have made use of conceptual frameworks to enhance
financial reporting practices of the public entities within nations and across the globe. These
bodies have used conceptual frameworks to develop accounting standards which have helped
public entities to formulate reliable financial reports for the users of financial information.
However, applying a conceptual framework in financial reporting has been associated with a
certain limitation which has given rise to professional and academic concerns within Australia.
In order to achieve long term survival objectives, GOR and Mondi Ltd are engaging in
sustainability and integrated reporting practices. Therefore, investors have been able to make
comparisons between two or more entities based on their integrated and annual reports only due
to the application of the conceptual framework in formulating these reports.

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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Part A: Conceptual framework........................................................................................................3
a) Review of the history and development of the Conceptual Framework for Financial
Reporting......................................................................................................................................3
b) Explanation of the Australian accounting profession's concerns regarding the Conceptual
Framework...................................................................................................................................5
c) Discussion of academics’ concerns about the quality (potential benefits and limitations) of
the Conceptual Framework..........................................................................................................6
d) Explanation of how the conceptual framework has been applied by Gold Road Res Limited
(GOR)...........................................................................................................................................8
Part B: Integrated/sustainability reporting.......................................................................................9
a) Comparison of Sustainability Reporting Guidelines and International Integrated Reporting
Framework...................................................................................................................................9
b) The rigour of the conventional accounting, based upon the Conceptual Framework for
contents of sustainability as well as integrated reports..............................................................10
c) Applicability of the theories to explain contents of sustainability as well as integrated
reports.........................................................................................................................................10
d) A table of various components of an integrated report and discussion of whether and how
the selected South African company has disclosed information against each of those
components................................................................................................................................11
e) Comparison of GOR's reporting practices with the index and the integrated reporting
practices in Mondi Ltd...............................................................................................................12
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

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Introduction
A conceptual framework is referred to as a tool which contains that can be utilized by
professionals to formulate a meaning about a particular phenomenon under consideration. In
most cases, conceptual frameworks are used to combine conceptual disparities so as to enhance
the relevance of a real circumstance. Marketing, social sciences and financial reporting are some
of the areas where conceptual frameworks are used to deliver meaning about various
phenomenons (Ifrs.org, 2018). This report will focus mainly on the application of conceptual
frameworks in financial reporting. In financial reporting, a conceptual framework is viewed as a
tool that is used to define objectives that can be used to shape the financial reporting practices of
companies. The above is attributed to the fact that the conceptual framework can be used to
define measurement criteria as well as qualitative features of financial information (Malhotra and
Ray, 2016). The report will make use of websites, journals, textbooks and reports to facilitate
research about various external corporate practices of companies. Data collected from the above
sources will be qualitatively analyzed so as to formulate relevant deduction about the use of
conceptual frameworks for financial reporting. As a result, this report will be subdivided into
Part A and Part B so as to effectively present findings of the use of the conceptual framework in
financial reporting.
Part A: Conceptual framework
a) Review of the history and development of the Conceptual Framework for Financial
Reporting
In regards to the United States, none of its public or private bodies had a function of
developing the accounting standards to shape financial reporting practices of public entities
before 1929. As such, the crashing of the stock market in 1929 led to the formation of the

Contemporary Accounting Theory 5
Securities and Exchange Act which authorized the Securities and Exchange Commission to
monitor the financial practices of public entities in the United States (Swann, 2012). In the due
course, SEC formed the Financial Accounting Standards Board (FASB) as a body for
formulating the standards of accounting for all public entities in the United States (Jorissen,
2010). However, the application of conceptual frameworks for financial reporting was adopted
by FASB in 1973 through the creation of powerful theoretical foundations for formulating
accounting standards in the United States. The above framework based on qualitative traits,
recognition as well as measurement criteria as concept statements for creating reliable
accounting standards for public entities in the United States (Skousen, 2010). As a result,
Generally Acceptable Accounting Principles (GAAP) was created from the application of the
conceptual framework in financial reporting practices.
On the other hand, the United Kingdom created its conceptual framework in 1999 for
shaping the financial reporting practices of its public entities. From the conceptual framework,
Accounting Standards Board of U.K formulated Statement of Principles as a tool that was
utilized to define all the procedures that public entities had to follow when engaging in financial
reporting practices. Most importantly, the Statement of Principles was consistent with the
conceptual framework for financial reporting that had been issued in the United States. As such,
all public entities in the U.K applied the statement of principles to their financial statements such
as balance sheets and income statements (Courses.lumenlearning.com, 2019). Therefore, a
conceptual framework for financial reporting in the U.K was developed basing on the elements
of financial statements like liabilities, assets, profits and losses.
Additionally, Australia considered the conceptual framework as an approach that was
made of concepts that defined the nature and relevance of financial reporting practices of public

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entities. It was in 2004 that Australia started to apply the conceptual framework in financial
reporting through its Australian Accounting Standards Board (AASB) (Aasb.gov.au, 2016). As
such, the conceptual framework was incorporated in financial reporting as a way of easing
interpretation of financial information by investors and auditors from financial reports of public
entities. Most importantly, a conceptual framework aimed at ensuring that financial reporting
practices of Australia's public entities are consistent with the accounting standards of AASB
(Aasb.gov.au, 2015).
Furthermore, global financial reporting practices incorporated the conceptual framework
in 1989 which was approved by the Inter-Agency Standards Committee. The above body created
the International Accounting Standards Board (IASB) which adopted and approved conceptual
framework in financial reporting in 2005 and 2010 respectively. Most importantly, the
conceptual framework assisted the IASB in its attempts to revise and formulate consistent
concepts for International Financial Reporting Standards. Recognition and measurement criteria
for elements of financial statements were the main concepts that were used to create a conceptual
framework for financial reporting practices globally (Warfield, 2011).
b) Explanation of the Australian accounting profession's concerns regarding the
Conceptual Framework
Prevalence of high levels of political interferences in the implementation of the conceptual
framework in financial reporting is the major concern for Australia's accounting profession. A
number of debates arise on which concepts should be considered when implementing a
conceptual framework due to the fact creation of this tool involves a combination of ideas and
objectives. Political interference is always exhibited during disagreements among the board
members of IASB whilst selecting concepts to be utilized whilst applying conceptual
frameworks in financial reporting (Derek and Skousen, 2010). The disagreements arise due to

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the existence of different political interests among these members which leads to ignoring of
some relevant concepts in the conceptual framework. For example, board members in most cases
have disagreements on criteria that elements of financial statements can be measured so as to
yield reliable accounting standards for public entities. In the due course, some member may
argue for measurement of say assets basing on their historical values whilst others may opt for
future values due to varying political interests. As such, when a given alternative is chosen, some
other relevant ideas may be ignored on how best the elements of financial statements can be
measured so as to improve the financial reporting practices of public entities. As a result, the
resulting application of the conceptual framework may not yield consistent financial reporting
practices whereby unreliable financial reports can be developed by entities (Jian-Bo, 2017).
Therefore, the Australian accounting profession is concerned with high prospects of developing
unreliable financial reports due to political interferences whereby desirable returns may not be
realized from investor injections into public entities.
c) Discussion of academics’ concerns about the quality (potential benefits and limitations)
of the Conceptual Framework
Academicians are concerned with the fact that conceptual frameworks are associated with
potential benefits and limitations when they are applied in financial reporting practices by public
entities. Below is a discussion of some of the potential benefits that are associated with the
conceptual framework in financial reporting. Conceptual frameworks are essential in
determining the measurement criteria for elements of financial statements in a way that depicts
their consistency with standards of accounting (Burns and Scapens, 2010). More so, a reliable
and accurate measurement criterion for assets, liabilities and incomes means that entities are able
to follow accounting standards to develop accurate financial reports for their investors and other
users of financial information. In addition, conceptual frameworks also help developers of

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accounting standards to identify and address accounting problems so as to improve the financial
reporting practices of public entities. In this regard, the incidences of falseness in the recording
of business transactions and incorrect representation of elements of financial statements can be
identified and addressed through a conceptual framework (Riggan, 2012). Therefore, conceptual
frameworks are helpful in ensuring that reliable financial reporting practices are exercised by
entities by following correct measurement criteria and recording of financial elements in
financial statements.
However, different levels of development among nations across the world make it costly
to develop a conceptual framework for financial reporting. Least developed countries have been
reluctant to develop their own conceptual frameworks because they consider it as a waste of time
and resources unlike the developed countries like U.S, U.K and Australia (Iasplus.com2, 018).
As such, developed countries have been able to develop their own conceptual frameworks which
have helped to shape their financial reporting practices. On the contrary, the least developed
countries do not have the appropriate personnel to develop conceptual framework due to the fact
that the tool is generally complex to execute (Ayala and Ibárgüen, 2012). The above limitation
has lead to consistent differences in the level of effectiveness associated with financial reporting
practices between developed and least developed countries. For example, developed countries
are effectively utilizing conceptual frameworks to deliver accurate financial reports which are
not the case with least developed countries.
d) Explanation of how the conceptual framework has been applied by Gold Road Res
Limited (GOR)
i)

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Consolidated Statement of Financial Position and Consolidated Statement of Profit or Loss and
Other Comprehensive Income are the two statements that have been prepared as per the
conceptual framework at GOR. Current and noncurrent assets and liabilities are the major
components of GOR's consolidated statement of financial position. On the contrary, Gain on sale
of Gruyere tenements, interest incomes, employee expenses and legal costs are the major
components GOR's consolidated statement of profit or loss and other comprehensive incomes
(Goldroad.com.au, 2017).
ii)
By considering the recognition principles, it can be seen that revenues were recognized in GOR's
consolidated statement of profit or loss and other comprehensive incomes. It can be recognized
that revenues represented as other incomes are greater than the expenses that GOR incurred in its
2017 operations. Additionally, assets such as term deposits, inventories, mine development,
property and equipment were recognized in the consolidated statement of financial position of
GOR. The values of these current and non-current assets have been reliably determined. In
addition, liabilities such as provisions, trade payables, and deferred tax liabilities were
recognized in GOR's consolidated statement of financial statement. These current and noncurrent
liabilities hold economic gains that are to be settled reliably. In regards to measurement bases,
revenues, assets and liabilities have all been centered on their historical values to deliver the
values indicated in the two financial statements of GOR (Goldroad.com.au, 2017).
iii)
Financial reports of GOR have always exhibited honest representation as to their major
qualitative characteristics. These reports by GOR have always exhibited absolute depiction of the

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necessary information about the company's finances which has enabled users of financial
information to find out its financial strength and position. Evidentially, GOR's annual financial
reports offer notes to the consolidated financial statements so as to ease understanding financial
information (Goldroad.com.au, 2017).
Part B: Integrated/sustainability reporting
a) Comparison of Sustainability Reporting Guidelines and International Integrated
Reporting Framework
Similarities and differences exist between the Global Reporting Initiative (GRI) and the
International Integrated Reporting Council (IIRC) is the major point for comparisons between
sustainability reporting guidelines and the International Integrated Reporting (IIR) frameworks.
Similarity
Both sustainability reporting guidelines and IIR framework mainly focus on determining feasible
approaches that an entity can utilize to achieve sustainability and value creation goals in the long
run. The above is attributed to the fact that these two tools focus on helping a company to have
control over its internal environment so as to shape its practices to achieve long term goals. In
the due course, the company is able to offer significant contributions to the global economy once
the above tools are utilized to create value and sustainability in the long run (ACCA, 2013).
Difference
Sustainability reporting guidelines have key performance indicators like an entity's profile
reports that are used to assess and evaluate the progress of an entity's procedures towards
achieving sustainability objectives in the long run. It is through profile reports that challenges
can be identified and addressed to help an entity to achieve its sustainability objectives. On the

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contrary, IIR frameworks do not have key performance indicators. As a result, an entity utilizes
judgments basing on experience to select relevant resources that can help it to create value in the
long run (Integratedreporting.org, 2013).
b) The rigor of the conventional accounting, based upon the Conceptual Framework for
contents of sustainability as well as integrated reports
Conventional accounting based upon the conceptual framework for contents of sustainability
and integrated reports is associated with potential benefit and limitations as discussed below;
Conventional accounting gives a company an opportunity to exercise flexibility so as to
minimize costs and realize maximum possible profits when it utilizes a conceptual framework
for contents of sustainability and integrated reports (John, 2011). The above benefit is realized
from the fact that a company is able to adapt to the dynamic requirements for integrated and
sustainability reporting practices.
However, conventional accounting is quite expensive to develop and maintain by a
company due to the complex procedures that are associated with the tool. For example, a
company can incur significantly high costs in recruiting experts to develop and maintain the tool
since it requires critical examinations of its processes. In the due course, a company may fail to
realize its potential profits due to increased costs of operations through conventional accounting
(Phillips, 2011).
c) Applicability of the theories to explain contents of sustainability as well as integrated
reports
Institutional theory is relevant for explaining the contents of sustainability and integrated reports.
The theory defines the social values that a company should always follow whilst executing its
operations so as to maintain sound relationships with the community that it serves (Jay, 2010).

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As a result, a company is able to realize enhancements in its survival goals when it utilizes
institutional theory to explain the contents of sustainability and integrated reports.
However, institutional theory limits the options that are available to a company in its attempts to
achieve long-run sustainability goals. This is because the theory makes a company to focus on
the social values of the society during the execution of its operations while ignoring political and
economic factors (Jaswith, 2011). As a result, a company may fail to exploit all feasible options
to achieve survival goals since it may be limited to specific sustainability and integrated values.
d) A table of various components of an integrated report and discussion of whether and
how the selected South African company has disclosed information against each of those
components
Components of an Integrated Report (IR) Discussion on disclosure of Mondi Ltd on
every component of IR.
Organizational overview and organization's
external environment
Mondi Ltd has disclosed information about the
number of employees, production sites;
countries and output. The company has 26,100
employees, 102 production sites, serves 33
countries and produces about 6 million tones
annual paper (Mondigroup.com, 2018).
Governance structure and how it creates value Mondi Ltd declares that it has a sound culture
that delivers sustainable growth. The
governance policies are mainly focused on
integrity and passion for performances as a
factor that derive sustainable development
(Mondigroup.com, 2018).

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e) Comparison of GOR's reporting practices with the index and the integrated reporting
practices in Mondi Ltd
Both reporting practices of GOR and Integrated reporting practices of Mondi Ltd reveal
information about organizational overview and organization's external environment. The above
practices indicate that the two companies have diversified their operations as a way of sustaining
their survival in the competitive business environment. Additionally, GOR and Mondi Ltd have
governance structures which help to shape present operations with a view of creating value in the
long run so as to realize desirable profit levels (Alan, 2013).
Conclusion
Conceptual frameworks have enhanced financial reporting practices of public entities across the
world due to the fact that they define the procedures and concepts that all entities must always
follow. Countries like U.S, U.K, and Australia have incorporated the conceptual framework in
their financial reporting practices which have yielded fruitful returns in financial management
practices. However, limitations associated with conceptual frameworks have given rise to
concerns among professionals and academicians about the use of the tool in financial reporting.
On the contrary, many companies like GOR and Mondi Ltd are engaging in sustainability and
integrated reporting to sustain their survival in the competitive business world.

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References
Aasb.gov.au (2015).Conceptual Framework for Financial Reporting: AASB Exposure Draft:
Accessed at https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf
Aasb.gov.au (2016).Framework for the Preparation and Presentation of Financial Statements:
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04_COMPjun14_07-14.pdf
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Contemporary Accounting Theory 15
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