Contemporary Accounting Theory

Running Head: CONTEMPORARY ACCOUNTING THEORY 1
Contemporary Accounting Theory
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CONTEMPORARY ACCOUNTING THEORY 2
Contemporary Accounting Theory
Executive Summary
This paper comprises of two parts, A and B. Part A provides a literature review about the
history of the conceptual framework in financial accounting and its development in Australia,
USA and UK. According to researchers, accounting standards settles were operating without a
conceptual framework. There were therefore several scandals in financial accounting and the
entire system was disorganized. However, the introduction of the conceptual framework in 1989
resulted into establishment of a one set of accounting standards that govern the operations of the
accounting sector. The financial accounting field even further improved as the conceptual
framework was revised in 2001. As a result, there have been several concerns raised by both
academics and accounting professionals about the applicability of the framework. Part B of the
report discusses sustainability and integrated reporting and the strengths as well as limitations of
conventional accounting. According to the integrated report presented by Discovery Limited, the
company disclosed all the information of the elements of an integrated report. Both companies
have several things in common including the way they present their financial positions.
However, AUB Group Limited comprises of an interactive annual report whereas Discovery
Limited comprises of an integrated report.
Introduction
Conceptual framework is one of the most important systems in accounting which
comprises of fundamentals and inter-related objectives that facilitate issuing of consistent
standards which describe nature and control preparation and presentation of financial statements
as well financial accounting as a whole (IFRS Foundation,2017). The framework plays a vital

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role in financial accounting as it lays foundation for better understanding and evaluation of
accounting information. Following the important role played by this system, it is currently
adopted by multiple countries in the world. This paper provides research about the numerous
corporate external reporting aspects. It reviews the available literature about the history and
advancement of the conceptual framework, the concerns raised by the accounting professionals,
as well as the concerns of academics about its application. The report is to be presented in two
parts, A and B. Part A provides literature about the conceptual framework and its applicability in
AUB Group Limited, an Australian company. Part B discusses sustainability and integrated
reporting and its applicability in Discovery Limited, a South African company (IFRS
Foundation,2017).
Part A: Conceptual Framework
A ) Literature review of the history and development of the Conceptual Framework for
Financial Reporting
Conceptual framework is a system of objectives and ideas that facilitates the creation of
standards and rules. In Financial accounting, a conceptual framework is mainly developed to
provide a framework for setting the foundation of solving accounting disputes, accounting
standards and fundamental principles (Dennis, 2018). Conceptual framework is a very important
system in accounting as it helps in providing a better understanding of financial reports. Very
many years back, setters of accounting standards were operating without a conceptual
framework. As a result, scandals were the order of the day and accounting standards were
disorganized (Sori, 2017).

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Additionally, the absence of the conceptual framework increased inconsistence in the
accounting standards and the overall purpose of preparing and presenting financial statements.
The International Accounting Standards Committee (IASC) in 1989 (Silva, 2018), issued
conceptual framework. Since then, it had been left unchanged until the International Accounting
Standards Board in 2001, an organization that replaced IASC, adopted it. IASB is an
independent organization whose main goal is to establish a single set of accounting standards
that govern all international companies across the globe. The organization deals in capital and
capital maintenance concepts, the objectives of preparing and presenting financial statements,
qualitative traits which determine how important the information in financial statements is, and
defining as well as measuring the elements which provide a basis for constructing financial
statements (Sori, 2017).
In U.K, conceptual framework was developed by the nation in 1999. It was referred to as
the Statement of Principles and was approved by the Accounting Standards Board. Following the
several gains such as globalization, which were realized by U.S after adoption of its conceptual
framework, United Kingdom also aimed at decreasing any form of prospects of staying behind as
far as accounting is concerned through developing its own conceptual framework, (Becker,
2010). Considering the above, there exists consistence between the Statement of Principles and
the statements of the conceptual framework, which were issued by several nations including
United States and New Zealand (Carrahera and Auken, 2013). The Financial statements elements
were the foundation for the development of the Statement of principles in U.K. These included
ownership interest, losses and gains, assets and liabilities. These principles are applied to the
financial statements which are included in the constitution of the interim reports and initial
announcements of the listed companies in U.K (Becker, 2010).

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In Australia, the conceptual framework was initially observed as a package that consisted
of several concepts of accounting statements. These statements provided the definition of
subject, purpose and nature of the significance of financial reporting in both private and public
companies (Carrahera and Auken, 2013). In 2004, the Australian Accounting Standards
Board(AASB) developed the conceptual framework for financial reporting. The framework was
then implemented in 2005 and it served the purpose of improving and regulating accounting
practices and financial reporting of all public companies in the country. The main aim of the
framework was to assists financial statement users and auditors to interpret and form opinions on
the financial information contained in the financial statements as per the AASB (Carrahera and
Auken, 2013).
Globally, the conceptual framework was first introduced in 1989. It was authorized by
Inter-Agency Standing Committee (IASC) and was initially adopted by IASB in 2005.The
accounting standards that were established by IASC are currently still in use and are referred to
as the International Accounting Standards(IAS) (Daske et al, 2013). On the other side standards
developed by IASB are referred to as International Financial Reporting standards. In 2004, the
conceptual framework was reviewed and revised by the Financial Accounting Standards Board
(FASB) and IASB. However, slow progress and change in the priorities resulted into abandoning
of the project after 6 years when only the first phase (Phase A) of the project was finalized
(Flower, 2015). Phase D was not finalized even after viewing the exposure draft and discussion
paper publication. Phases B and C were extensively discussed by the board without issuing any
consultation document. Other phases were never touched. In March 2018, the revised version of
the conceptual framework was issued which effective for companies which apply the conceptual
framework to establish accounting policies especially when there is no IFRS standard that

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applies to a given transaction. The new version of the conceptual framework will only be applied
for annual reporting periods starting from 1st January 2020. The revised version of the conceptual
framework comprises of significant concepts of financial reporting that provide guidance to
IASB while establishing IFRS standards (Armstrong, 2013). It plays a vital role in ensuring that
all similar transactions are handled in the same way and consistence in the set standards. This
helps to give important information to lenders, investors and other creditors. Additionally, the
new version of the conceptual framework also helps companies in formulating accounting
policies when there exists no IFRS standard relevant to a particular transaction and more
importantly, it assists stakeholders to interpret standards. IASB issued an accompanying
document " Amendments to References" to help companies to clearly understand the transition
(Daske et al, 2013).
B) Discussion of the Australian accounting profession`s concerns on the application of the
Conceptual Framework
The Australian accounting profession is specifically concerned with the multiple political
interferences which have been expressed about the implementation of the conceptual framework
of financial reporting. A significant number of professions are taking part in debates about the
generation and implementation of the elements of the financial statements since conceptual
framework entails formulation of ideas and objectives (Armstrong, 2013). On several occasions,
the stage of decision making is the one most interfered by politics especially among members of
the board. Some great ideas are sometimes ignored because of the selfish interests of the IASB
members. This is evident specifically when the frame work is applied to resolve issues associated
with several disagreements among board members (Humayun and Asheq, 2018). Due to the
rapidly changing economic conditions in different parts of the world, IFRS members may also