Contemporary Accounting Theory

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary Accounting Theory (Part A and B)
Student’s Name
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CONTEMPORARY ACCOUNTING THEORY
1. Executive Summary
The main rationale behind the creation of the Conceptual Framework in the
accounting sector is the aim to identify fundamental concerns; which are relevant when
evaluating financial statements. As such, the framework enables the firm’s managers to
evaluate their financial health hence assuring the company’s profitability. In that regard, this
paper will critically consider applying the framework on an Australian company: RIO
TINTO, which further explains, in section A, how the selected company applies this
framework when selecting financial statements, key concerns and events. In section B, a
comparison of the sustainability reporting and the international integration reporting
framework will be evaluated. Moreover, this segment includes an evaluation of the strengths
and limitations of financial statements considering the conceptual framework. To critically
evaluate the rationale intended by the section B, a South African Country named Glen Core
PLC will be used, based on a provided index of components available in an integrated report.
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CONTEMPORARY ACCOUNTING THEORY
Table of Contents
1. Executive Summary.......................................................................................................................2
2. Introduction...................................................................................................................................4
3. Part A.............................................................................................................................................4
a) Review of the history and development of the Conceptual Framework for Financial Reporting
4
b) Explanation of Australian accounting profession’s concerns regarding Conceptual Framework
5
c) Discussion of academic’s concerns about the quality (potential benefits and limitations) of
the Conceptual Framework...............................................................................................................6
d) Explanation of how the conceptual framework has been applied by the selected Australian
Company...........................................................................................................................................7
i. How many statements/reports have been prepared as per the Conceptual Framework and
what are their major components...................................................................................................7
ii. Which recognition principles and measurement bases have been applied for revenue, assets
and liabilities.................................................................................................................................9
iii. What qualitative characteristics of information exhibit in company’s various financial
reports?........................................................................................................................................10
4. Part B...........................................................................................................................................11
a) Comparison of Sustainability Reporting Guidelines and International Integrated Reporting
Framework......................................................................................................................................11
b) Rigour (strength & limitations) of the conventional accounting, based upon the Conceptual
Framework for contents of sustainability as well as integrated reports..........................................12
c) Applicability (usefulness of limitations) of the theories to explain contents of sustainability as
well as integrated reports................................................................................................................14
d) Preparation of an index (a table or checklist) of various components (criteria) of an integrated
report, and discussion of whether and how the selected South African Company has disclosed
information against each of those components (criteria)...............................................................15
e) Comparison of Australian company’s reporting practices with the index and the integrated
reporting practices in the selected South African Company............................................................17
5. Conclusion...................................................................................................................................19
References...........................................................................................................................................20
Appendix.............................................................................................................................................23
List of Abbreviations........................................................................................................................23
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CONTEMPORARY ACCOUNTING THEORY
2. Introduction
The Conceptual Framework (CF) is essential for the formulation of standardized
financial protocols that enable auditors and accountants to determine and monitor the
company’s financial statements, which is significant for evaluating the company’s
profitability. Thus, the financial statements are applicable by company’s users and the
relevant key stakeholders to fundamentally create the conceptual framework, which aid in the
purposes of evaluating the company’s finances. This paper considers approaching the thesis
on CF application on two companies: RIO TINTO and the Glen Core PLC. The International
Accounting Standards Board (IASB) plays a significant mandate in the formation of
standardize and revised financial guidelines that also play a crucial obligation to help analysts
to managing and solving financial issues. In that case, the framework enables managers to
make the necessary decisions, which are in compliance with specific protocols.
3. Part A
a) Review of the history and development of the Conceptual Framework for
Financial Reporting
According to literature review concerning the history and development of the
Conceptual Framework for financial reporting, in reference to IASB denote that there is a
standardized purpose, which contribute to the introduction of the CF for financial reporting
by businesses in United Kingdom (UK), United States (US), Australia, among other nations.
According to Ehoff (2010), the CF was formulated by the AASB dated from 1985 to 1995.
The accounting concepts considering the financial statement had been delivered before 2002,
the moment when FRC decide to implement the International Accounting Standard in
Australia (Ehoff, 2010). The accounting statements included c1, 2, 3 and 4 Romolini, Fissi &
Gori, 2017). Following the joint project in 2004, the accounting bodies agreed to include
respective key components and concerns as an interlinked project to formulate a single
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CONTEMPORARY ACCOUNTING THEORY
Conceptual Framework. This initiative as governed and established based on the original
IASB conceptual framework (Timbate & Park, 2018). All the two boards utilized the
developed framework as a foundation of their accounting standards for financial reporting.
b) Explanation of Australian accounting profession’s concerns regarding
Conceptual Framework
The introduction and implementation of the conceptual framework for financial reporting has
presented some concerns denoted by the Australian profession (Aasb.gov.au, 2019). These
profession’s concerns include:
 Unpredictability concerning the standardized value measurement introduced on
assets, liabilities and revenue. This is a major concern presented by the accounting
profession in Australia concerning the conceptual framework. Moreover, the
emphasis on valuation of intangible company’s assets has also been reconsidered as a
concern by the relevant stakeholders when it comes to fair value determination
(Aasb.gov.au, 2019).
 The negative implications relating to the introduction of the IASB conceptual
framework for financial reporting is another concern expressed by the Australian
accounting profession. This concern relates to the measuring and recognition of assets
and liabilities of businesses. Indeed, this is a significant concern to consider because
businesses are subjected to negative economic effects due to rapidly transforming
measurement and recognition criteria of assets, liabilities and revenue (Graymore,
2014)
 The introduction and implementation of the conceptual framework for financial
reporting affect non-profit businesses in Australia, which presents another concern for
the Accounting profession. It is significant to note that the conceptual framework of
the IASB was introduced and implemented for profit organization; however, there is a
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CONTEMPORARY ACCOUNTING THEORY
legal necessity to separate the financial guidelines for various companies in Australia
(Timbate & Park, 2018).
c) Discussion of academic’s concerns about the quality (potential benefits and
limitations) of the Conceptual Framework
The CF has potential benefits and limitations to consider as an academic concern.
Academic are concerned with accounting logic and consistency, which implies that
accounting standards established following the application of CF should be logical and
consistent (Ehoff, 2010).
Potential benefits include:
 Since many nations have established CF, which is similar globally (or might have
alternatively adopted the IASC frameworks), there is the need for countries to
embrace considerable global compatibility on the basic of various accounting
standards (Prosic, 2015). In that case, academic’s concern on quality features on the
standard’s comparability and consistency over the global financial reporting (whereby
professions argues that it is relevant for the evaluation of foreign investment capitals
and flows. CF provides the global fundamentals of accounting systems. In that case,
the standard-setters are expected to be accountable for all their financial decisions
(Romolini, Fissi & Gori, 2017). In case these decisions are retrieved from key
concerns evaluated in the CF, the accounting professions expect the standards to be
clear thereby necessitating more explanation prior the implementation.
 The CF establishes an appropriate methodology of communicating the fundamental
concepts based on the present financial reports. Therefore, this framework provides
the best guidance for entities to reports on particular accounting standards and
evaluation any financial concern (Crombie, 2012).
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