ACCT20074 - Conceptual Framework and Integrated Reporting Analysis

This report provides a comprehensive analysis of the conceptual framework and integrated reporting, contrasting the practices of Pilbara Minerals and Anglo American. It reviews the history and development of the conceptual framework, particularly focusing on concerns regarding its application in Australia. The report also delves into the potential benefits and limitations of the framework for financial reporting, examining the qualitative characteristics of the information presented. Furthermore, it explores the concept of integrated reporting, highlighting its principles and contrasting the integrated reports of the two companies, concluding with an assessment of their adherence to integrated reporting principles. Desklib provides access to similar reports and solved assignments for students.

Contemporary accounting theory

Conceptual framework
Executive Summary
In the present scenario, the concept of corporate reporting has undergone a sea change. The
stakeholders always rely on the reporting and hence, it needs to be clear and transparent. The
major report is the annual report that sheds light on the performance of the companies. In this
report, the major emphasis is on the concept of sustainability and conceptual framework. The
report of both the companies is contrasted to provide the correct exposure. Moreover, various
elements of the conceptual framework are discussed and it comes to the conclusion that both
the companies adhere to the IR. To prepare this report, Pilbara Minerals from Australia and
Anglo American from Australia has been considered.
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Conceptual framework
Contents
Introduction...........................................................................................................................................4
Part - A...................................................................................................................................................4
Part B – Integrated reporting...............................................................................................................10
Conclusion...........................................................................................................................................14
References...........................................................................................................................................15
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Conceptual framework
Introduction
The present report is based on the concept of conceptual framework and integrated reporting.
The two concepts are vital in the present scenario as it indicates the functioning of the
company. The report is based upon two companies that are Pilbara from Australia and Anglo
America from South Africa. The study of CF and IR is done with the help of the annual
report and sustainability report provided by the company. A conceptual framework is a
guiding principle while IR indicates what the company has done for society. Both these are
studied in an in-depth manner and conclusion is based considering the same.
Part - A
Conceptual framework
Enron, Dotcom and various other scams bought into notice the requirement of having a
conceptual framework of financial reporting. Unlike today, earlier there were no such hard
rules pertaining to the preparation of the financial reports. But with the detection of various
scams made the regulators realize the significance of having a sound and conceptual
framework of financial reporting (Needles & powers, 2013). In context with this, IASB
incorporated a set of new standards on aspects that were earlier ignored in the accountancy
domain. All these newly incorporated eight standards were initially developed in the USA
and then after were formulated in many other countries such as Australia and the UK.
Application of the IFRS/IASB conceptual framework
Practical application of a concept is entirely different then what it seemed in the theories. In
the practical world, it’s an accepted fact that most of the theories cannot be converted or used
in the real world. There is a huge contrast between the conceptual theories and their
practicality. Also, there are certain practical concerns lying ahead of accounting personnel
that is not yet explained in the conceptual framework. In other words, an accountant faces
several issues in the real world that has not been yet explained or identified in the theoretical
concept (Adra & Barbopoulos, 2018).
Potential benefits and limitations of the Conceptual Framework for financial reporting
There are various pros and cons of the conceptual framework of financial reporting. The
positive side of the conceptual framework of financial reporting can be said that it ensures
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Conceptual framework
that the authenticity of the financial statements is maintained and protected as it provides a
set of norms and regulations on which the financials are prepared by the management.
(Mersland & Urgeghe, 2013) It also enhances the presence of transparency in the financials
of the company (Merchant, 2012). Hence, it has reduced the chances of deception faced by
the users of financial reports.
The role of accounting personnel is now reduced as a result of the conceptual framework of
financial reporting. Another, negative side of the conceptual framework of financial reporting
can be attributed to the generation of complicated transactions arising highly out of immense
technological advancements. Dealing with such complicated transactions is a huge challenge
in itself for the accountants (McCaughey, Beckmann, Schneider & Down, 2017). This could
be out of fact that there can be multiple interpretations coming from accountants for one
transaction and therefore, it becomes almost impossible to draw effective comparisons.
Application IFRS/IASB CF of financial reporting.
The application of concepts in the practical world is a lot different from what it was provided
in the theoretical world. The explanations offered in the conceptual framework may not often
work in the practical world. The practicality of explanations may differ from what it was
offered in the theoretical framework (Parrino, Kidwell & Bates, 2012). There are various
issues that take place in the real world but are not yet explained or acknowledged in the
conceptual framework. It becomes complicated and challenging to account and report such
issues in the financials of an organization. An accountant works upon these complicated
transactions on the basis of mere assumptions that he finds relevant and apt for the purpose.
Potential benefits and limitations of the Conceptual Framework for financial reporting
The conceptual framework has its own plus points and negative points. The positive side of
the framework is that it puts a compulsion on the accountant to prepare the financials of an
organization in complete adherence to all the guidelines and statutory requirements. This
ultimately makes the financials of the entity look more authentic and build up the confidence
of the investors in the same (Laux, 2014). The conceptual framework enhances the
comparability of verifiability the financials of an organization. The conceptual framework
also makes it easier for readers to easily understand the financial statements of an
organization (Petersen & Plenborg, 2012). The framework allows users from all over the
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Conceptual framework
world to draw comparisons between the financials of one organization with the financials of
other organizations (Leo, 2011).
The conceptual framework has various shortcomings. It has impacted the role of accountants
to a huge extent. The job of an accountant is reduced to marking ticks. The transactions are to
getting highly complicated in nature on account of regular developments in technologies.
Accounting and reporting of such transactions have become quite challenging for an
accountant as opinion on such transactions might differ from accountant to accountant
(Lapsley, 2012). This overall impacts the comparability and verifiability of such transactions.
Pilbara Minerals
Pilbara Minerals is enlisted on the ASX. It is an Australian company that is ranked amongst
the top 200 entities in the country. The company operates as an Australian lithium-tantalum
producer. The company is expected to rank number one in the manufacture of lithium raw
materials globally by the year 2020 as it is rapidly succeeding in Pilgangoora Project (Pilbara
minerals, 2018).
The Pilgangoora project is deemed as the biggest hard rock lithium-tantalum deposits in the
world and is situated in Western Australia’s Pilbara region. The Pilgangoora project run by
the Pilbara Minerals is around 4 years old now and has been a successful plant of the
company ever since it was started. The success of the company is largely due to Pilgangoora
Project. The company is planning to expand its Pilgangoora project by increasing the
processing capacity to 5Mtpa from 2Mtpa, production of tantalite concentrate to
800,000lbspa from 321,000lbspa and the production of ~6% spodumene concentrate to 800-
850,000tpa from 330,000tpa (Pilbara minerals, 2018).
Ganfeng Lithium, General Lithium, Great Wall Motor Company and POSCO are the
renowned global off-take partners of Pilgangoora project. The Pilgangoora project provides
minerals that have a longer life and are of better quality and that too at a cheaper cost. This is
what that brings a lot of attraction from high quality global off-take partners.
The company has also initiated the development of chemical conversion plants in South
Korea and China so as to pursue a position in the downstream value-added lithium market.
Consolidated statement of profit or loss
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Conceptual framework
This statement is used to assess the total revenue earned by the organization or the total
expenses that have been incurred by it during a particular accounting period (Julia &
Elizabeth, 2010). Also, the organization can determine the total loss or profit experienced by
it in that particular accounting period. Generally, the profit of the organization is determined
on the basis of earnings per share for the diluted earnings per share.
Consolidated statement of comprehensive income
This kind of statements is used to analyze the total variations in the net profit of the
organization that has been caused because of transactions like the sale of financial assets and
profit earned from non-controlling interests. All the operations that are being carried out by
the organization are also being mentioned in the comprehensive income report which can be
further used for classification.
Consolidated statement of financial position
The statement of financial position is made by the organization in the year and which depicts
all the values of assets that have been owned by the organization and the liabilities that are
needed to be fulfilled by it in the particular accounting period (Hansmann & Pargendler,
2013). Further classification of the assets and liabilities are being made in current on current
and tangible or intangible terms which will be very helpful to understand equity position of
the organization in accordance to the capital of the company.
Consolidated statement of changes in equity
The closing balance of the equity is derived by deducting and adding all the transactions from
the opening balance of the equity which is stated to be the first point of the statement. All the
transactions in relation to the equity shares, issuing, payments, placements, and dividend paid
acquisition of the shares or allotment should be treated in the statement.
Consolidated statement of cash flows
The statement has the organization to determine the total cash inflows and outflows bye buy a
balancing the opening cash to the closing cash after deducting all the charges that are
incurred by the organization to carry out the operations.
Anglo American PLC is one of the biggest multinational mining companies. It is based in
Johannesburg, South Africa, and the United Kingdom. It is the world's largest producer of
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Conceptual framework
superior metals, iron ore, nickel, and other metallurgical items. The operations of the
organization and carried out basically in Africa, Australia, Asia, Europe, South America, and
North America. It is listed on London stock exchange and has a secondary listing on
Johannesburg stock exchange (Anglo America, 2018).
Notes to the consolidated financial statements
The notes or the briefs help to provide a better explanation for the transactions that have been
mentioned in the reports.
Consolidated statement of comprehensive income
The net income of the organization is calculated after carrying out the operations and after
deducting all the operating expenses from then aggregated profit of the particular year. The
net profit is further attributed to the different shareholders and earnings per share so as to
present it in the statement of comprehensive income.
Consolidated statement of financial position
This statement has the organization to determine the total assets, liabilities, and equity owned
by the company on a particular day.
Consolidated statement of changes in equity
Equity funds of an organization consist of shares, share premium, foreign currency translation
reserve, property revaluation reserves, etc. Any transaction taking place in relation to the
equity funds is mentioned in the statement of changes in equity.
Consolidated statement of cash flows
The changes in the cash balance and the segregation of the areas where cash is spent is
mentioned in the report for classification of operating, investing and financing activities.
Notes to the consolidated financial statements
The breakup of various transactions and other references to the accounting standards are
mentioned in the notes the consolidated financial statements.
Recognition principles and measurement bases
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Conceptual framework
The revenue of the organization is awarded and recognized under the international financial
reporting standards that are being issued by the IASB
The assets of the organization are generally measured on the basis of the historical cost basis
in which the fair value of the assets is being recorded.
The liability of the organization is recorded on the basis of the accounting standard that has
been used by the organization for writing down the impairment charges in accordance with
the market values (Bhandari & Adams, 2017).
Qualitative characteristics of information exhibit in the company's financial reports
The financial statements of the organization help the investors and stakeholders to determine
all the relevant tasks that have been carried out in a systematic and timely manner. Further,
this data can be used to make judgments for investment and also to determine the budget for
the upcoming accounting periods (Bekiaris, Efthymiou & Koutoupis, 2013). Recording data
in accordance with a particular standard will also make it easy for comparison, which will
further help the organization can determine its position in the market.
The notes to accounts of the financial statements help the user of the financial reports to get a
proper explanation of the transactions that have been carried out by the organization in that
particular accounting period because of which verifiability can be enhanced.
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Conceptual framework
Part B – Integrated reporting
Integrated reporting vs GRI
The financials of an organization carries huge risks of the information to be manipulated. The
transactions and information are subjected to be wrongly presented in the financials of an
organization. This can be in the form or errors and frauds. The presence of material
misstatements has significantly dropped due to the facilitation of multiple standards and
compulsion for the management of an organization to work in accordance with necessary
independent standards. The compulsion on the management to prepare the financial reports of
an entity in accordance with the statutory requirements has allowed users to rely on these
financial statements with fewer doubts (Bhattacharya & Sen,2010). The genuineness of the
financials of an entity is derived with the way it projects its actual financial well being in the
same. The management of an organization must necessarily focus on providing a clear picture
of the actual financial position of the same. The utilization of capital is enhanced when the
financial reports of an organization are constructed with an objective to offer utmost
transparency and portraying the true and fair view of its state of affairs. The readers of the
financials of an entity often look for the genuine display of information in the same. This
simplifies the decision-making function of the users (Bhandari & Adams, 2017). The
organization that prefers displaying a real picture of its financial strength and weakness in its
financial reports will earn more trust of the investors. This makes it easier for the investors to
arrive at a decision of investing in an organization without any confusion. The value of an
organization will be enhanced if there is a greater level of investments in the securities of the
same.
The global reporting initiative was formulated after testing a lot of entities and stakeholders
from different corners around the world. Precisely 140 entities and numerous stakeholders
across the world were chosen for research for the purpose of forming a decent global
reporting initiative. With the development of GRI, it has now become mandatory for an entity
to ensure that the preparation and projection of its financial statements are completely true
and reliable.
The formulation of sustainability reporting guidelines has become easier as a result of GRI.
The parameters used in the development of sustainability reporting guidelines are
environmental, social, economic, and various factors linked to governance. The GRI works as
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Conceptual framework
an organization that doesn’t seek to generate profits (Cheng, Green & Ko, 2012). GRI can be
taken into use by whatever the size and business of an organization are as the fourth
generation report provides all the required guidelines on the same. This ensures that the
financials of an organization are prepared and display with utmost fairness and authenticity.
Not only various types of accounting formats can be reported but the efficiency of sustainable
reporting is also guaranteed as a result of fourth generation reporting.
Strengths and limitations of conventional accounting based on the conceptual
framework
Advantages
• The genuineness of the financials is guaranteed as it assists in the implementation of the
conceptual framework.
• The conventional accounting resolves issues pertaining to accounting and also offers
much-needed guidance on the accounting standard.
• The techniques used in accounting are enhanced as a result of the conventional system of
accounting.
Disadvantages
• In conventional accounting, the development of the conceptual framework is highly
complicated.
• As the nature of conventional accounting is highly rigid in nature, therefore,
implementation of conceptual framework becomes a task.
• There may develop a contrast between the conceptual framework and the conventional
accounting standard (Porter & Norton, 2014).
Contents of sustainability as well as integrated reports
Having a profound system of sustainability reporting may allow an organization to goes a
long way. The sustainability activities of an organization can be easily detected if there is a
presence of a sound system of sustainability reporting. This will make an organization sound
lawful enough. An entity can easily survive in today’s cut-throat competition and perform its
regular activities with full ease owing to the level of legality it preaches (Chou, Li & Yin,
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Conceptual framework
2010). When an entity fails to operate lawfully it becomes difficult for the same to survive in
the industry. As the readers of the financial statements always seek genuineness in the same,
therefore, this highlights the need for an organization to operate with utmost legitimacy. The
users can derive the capability of an organization in earning profits with the level of
legitimacy opted by the same (Weick & Sutcliffe, 2015).
An organization can negatively impact society and environment with its various day to day
regular operational activities. Hence, an entity should operate and deliver in a manner that the
society and the environment in which functions are not adversely impacted (Davies &
Crawford,2012). An organization might face adverse issues if it fails to work in the best
interest of society. Not only the operations of the entity might get impacted but also the
workforce might also disassociate themselves from the same. The capital of the entity might
also suffer (Eccles. & Youmans, 2015). All in all the existence of an organization is impacted
to an extent that it may also collapse out of it. To conclude, it can be said that an organization
must always opt for a proper sustainable reporting system and incorporate profound
governance practices so as to enhance its legitimacy.
A company must not neglect the environment it is operating it. The entity must operate in a
manner that the impact on the environment is minimized or eliminated. The impact on the
environment shall also disturb the wellness of society. In this regards, the management of an
organization must choose activities and conduct them in a manner that it is minimal or zero
harm caused to the environment (Douma & Hein, 2013). The management must necessarily
construe the legitimacy lying between the entity and the environment so as to minimize the
impact of operational activities. Hence, the management must make sure that the presence of
lawfulness is always there while delivering operational activities.
Index
The market situation and the environment can be determined from the integrated reports.
These reports also assist in the identification of governance parameters within which it’s
operating. The business models used by an organization must be necessarily assessed as it
will help in creating value for an organization
• The management can evaluate the strengths and weaknesses of an entity if it can identify
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