Concept of Prudence in the Conceptual Framework

Added on - 13 Sep 2019

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NAME OF THE STUDENTCONCEPTUALFRAMEWORK – ACRITICAL ANALYSIS
Executive SummaryThis essay aims to evaluate the evolution of conceptual framework of accounting. The guidingprinciple of the conceptual framework has been the achievement of objectives of theframework. The current sample general purpose financial statement has been evaluated tounderstand the implementation of the conceptual framework in existence in Australia throughAASB which is the IASB equivalent in Australia. The introduction of new concept of prudence inthe conceptual framework is explained in detail for its contribution to the overall objective ofthe financial reporting. The various theories viz. the positive theory and normative theory hasbeen analyzed for its value-addition to the conceptual framework of accounting. The efficacy ofthe local regulations in various countries and its impact on the overall objective of financialreporting is analyzed. The limitation of the framework has been briefed with suitablerecommendations.1
ContentsExecutive Summary.........................................................................................................................1Introduction.....................................................................................................................................3Analysis............................................................................................................................................4Objectives of the Conceptual Framework of Accounting............................................................4Evaluation of financial reporting of two listed entities...............................................................4Overall Compliance with AASB framework:............................................................................4Whether the report a source of information for decision making?........................................5Impact of inclusion of Prudence in conceptual framework........................................................7Accounting Theories – POSITIVE / NORMATIVE..........................................................................8Failure of Conceptual Framework...............................................................................................9Is regulation the key to resolve issues?.....................................................................................10Recommendations.........................................................................................................................10Conclusion......................................................................................................................................11References.....................................................................................................................................12Appendix 1: Woolworth’s Analysis of financial performance.......................................................14Appendix 2: New Store Rollout Plans of Woolworths...................................................................15Appendix 3: Performance Overview - Wesfarmers.......................................................................162
IntroductionThe conceptual framework of accounting has been dynamic to the changes in the businessscenario. The recent change of inclusion of prudence in the overall framework aims to make thefinancial reporting more neutral and reality based. This change is viewed as significant deviationfrom the existing erred interpretation of the accounting framework to be conservative andoften imprudent. The neutral approach as supported by the prudence principle aims toeliminate management’s bias in financial reporting thus adding to the overall usefulness of thefinancial reporting.3
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