Accounting Concepts and Conceptual Framework: A Study

This study explores the accounting concepts and conceptual framework, focusing on the relevance and faithful representation of financial statements. It discusses the accounting basics, the purpose of financial reporting, and the fundamental qualitative characteristics. The study also analyzes the accounting concepts adopted by Qantas Airways Limited and its adherence to the conceptual framework. Subject: Advanced Accounting

Running head: REPORT 1
Advanced Accounting
Student details:
6/2/2019

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Contents
Introduction......................................................................................................................................3
Background of company..................................................................................................................3
The accounting concepts..................................................................................................................3
Conceptual framework and issues related to measurement.............................................................3
Fundamental qualitative characteristics: Relevance and faithful representation.............................3
Conclusion.......................................................................................................................................3
References........................................................................................................................................4

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Introduction
The accounting concepts are very significant in proper accounting and for understanding of the
financial statements of the company. The accounting basics state some fundamental concepts
related to the accounting, accounting principles, and the techniques of accounting. The main
purpose of financial reporting is to provide useful information for accounting that is relevant as
well as useful (Schulze, et. al, 2016). The accounting concept makes dealing with the laws, rules,
and regulations needed for completing the needs of the workers, investors, as well as
stakeholders of the corporation. The accounting concepts state that the business may recognise
the revenue, loss and profit in the amounts that vary from what would be recognised as per the
cash received from the customers or when cash is paid to suppliers as well as employees.
The conceptual framework of corporation can define as the system of concept as well as
purposes that lead to the production of consistent and perpetual set of the regulations and laws.
The conceptual framework is helpful for setting the standards of accounting. The conceptual
framework of company is also useful in solving the accounting disputes (Gummer and
Mandinach, 2015). The conceptual framework provides the fundamental principles for better
accounting. The main aim to develop the agreed conceptual framework is that it provides the
base for resolving the accosting disputes in proper way, and structure to describe the relevant
standards. In these parts, the accounting concepts adopted by Qantas Airways Limited is
explained and assessed. These parts also explain the conceptual framework of company, the
measurement issues, and fundamental qualitative characteristics such as relevance and faithful
representation.

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Background of company
In Australia, Qantas Airways Limited is well-known corporation. This company runs the national
airline as well as international airline. This company renders the passenger and services of
freight air transportation in Australia as well as in other nations worldwide. It also renders the
express freight service and air cargo. Qantas Airways also runs the program related to customer
loyalty. As of June 30, 2018, this managed the fleet of 313 aircrafts. This corporation was
founded in year 1920. The headquarter of this company is in Mascot, Australia. This
organization is involved in the operation of international and domestic air transportation services,
the provision of freight services and the operation of a frequent flyer loyalty program. The
segments of this company involve the Qantas International, Qantas Domestic, Qantas Freight,
Qantas reliability and Corporate, and Jetstar Group. The segment such as Qantas Domestic,
Jetstar Group, and Qantas International cover business related tio passenger flying. A segment
‘Qantas Freight’ is involved in express freight business as well as air cargo. In the addition of
this, a segment ‘Qantas Loyalty’ is involved in a program to recognize the customer’s integrity.
The main function is transportation of customer utilizing 2 airline brands. These two brands are
Jetstar and Qantas. This also runs the subsidiary business, involving other airlines or business in
professional marketplaces, for an example Q Catering. The airline brands run provincial, local as
well as foreign services.
The accounting concepts
In present world, the company faces the issues related to accounting. This is very essential to
understand that one must know the accounting concept to develop the foundations of company
that how accounting does effort (Kelley and Knowles, 2016). There are various fundamental

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accounting concepts to be followed by company at the time of making financial statements.
These accounting concepts are mentioned below:
1. The conservatism concept- This concept is the common concept to recognize the expense
and liability on the instant basis when there are impossibilities regarding the accounting
results, though, to just recognize the asset as well as revenue while they is guarantee for
sure that it can be adopted. The conservatism concept predisposes results in the
traditional financial statements of the company. in this way, it is a principle in accounting
in GAAP, which notes and recognizes the undefined or defined expenses or liabilities, as
soon as possible however identifies revenues as well as assets, when they are assured of
being adopted. It gives the simple guidance to record the cases related to the estimate and
uncertainty (Kršeková and Pakšiová, 2015).
2. Matching concept - the expenses in relation to revenues, are required to be recognised in
the same period, in which the revenue was recorded. According to this concept, there is
no any deferral related to expenditure recognition in succeeding reporting period, with a
view of someone monitoring, the financial statements of company can be assured that
every characteristic of related to transaction has recorded in the same period.
3. The materiality concept- the materiality concept says that the accounting standard can be
neglected, in the matter in which the net effects of making it so has the small effect on the
company’s financial statement, which readers of financial statements would not be
misled. This concept also considered as materiality constraint. In this way, the materiality
concept states that the financial information is very significant to the financial statements
of corporation if it would alter standpoints and ideas of fair-minded people. In other

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words, the corporation’s financial statements should cover the relevant financial
information for better understanding.
4. Consistency concept- while the businesses chose to use specific accounting methods,
then it is required to continuously use this upon the go-forwarding basis. By doing so, the
corporation’s financial statements made in different periods, can be constantly compared.
5. Economic entity concept – the transactions related to business are to be kept separated
from the transactions of owners. According to this, there is no mixing of business
transactions and personal transactions in the financial statements of corporation
(Christensen, Nikolaev and Wittenberg‐Moerman, 2016).
6. Going concern concept- The Corporation’s financial statements are conducted as per the
assumptions that business will continue in the operation in future. By adopting the going
concern principle, the expenditures recognition and the recognition of revenue may be
deferred to a future period, when an entity is still working. Otherwise, identification of
the expenses would be accelerated in a current period.
7. Accruals concept- as per an accruals concept, the revenue is identified at a period when
produces. Additionally, the accruals concept states that the expense is identified at a
while asset is consumed. In this way, this principle states that the businesses can record
the revenues on the basis of cash taken from clients or when the payment is made to the
workers and dealers. In the addition of this, the auditor would only allow the financial
statement of organisation, which have made as per the accruals concept. Hence, it is
addressed by this concept that the business can recognise the revenue on the basis of cash
accepted from (Geisker, and Tallis, 2018).

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It is analysed by annual report of Qantas Airways Limited that the financial report has
represented and made by following the going concern principle. The company also follows the
consistency concept in preparing the financial statements of the company. It is assumed by the
directors of company that it will continue to keep the operating cash flows to complete the duty
of making payment in the normal course of business. Furthermore, Qantas Airways Limited
reduces the possible effects of changing the financial position by looking for keeping traditional
and solid balance sheet and company’s financial position. Hence, these relevant assumptions are
based on the current restraints when the company made consolidated financial statements (Díaz,
et. al, 2015).
In the addition of this, the company, in preparing the financial reports, incorporates the GRI
Reporting Principles. According to the GRI Principle ‘Materiality’, the financial impacts,
environmental impacts as well as social impacts were evaluated and ranked in relation to risks to
the stakeholders and company itself. The company also follows the GRI Principle ‘Stakeholder
Inclusiveness’. As per this, a review of shareholders and connected engagement through the
reporting year was made, but not particularly for composing of the report. Further, the
sustainability framework, cultural influences, surrounding effects and economic effects of the
functions of company, was identified and assessed at the time of making financial statements.
Additionally, the concept of completeness mentions the GRI and other matters included in report
are those that have identified as material to the stakeholders of company and company itself in
FY 2018.

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Conceptual framework and issues related to measurement
An adequate conceptual framework acts as a foundation for the setting up standards and
advancing them with the changing time as well. The conceptual framework of accounting helps
the organization in resolving the practical issues present in the business. These conceptual
frameworks assist the International Accounting Standard Board in implementing and effectively
creating new IFRS and analysing the current ones. Along with this, the conceptual framework
also provides help in forming the financial statements and developing accounting policies for the
event or transaction that is not formed using current standards. So, in this way, these frameworks
help in handling the situation that is related to financial reporting of accounts of the company.
The company gets the advantage to make the data relevant by using such frameworks in the
business environment (Maas, Schaltegger, and Crutzen 2016).
These frameworks provide essential and materialistic information to the stakeholders about the
activities of the company. Such fundamental components include asset, equity, revenue, liability
and expenses. This framework helps the organization in identifying the components that are
crucial in the financial statements of the business. Thus, it should be noted that in this way, the
fundamental elements of the conceptual framework includes qualitative aspects of accounting of
data, the general objective behind financial reporting, purpose of creating financial reports,
identification and measuring the financial accounts of the business, and lastly, other fundamental
objects of the company’s financial accounts (Macve 2015).
According to the annual reports of the company Qantas Airlines, it can be said that the financial
reports have showed a clear as well as prescribed view of the accounts on the basis of
Corporation Act CTH 2001, along with authoritative declaration of the AASB Australian
Accounting Standards present in business environment. The company Qantas Airlines makes the

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financial statements according to the Australian IFRS issues by the IASB and the Accounting
Standards of Australian Standards. The company presents its financial reports to the stakeholders
in a true and fair manner so as to clearly describe the actual financial position of the
organization. The financial statements of Qantas Airlines follow the guidelines of Corporations
Regulations 2001 along with the accounting standards. Qantas follows the guidelines given the
environment about accounting policies so as to make the base from the value of income, asset,
liability, equity and expenses. Also, the company is an independent group according to the
provisions related to the auditor’s independent report based on the Corporations Act 2001
(Schaltegger, and Burritt 2017). Thus, the company Qantas Airlines effectively complies with
the moral obligations according to the code of conduct.
Fundamental qualitative characteristics: Relevance and faithful representation
The main aim to establish the conceptual framework is to provide the framework in relation of
setting of the accounting standards, and the foundations to solve the accounting issues. The
corporation’s conceptual framework also describes the basic principles that do not need to repeat
again in relation of the accounting standards. The framework to make and represent the financial
statements of company as amended involves the conceptual framework for financial report as
provided by international accounting standard board. Conceptual framework’s measurement
requirements include fundamental qualitative characteristics in respect of accounting
information, the general purpose financial reporting, financial reporting’s objectives,
measurements of the financial statements of company, and basic features of the organisation’s
financial statement.

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First, it is essential to use fundamental qualitative characteristic ‘The faithful representation’.
The reason is that the fundamental qualitative characteristic is very important characteristic. The
faithful representation refers to the concept addressing that the financial statements of
corporation should be made in a way to precisely explain the condition of the business of an
organisation. According to the annual report of the company, it is clear that the financial
statement of the entity renders the faithful representation as well as relevant representation.
Qantas Airways Limited faithfully states numerous events and the transactions, states the basic
matters related to transactions, and prudently states estimate. It also shows the indecisions
through relevant disclosures (Henderson, et. al, 2015).
According to the international Accounting standard board (IASB), relevance is a capacity of
making the differences regarding the decisions made by the users or readers according to the
capital providers. The fundamental qualitative characteristic ‘relevance’ is usually worked in
relation to methodical value and the positive value. The logical value usually refers to the
information over the ability of entity to make future cash flow. International Accounting standard
board (IASB) assessed regarding financial phenomenon has logical value in the matter while this
has values as input to logical process used by capital providers to make own expectations
regarding the future time. The logical value is considered as the important indicator of the
relevance in relation to the decision’s importance. There are some fundamental measures in
relation to analytical value (Schnipper, et. al, 2015). These are mention as below-
a. whether the annual report of entity states information related to business matters and risk
related to business, and
b. a degree to that annual report provides the forward-looking statements

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c. Whether the fair value is used by company
For an example, Qantas Airways Limited follows these fundamental qualitative characteristics in
relation to presenting revenues and other income-

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(Annual report, 2018)
Conclusion
Thus, by analysing the above mentioned events, it should be concluded that the conceptual
framework explain the state of nature of the financial reporting along with the functions,
accounting and drawbacks. The Financial Accounting Standards Board also showed role in
enhancing the quality and utility of the financial reports. The conceptual framework in the
business environment improves the accounting standards and renders the fundamental principles
in the business environment. Thus, it should be noted that conceptual framework gives an
integrated structure and rationale strategy to the accounting standards and increases the beliefs of
the stakeholders on the financial reporting of the company like Qantas.

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