Analysis of Accounting Conceptual Framework in Corporate Reporting

This report provides an executive summary and detailed analysis of the effectiveness of the current accounting conceptual framework in meeting the needs of financial report users. It evaluates the compliance of annual reports from Huon Aquaculture Group and ARK Mines, both listed on the ASX, with AASB standards and the conceptual framework. The report highlights the varying degrees of compliance between the two companies, attributing non-compliance to factors such as company size and stage of development. Furthermore, it discusses the reintroduction of prudence into the accounting conceptual framework to address disparities in corporate reporting and protect stakeholder interests. The analysis includes recommendations for improved compliance and transparency, emphasizing the importance of prudence in financial statement preparation. The report concludes with a comparison of financial reporting practices and the necessity of including prudence in the conceptual framework to prevent fraudulent activities.

Contemporary Issues in Accounting
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Executive Summary
The present report is based on analyzing the effectiveness of current conceptual
framework of accounting in meeting the needs of end-users of financial reports. This has been
done through analyzing the compliance of annual reports of two companies listed under ASX
with the AASB and conceptual framework standard requirements. At last, the report discusses
the need of including prudence in accounting conceptual framework for addressing disparity in
corporate reporting.
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Contents
Introduction......................................................................................................................................4
Analyzing the Annual Reports of Huon Aquaculture Group and ARK Mines as per the
Conceptual framework and AASB standards..................................................................................4
Non-compliance Reason with conceptual framework and AASB standards..................................5
Conceptual Framework Revision for including Prudence in Corporate Reporting.........................5
Recommendations............................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7
Appendix..........................................................................................................................................8
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Introduction
The accounting conceptual framework is developed and prepared by the IASB
(International Accounting Standards Board) for the purpose of providing assistance to the
businesses for preparing their general purpose financial statements. The main reason for the
development of conceptual accounting framework is to aid the financial decision-making of the
end-users of the financial reports (Hoffman, 2016). In this regard, the present report presents an
evaluation of financial reports of Huon Aquaculture Group Pty Ltd and ARK Mines as per the
conceptual framework and AASB standard requirements. Also, it discusses the prudence re-
introduction in the conceptual framework accounting principles.
Analyzing the Annual Reports of Huon Aquaculture Group and ARK
Mines as per the Conceptual framework and AASB standards
The conceptual framework examines the usefulness of general purpose financial
statements prepared by business corporations in accordance with the qualitative characteristics
that are, relevance, reliability, consistency and understandability (Hoffman, 2016). Huon
Aquaculture Group, a fish farming company that follows AASB (Australian Accounting
Standards Board) requirements and is listed on ASX. The AASB provides guidelines to business
operating within Australia as per the conceptual accounting framework principles. The annual
report of the company reflects that it has complied with all the conceptual framework principles
and has thus provided all the necessary financial information to the end-users of the financial
reports (Growing for the Future: Huon Aquaculture, 2015). The director’s report has stated all
the financial facts and figures related to its profitability by clearly reflected the earnings before
tax, earnings per share, net income as per the reliability qualitative characteristic of conceptual
framework (Knight, 2004).
The remuneration report of the company has all also provided all the necessary
information about the compensation structure offered to the key management personnel (KMP)
of the company as per the relevance conceptual framework qualitative characteristic. The
principles and rules adopted for the preparation of the financial reports are clearly stated in the
notes to the financial statements section of the annual report as per the understandability
principle of conceptual framework. The company also prepares its consolidated financial
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statements as per the Corporations Act 2001. The financial facts and figures are compared with
that of the previous year for reflecting the percentage growth in the revenue of the company as
per the comparability principle of conceptual framework (Growing for the Future: Huon
Aquaculture, 2015).
On the contrary, ARK Mines does not provide all the necessary financial information in
its annual report in accordance with the conceptual framework and AASB standards. The
company is involved in the gold production in Australia and is a small-sized company in
comparison to the Huon Aquaculture. The director’s and remuneration report of the company has
not provided appropriate information about the financial figures relating to its business
operations and compensation structure of KMP (ARK Mines: Annual Report, 2015).
Non-compliance Reason with conceptual framework and AASB
standards
The comparison of Huon Aquaculture Group and ARK Mines annual reports reflects that
there is wide difference in the financial reports prepared by both the companies. The Huon
Aquaculture effectively follows all the AASB and conceptual framework standard requirements
while ARK Mines has not complied with all the ASX listing requirements. The main reason for
the non-compliance of ARK Mines with the AASB and conceptual framework standards is its
small size nature. The ARK Mines is still in evolving phase and is planning to expand its
business operations in other parts of the world. As such, it does not develop and publishes its
consolidated financial statements because it does not have subsidiaries. There is different set of
financial standards developed by the AASB for SME’s and thus it does not comply with all the
AASB standard requirements (Ataman et al., 2014).
Conceptual Framework Revision for including Prudence in Corporate
Reporting
The IASB has incorporated the concept of prudence in the conceptual framework recently
after it has been removed in the year 2010. The main objective of the IASB behind the inclusion
of the prudence principle in the accounting conceptual framework is to protect the stakeholder’s
interest by providing them realistic and non-biased financial information. The prudence concept
states that businesses need to reflect the expense and liabilities in its financial reports as soon as
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they incurred but should state the revenue realization only when it is actually realized. The
prudence concept mainly aims to overcome any disparity in financial reporting so that financial
information reflected to the creditors and investors is error-free and reliable. The concept is re-
introduced in the conceptual framework in order to prevent the manipulation of accounts by the
company’s executives for their personal benefits such as that incurred in Enron and in other
business scandals (Araujo and Gomes, 2015).
Recommendations
On the basis of above discussion, it can be stated that business corporations listed under
ASX should effectively follow AASB and conceptual framework standard requirements. The
company should comply with all the principles of conceptual framework in order to promote
transparency in their business operations nada chive stakeholder’s trust. The Huon Aquaculture
has achieved good brand recognition on a global level as it effectively follows all the conceptual
framework principles. However, ARK Mines has to still achieve brand recognition by effectively
complying with all the AASB and conceptual framework standard requirements. Businesses all
over the world are also recommended to include the principle of prudence at the time of
developing their financial statements to promote transparency and fairness in their business
operations in the stakeholder’s minds (Araujo and Gomes, 2015).
Conclusion
It can be inferred from the overall discussion held in the report that there is wide
difference between the financial reporting of both the corporations, that are, Huon Aquaculture
and ARK Mines. The current accounting framework is proving to be effective in meeting the
need of users of financial reports as analyzed form the annual report of both the corporations.
Also, the principle of prudence needs to be included in the conceptual framework for
overcoming any fraudulent activities in corporate reporting.
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References
Araujo, V. and Gomes, A. 2015. Analysis of Opinions Issued in Comment Letters on the Term
Prudence. Journal of Education and Research in Accounting 9(2), pp. 209-225.
ARK Mines. 2015. Annual Report.
Ataman, B. et al. 2014. Preparedness for and perception of IFRS for SMEs: evidence from
Turkey. Accounting and Management Information Systems 13(3), pp. 492-519.
Growing for the Future: Huon Aquaculture. 2015. Annual Report. [Online]. Available at:
http://www.asx.com.au/asxpdf/20160929/pdf/43bk9v2hk1q4z0.pdf [Acessed on: 12 August,
2017].
Hoffman, C.W. 2016. Revising the Conceptual Framework of the International Standards: IASB
Proposals Met with Support and Skepticism. World Journal of Business and Management 2 (1),
pp. 1-32.
Knight, J. 2004. Internationalization Remodeled: Definition, Approaches, and Rationales.
Journal of Studies in International Education 8 (5), pp. 5-29.
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Appendix
Huon Aquaculture Annual Report Extracts
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ARK Mines Annual Report Extracts
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