Analysis of Accounting Theory and Contemporary Issues Frameworks

This report presents a comprehensive analysis of accounting theory and contemporary issues, focusing on the conceptual framework and integrated reporting. It begins with a literature review on the historical development of the conceptual framework in the USA, UK, and Australia, and address...Read More

Running head: ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Accounting theory and contemporary issues
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ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Executive summary:
The report is divided into sections where first part focuses on the conceptual framework
while other part focuses on the integrated reporting framework. Analysis of the framework
has been done by evaluating the financial report of the companies chosen from different stock
exchange. One company is chosen from ASX named Ausdrill Company that is engaged in
offering mining services worldwide. Gold field limited is another company that is chosen
from Jonesburg stock exchange and is one of the largest firms of the world operating gold
mining. Analysis of all the facts regarding the reporting framework and accounting
treatments of differents financial components is done by retrieving the information presented
in the financial report of the company.

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Part A: Conceptual framework...................................................................................................3
Answer to requirement a)...........................................................................................................3
Answer to requirement b)...........................................................................................................4
Answer to requirement c)...........................................................................................................5
Answer to requirement d)...........................................................................................................6
Part B: Integrated/Sustainability reporting.................................................................................8
Answer to requirement a)...........................................................................................................8
Answer to requirement b)...........................................................................................................9
Answer to requirement c).........................................................................................................10
Answer to requirement d).........................................................................................................11
Answer to requirement e).........................................................................................................12
Conclusion:..............................................................................................................................13

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Introduction:
The report is prepared to conduct a literature review on the development and history
of the conceptual framework for the financial framework in the country like USA, UK and
Australia. The concerns raises by the accounting profession of Australia regarding the
application of the conceptual framework for the financial reporting has also been presented in
the report. Analysis of the conceptual framework and its application by the company has
been done by analyzing the company chosen from ASX that is Ausdrill limited. In the later
part of the report, a holistic view of the corporate social responsibility has been presented by
comparing the sustainability reporting guidelines of the IIRC (International Integrated
reporting council) and GRI (Global Reporting Initiative). The analysis of the sustainability
reporting framework is done by evaluating the annual report of one of the South African
company that is Gold field limited.
Discussion:
Part A: Conceptual framework
Answer to requirement a)
The adoption of the conceptual framework by the counties such as UK, Australia and
USA is associated with the long historical background. Conceptual framework can be defined
as the set statement of principles that helps in the development of new reporting practices by
providing generally accepted guidance. The conceptual framework was published in year
1989 by International accounting standard committee that intends to guide national and
international standard setters and assisting the preparers in dealing with the issues faced
(Aasb.gov.au, 2019).

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
When it comes to United Kingdom, the country is moving to the principles based
standards compared to rule based standards and such shifts necessities the introduction of the
conceptual framework for the country. In country like Australia and USA, the conceptual
framework existed since 1980s. UK has its own conceptual framework since year 1999 that is
they have adopted the principles issues by the accounting standard board since then. Creation
of conceptual framework is essential for UK because it helps in increasing the international
accounting needs. The development of principles statement became crucial for the country
because of the growing global economic cooperation and the influence of USA (Adams,
2015).
After the economic depression in year 1934 in the USA, Investors lost their
confidence for investing in the companies and one of the reasons cited was the inadequate
reporting practices. In this regard, the government intended to boost their accounting and
reporting practices and the adopting of single reporting practices contributed to enhancing the
reporting practices of the companies. Accordingly, the development of the conceptual
framework was done by with the FASB was entrusted with the responsibility provided by the
concerned authority (Corrado et al., 2015).
The development of the conceptual framework according to the Australian accounting
standard board in Australia has been different. It was so because the global competition was
required to be ensured as per the decision of the respective authority that mandated the
adoption of the conceptual framework. The conceptual framework in Australia was
developed by the Australian accounting standard over the period 1985-1995 and the concepts
of accounting has been released prior to 2002. The basic concepts that is used in the
preparation of the financial statement is described by the conceptual framework (Zalaghi &
Khazaei, 2016).

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Answer to requirement b)
The application of the conceptual framework is of great concern to the accounting
profession in Australia. The introduction of the new conceptual framework has provided
benefits and comes with constraints too that is of concern to many accounting professions.
The initiation of the conceptual framework has accounted to the volatility in accounting for
fair value that is attributed to rising lobbying in the country. It has been identified that the
valuation of the intangible assets and financial instruments has been adversely impacted by
the volatility in such fair value accounting. In addition to this, the conceptual framework has
considerably impacted the procedures of recognition, measurement and the disclosures
policies of the liabilities and assets. This disadvantage concerned with the valuation of the
financial items because it needs to take into economic factors and it has been found that the
accounting model has certain economic consequences which might impact the financial
performance of the company. The contention that might arise between the accounting
measures and the framework that is used for the inception of the conceptual framework is
another disadvantage. Such contention is attributable to the distinction in the practices
endorsed by the recent conceptual framework and the former model of accounting. In
addition to this, people in the groups of users founds that the open gate offered by the
framework is not adequate.
Furthermore, the nonprofit organizations are also considerably impacted by the new
conceptual framework. The accounting doctrines for the sectors operating in Australia is
formulated by the Australian regulatory requirements. In light of the enforcements brought
down by the conceptual framework, the nonprofit organizations would be considerably
impacted.

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Answer to requirement c)
The evaluation of the financial reporting quality is dependent upon the qualitative
characteristics that requires the company to maintain the provision of depicting quality
information so that they represent the true and fair information on the performance of the
company. Relevance is another essential characteristics that is used for satisfying the users of
the financial report about the information present in the financial report on the basis of which
they make investment decision. The proposed conceptual framework fails to examine the
potential benefits on the information for allowing the related liabilities and assets and
measuring expenses and income that are measured as a consequence despite the fact that the
basis of measurement of liabilities and assets do not respond to the current value. With regard
to the standard IAS 39, requires the measurement of the instrument of the fair value. Since
the entity has access to different market, there exist difference between the fair value in
orderly transactions and price paid by entity for financial instruments. There is no benefit for
the organization in having a different basis of measurement in the initial measurement.
It is sometimes difficult for the entity to measure the liabilities and assets at value
other than the current value and this adds to the difficulty in measuring the cost. As the cost is
inherently difficult to measure and there can be informational benefits in measuring the
current values. Furthermore, in the events of clash of accounting guidelines, there is some
disruption in the quality of the accounting standards followed by the company. Therefore, it
can be inferred that the quality of the conceptual framework is impacted by the facts
accounted in the significant issues.
Answer to requirement d)
Requirement i)

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
From the financial report of Ausdrill limited, it is found that the general purpose
financial statements have been prepared according to the requirement and the interpretations
of the AASB along with complying with the IFRS issued by the IASB. While preparing the
financial statements, organization has adopted the principle and guidance of the conceptual
framework. Ausdrill limited has prepared the statements such as consolidated statement of
profit and loss, consolidated statement of comprehensive income, consolidated statement of
cash flow consolidated statement of financial position and consolidated statement of changes
in equity. The components of the statement of financial position of Ausdrill limited include
total assets and total liabilities that comprises of current and non-current assets and liabilities.
Statement of comprehensive income include items of other comprehensive income, profit and
loss and equity holders. On other hand, consolidated statement of changes in equity involves
components such as total comprehensive income and the items involved in the transactions in
their owner capacity. Cash flow statement consist of the items involved in the cash flow from
operating activities, financing activities sand the investment activities. The disclosure of the
accounting treatments related to all the components and the financial items of different
financial statements has been adequately disclosed in the notes to financial statement
(Ausdrill.com.au, 2019).
Requirement ii)
Ausdrill limited has recognized the revenue in accordance with the standard AASB
115 revenue from contract with customers which is based on the principle that recognition of
revenue is done when the control of service and goods is transferred to the customers.
Recognition of revenue is done at fair value and this is done when it is reliable to measure the
revenue. The standard requires the company to make additional disclosure by seperatey
presenting the cost and assets. The impact of applying the new standard on the financial
statement of the group has been assessed by the company. It has been found from the

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
assessment that the consolidated financial statements would not be impacted by the
application of the new standard (Ausdrill.com.au, 2019).
The financial liabilities and assets of the company is measured using a fair value
hierarchy that explains the estimates and judgment in determining the fair value of the
financial instruments. The financial instruments have been classified into three levels for
determining the level of fair value. Assets on other hand is measured and valued according to
the requirement of the relevant accounting standards. The measurement, classification and
recognition of the financial liabilities and assets is done according to AASB 9. Classification
and measurement of the equity that is available for sale is addressed by AASB 9 and there
would not be any change in the accounting for assets (Ausdrill.com.au, 2019).
Requirement iii)
The preparation of the financial statements of the group in accordance with the
relevance accounting standards has contributed in presentation of the relevant information. It
has also been opined by the auditors that the financial statement represents a true and fair
view of the financial figures depicted in the financial report of the company (Ausdrill.com.au,
2019). It can therefore inferred that the financial statements presents relevant information that
assist users in their decision making process.
Part B: Integrated/Sustainability reporting
Answer to requirement a)
The development of social and environmental is ensured by the framework of both the
Global reporting initiative and the IIRC (International integrated reporting framework) and
therefore, both the framework has got the same objective. Nevertheless, there are differences
between the procedure adopted by these two reporting framework. Integrated reporting

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
framework concentrates on the disclosure of both the financial and non-financial information
by combining them and presenting it in the annual report of the company. Such disclosure
provides greater value to the shareholders by enhancing their process of decision making as it
makes the information more transparent. With the implementation of the global reporting
initiative, it is required by the business to communicate the impact of their sustainability
issues such as governance, human rights and climate change. The disclosure of the
sustainability information helps in identification and management of risks by enabling
organizations to seize risks. Reporting of the information using the platform of global
reporting initiative helps the organization in economically thriving and improving the society
and environment at the same time (Vaz et al., 2016).
Answer to requirement b)
It is observed that according to the sustainability reporting, the framework of
conventional accounting is subjected to the number of shortcomings and advantages. One of
the benefits over the traditional system of reporting is that it helps in the combination of both
the financial as well as non-financial assets. The impacts created on the busies due to the
operational activities brought by the environmental performance helps the stakeholders in
providing insight about the strategies undertaken by the company as disclosed by the
sustainability reporting. Furthermore, it has been found from that there are some drawback
associated with the reporting of system because it has the chances of misrepresenting the
information’s presented in the annual report of the company (Linsmeier, 2016).
The whole accounting system imbibes the concepts of integrated thinking by
combining the financial and non-financial information as against the integrated framework of
reporting. Such integrated reporting helps stakeholders by proving information and thereby
contributing to the clarification and transparency on the information presented in the report.

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
This would help the investors in making viable investment decisions which would thereby
contribute to the development and profitability position of the company. The definition of the
performance measure has encountered several issues as witnessed by the traditional
accounting system (Velte & Stawinoga, 2017).
Answer to requirement c)
The contents of integrated and sustainability reports can be described by the
application of some theories presented underneath:
Sustainability reporting- The two theories that can be applied to describing the
concepts of sustainability reporting is legitimacy and stakeholder theory. The stakeholder
theory tracks the behavior and attitude of managers and accounts for the business ethics that
is taken for the multiple constituencies and therefore it outlines the managers’ responsibility
in [preparing the financial report. Legitimacy theory on other hand mandates the organization
to perform sustainably by disclosing their environmental and social performance (Burke &
Clark, 2016). Therefore, from the analysis of both the theories, it can be inferred that the
company does reporting of their environmental and social performance as it provides a
detailed disclosure of the information.
Integrated reporting- The two theories that helps in explaining the concept of
integrated reporting is stakeholder and agency theory. It is required by the organization to
account the needs of all the stakeholders together so that their wealth can be maximized
altogether. This can be done by the presented of integrated information that comprise of
financial as well as non-financial information. As per the agency theory, management of the
organization is regarded as the agent of the stakeholder and it is their responsibility to report
on the sustainability performance as well because it forms the basis of investment decision
(Flower, 2015).

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Answer to requirement d)
Integrated Reporting Index
Concentration of strategies- Gaining an insight into the strategies of organization
Materiality- Influence on the value creation ability
Responsibility-Accounting individuals for giving statements on the corporate governance
performance
Stakeholders relationship- Involving stakeholders
Opportunity and risk-Engaging in the value creation process by assessing risk and
opportunity (Johansson, 2018)
Corporate governance-The framework of the corporate governance
Conducting review of organization-The performance of organization is reviewed
Performance-Evaluating the strategic goals fulfillments
Basis of presentation and preparation-Evaluating the basis on which the financial
statements have been prepared
Business models-Implementation of the concepts involved in the business model.
Index for integrated reporting
(Source: Integratedreporting.org 2019)
The integrated reporting prepared by Gold field enable the stakeholders to make an
informed assessment of the prospects and values of the company. The integrated thinking has
been embraced by the company with an integrated approach of creating value. Preparation of
the integrated report by the company is well aligned with the requirements of the

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
International Integrated reporting council. Gold field has presented a detailed view of the
business in terms of its distribution, value creation, materiality and risk, operational contexts
and measuring the performance against the targets. The details of the business model is
presented in the integrated report that outlines the process of business and input such as
natural capital, financial capital and human capital (Goldfields.com, 2019). Creation of the
value for stakeholders is the main strategy and aim of business model. In addition to this,
there is a detailed explanation of how the organization is engaged in creating value for
communities (Ayodele et al., 2017). The business performance of organization and informed
decision making is enhanced because of the fact that the company is subjected to the external
strategic dynamics. For measuring the risks and materiality, the organization has developed
an internal tool that helps in significant reduction of the identified risks (Atkins & Maroun,
2015). At both regional and operational level, mitigation of risk is involved in the
performance scorecard of the group that is cascaded down to the performance scorecard for
managing employees.
Answer to requirement e)
From the analysis of annual reports of both the companies that is Ausdrill limited and
Gold filed limited, it has been found that the later company has prepared the integrated
reporting while former company has prepared the financial report for the year ending 2018.
However, Ausdrill limited makes a disclosure about the corporate social responsibility
performance separately. The company prepares the sustainability report that presents a
detailed information on the environmental performance of the company. It lays down the
environmental policy along with the efforts taken by the company to contribute in enhancing
the value for community (Ausdrill.com.au, 2019). There is some differences in the
components of the sustainability reporting of the detailed organization. This is attributable to

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
the fact that Gold field limited adopts the guidelines of Integrated reporting council for
preparing the integrated report compared to Ausdrill limited that follows the guidelines of the
reporting framework of the Australian accounting standard and conceptual frameworks of
International accounting standard board (De Villiers & Maroun, 2017).
However, it can be said that both the organizations have presented their information in
accordance with their respected reporting standards. It can be further seen that Gold field
limited has placed equal importance on the disclosure of financial as well as non-financial
information as they well understand the importance of such disclosures. Ausdrill limited on
other hand has also placed much emphasis on the non-financial information and financial
information as per the reporting guidelines of Global reporting initiatives. Nonetheless, the
separate sustainability report provides the users with a detailed disclosures of the
environmental performance of the company (La Torre et al., 2019). It is therefore
recommended to the Ausdrill limited to compile the financial and non-financial disclosures so
that it would assist the users in their investment decision making process.
Conclusion:
The report is prepared to demonstrate the gaps between the reporting frameworks
followed by the companies from two different countries. The companies of different
countries should prepare their financial report as per the requirement of the IASB as it would
help the users in comparing the performance. However, the framework of conceptual
reporting has its own benefits and drawbacks and it has been opposed on several grounds that
results in creating negative on the economic performance of company. In addition to this, the
integrated reports prepared by the company helps in combining the financial as well as non-
financial information which provides the users with a compact view on the overall
performance of company. Sustainability reporting guidelines as per the GRI mandates the

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
organization to prepare separate report measuring the environmental performance of
company. However, there is common components of the corporate sustainability reporting
and integrated reporting.

ACCOUNTING THEORY AND CONTEMPORARY ISSUES

ACCOUNTING THEORY AND CONTEMPORARY ISSUES
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