Contemporary Accounting Theory: Conceptual Framework and Reporting

This report provides a comprehensive analysis of contemporary accounting theory, focusing on the conceptual framework and integrated/sustainability reporting. Part A delves into the development and concerns surrounding the IASB's conceptual framework, including issues raised by the AASB and academics, alongside an examination of Oil Search Limited's application of the framework. Part B explores the comparison between sustainability and integrated reporting, the suitability of conventional accounting, and the application of relevant theories to support their adoption. The report provides a comparative analysis of sustainability and integrated reporting, the suitability of conventional accounting to support the contents of sustainability and integrated reporting, and the application of theories to support the adoption of sustainability and integrated reporting in accounting. It also includes a detailed look at the components of an integrated report and the application of Vivo Energy Plc, concluding with an assessment of Oil Search Limited's integrated reporting practices. The report is based on the assignment brief ACCT20074 Contemporary Accounting Theory Term 1 Assessment 3: Practical report (Major assignment). It adheres to the guidelines of the report format with a word limit of 3,000 – 3,500 words and includes the executive summary, introduction, responses to the requirements in 2 parts & conclusion but excluding the list of references and appendixes.

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary accounting theory
Name
Institution

CONTEMPORARY ACCOUNTING THEORY 2
Abstract
Executive Summary
Business entities are guided by conceptual frameworks when preparing their financial
reports and statements. Likewise, the changing trends in financial reporting have seen the
stakeholders changing their focus on the items to be included in financial reports. Companies are
now focussing on creating value by forming a positive relationship with their stakeholders. The
increasing need to include non-financial performance in the financial statements have led to the
creation of sustainability reporting as well as integrated reporting. This report exams the two
important components of accounting, that is, the conceptual framework and integrated and
sustainability reporting. Key elements of the two pillars of accounting have been exhausted. The
findings show that although the Australian Accounting Standards Board (AASB) fully support
the IASB's conceptual framework, several issues need to be addressed as listed in the paper.
Likewise, the application of integrated and sustainability reporting at the expense of conventional
financial reporting is slowly gaining momentum as proposed by GRI and IIRC, respectively.
There is evident enough from the annual reports of Oil Search and Vivo Energy companies that
show the application of the conceptual framework, sustainability reporting an integrated
reporting.

CONTEMPORARY ACCOUNTING THEORY 3
Introduction
The report discusses the application of both the Conceptual framework and sustainability/
integrated reporting. The report is divided into two parts. Part A addresses the concept of
financial reporting that was developed and endorsed by the International Accounting Standards
Board (IASB). PART A is further divided into four sections. Section A discusses the
development of the conceptual framework by IASB. Section B discusses the concerns raised by
the Australian Accounting Standards Board (AASB). Section C reviews the concerns raised by
academicians regarding the application of the conceptual framework. And Section D analysis the
application of the concept by the Oil Search Limited 10 Toea to prepare its financial statements.
Part B is divided into five sections to address the importance and adoption of integrated or
sustainability reporting in accounting. Section A is a comparative analysis of sustainability
reporting and integrated reporting. Section B discusses the suitability of conventional accounting
to support the contents of sustainability and integrated reporting. Section C discusses how
theories can be used to support the adoption of sustainability and integrated reporting in
accounting. Section D presents a tabular analysis on the components of an integrated report as
well as the application of Vivo Energy Plc in South Africa. Section E discuss whether or not the
Oil Search Limited 10 Toea Company prepares an integrated report.
PART A: Conceptual framework
a) Development of IASB’s Conceptual Framework for Financial Reporting
IASB has released three versions of the conceptual framework for financial reporting. The
three versions were released in 1989, 2010 and 2018. The three versions were developed based

CONTEMPORARY ACCOUNTING THEORY 4
on the concerns and issues raised by the users about the previous versions. The conceptual
framework remained unchanged since its introduction in 1989. Both the FASB and IASB began
the process of reviewing and revising the concept of financial reporting began in 2004. However,
numerous consultations and disagreement between the two bodies slowed down the work. FASB
and IASB could only finalise Phase A of the project. IASB was forced to abandon their
collaboration with FASB and which show the completion of Phases B to H by September 2010
(IASB, The Conceptual Framework for Financial Reporting, 2010).
However, users of the 2010 conceptual framework cited several drawbacks. For instance,
the 2010 version lacked clear definition and distinction between different financial elements
which are included in the financial statements. Majority of participants raised several conceptual
issues during the 2011 agenda consultation. For instance, participants cited the 2010 concept of
financial reporting hindered the preparation of financial statements and reports. Therefore, in
September 2012, IASB embarked on addressing the conceptual issues that had been raised.
Instead of revision the concept, the board decided to address the topics that had been excluded in
the previous versions. As a result, two topics (disclosure and presentation were added. A finalised
project was published in 2013. The board embarked on collecting views of different users. The
final copy of the conceptual framework was released in May 2018. The 2018 version of the
conceptual framework comprises of eight topics (IASB, Conceptual Framework for Financial
Reporting 2018 , 2018).
b) Concerns raised by Australian accounting professions regarding the application of the
conceptual framework
AASB has raised key concerns about the application of the conceptual framework in
Australia. The two issues revolve around the reporting entity and special purpose financial

CONTEMPORARY ACCOUNTING THEORY 5
statements. AASB identified an inconsistency definition of reporting entity between the
Australian Statement of Accounting Concepts (SAC 1) and the Conceptual Framework for
Financial Reporting (RCF). The issues have led to a heated debate on the more appropriate
definition to follow in Australia. According to the RCF, all entities are required to prepare
general purpose financial statements (GPFS). While SAC 1 only requires legal entities to prepare
GPFS. AASB is concerned that the inconsistency in the definition may lead to non-compliance
with IFRS, wrong application of the Australian Accounting Standards (AASs) and
misinterpretation (KPMG, 2018).
The board also has issues about how the conceptual framework addresses the special
purpose financial statements (SPFS). AASB has been concerned about the failure of SPFS to
facilitate transparency, consistency, and comparability of financial statements. Before the release
of the 2018 version, AASB maintained that revising the conceptual framework was the only way
of sufficiently addressing the SPFS issue (KPMG, 2018).
c) Academic’s concerns regarding the application of the conceptual framework
Academicians have raised three areas of concerns with the conceptual framework. First,
academicians have linked the process of developing the conceptual framework with the creation
of a constitution. Both suffer from political interference. IASB listens to the concerns and views
of different stakeholders from different jurisdictions (Macías & Muiño, 2011). Each participant in
the process seeks to support their position leading to self-interest. Therefore, there is a likelihood
that the conceptual framework would fail to meet its objectivity when self-interests overrides
social interests (general purpose of financial reporting) (Kober, Lee, & Ng, 2012).

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Second, discussions involving controversial issues have been associated with heated
debates. IASB through IFRS would be forced to abandon such debates for the future to avoid
confrontation between members. As a result, IASB might fail to address weight accounting
concerns leading to the loss of trust and relevancy of the framework (Christensen, 2010). Third,
organisations have turned their attention towards creating value by investing in the community
and environment. However, the conceptual framework does not provide a guideline of how
organisations should account for non-financial performances (Lin, 2015).
d) Oil Search Limited 10 Toea’s (ASX: OSH) application of the IASB’s concept of financial
reporting
i) OSH’s Financial statements/reports and their components as per the Conceptual
Framework
Chapter Three of the conceptual framework defines a financial statement as a financial report that
offers information about an entity’s financial elements such as assets, equity, liabilities, expenses,
and income. Common financial statements are the Income statement, Cash flow statement, and
the balance sheet (Oil Search, 2018 Annual Report, 2019).
OSH’s financial year ends on 31 December every year. The company prepared four financial
statements for the year ended 31 December 2018.
a) Comprehensive Income Statements: The statement comprises of three financial elements,
that is, revenue ($1,535,761,000), expenses ($11,945,559,000) and Net Income
(341,202,000).
b) Balance Sheet: The statement comprises of three financial elements, that is, Assets
($10,673,891,000), Liabilities ($5,508,273,000), and Equity (5,165,618,000).

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c) Cash flow statements: The statement comprises of three elements, that is, operating
activities ($854,632,000), investing activities ($810,997,000), financing activities ($-
458,324) and cash and cash equivalents ($600,557) (Oil Search, 2018 Annual Report,
2019).
d) Changes in Equity statements: The statement comprises of net amount from items such as
share capital, foreign reserves, treasury share reserve, employee equity compensation
reserve, and retained earnings. The change in equity totaled to $339,197,000.
ii) Recognition principles and measurement bases applied by OSH for revenue, assets, and
liabilities.
Recognition and measurement of financial elements are discussed in Chapter 5 and 6 of the
conceptual framework, respectively. Recognition refers to the process of including financial
elements in the financial statements. Likewise, measurement is defined as the process of
assigning monetary values to the financial elements. Recognition and measurement of financial
elements are done by considering several factors which should be both relevant and show faithful
representation (IASB, 2018).
OSH recognizes and measures all its financial assets and liabilities at fair value. The
company considers factors such as transactions costs, amortised cost, and depreciation (where
applicable) to measure assets and liabilities. The fair value of financial assets and liabilities refer
to their carrying amounts. Likewise, OSH recognises its income at realisable amount and
expenses at the historical cost (Oil Search, 2018 Annual Report, 2019).
iii) Qualitative characteristics of information exhibit in OSH’s financial reports.

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Chapter two of the conceptual framework addresses the qualitative characteristics which a
financial report should have to be considered useful. The characteristic is faithful representation
and relevance. The two characteristics are further enhanced by factors such as comparability,
verifiability, timeliness, and understandability (IASB, 2018).
The financial report has been declared to have met the two qualitative characteristics by the
directors and the Deloitte Auditing firm. According to RJ Lee, the chairman of the board of
directors, the company had complied with the IAS and IFRS. Second, financial notes were
provided as required by the ASEC. Third, the financial report provided a true and fair financial
position of OSH’s financial position as at 31 December 2018. Auditors from Deloitte experienced
their satisfaction with the company’s financial report at the end of the audit (Oil Search, 2018
Annual Report, 2019).
PART B: Integrated/sustainability reporting
a) Comparative analysis between sustainability reporting and integrated reporting.
Both sustainability and integrated financial reporting goes beyond providing financial
information, particularly to the shareholders and investors. Unlike traditional reporting, both
sustainability and integrated reporting take the non-financial performance of an entity into
account. However, sustainability reporting is different from integrated reporting. Sustainability
reporting push for the inclusion of how companies intend to manage social and environmental
issues arising from their activities. GRI stated that companies cause a severe impact on the
community and the environment. Therefore, they should publicly disclose the risks that their
activities impose on the two factors as well as the strategies put in place to rectify arising issues
(Cohen, 2017).

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On the other hand, integrated reporting goes beyond the inclusion of environmental and
social issues in the financial reports. Integrated reporting covers how companies create long term
value by turning both traditional and sustainability risks into opportunities. In other words,
integrated reporting hold that companies should convert social and environmental thinking into
business values (paiaconsulting, 2019).
Sustainability reporting which support separate publication of financial and sustainable
reports. Integrated reporting supports the integration of the two reports into one. Therefore,
integrated reporting in broader of the two because it brings together the information in the two
reports into one. An integrated report would include i) Financial and Operating analysis, ii)
Financial statements, iii) Corporate Governance report, and iv) Sustainability reporting
(paiaconsulting, 2019).
b) The suitability of conventional accounting to support the contents of sustainability and
integrated reporting.
Conventional accounting, also known as traditional accounting, has been criticised by many
users amid the current accounting trends. Conventional accounting deals only with financial
aspects of performance and ignores the social and environmental impacts of the entity’s
operations (Cohen, 2017).
Financial statements show the economic situation of a company. They are also the primary
sources of information to different stakeholders. Companies rely on the community and
environment to create value. However, conventional accounting does not exhibit how entity
operations influence social and environmental factors. Moreover, traditional accounting does not
show how companies are committed to addressing issues facing their employees, shareholders,

CONTEMPORARY ACCOUNTING THEORY
10
society, and customers. Traditional reports do not include reports about their sustainability
investment and performance (Macve, 2015).
c) Application of theories to support the adoption of sustainability and integrated reporting in
accounting.
Both the stakeholders and legitimacy theories can be used to support the adoption of
sustainability and integrated accounting reporting.
Edward Freeman developed the stakeholder theory. Freeman defined a stakeholder as a
person or group that influence or is influenced by organisational activities. The theory states the
stronger the relationship between an entity and its stakeholders, the easier it as to fulfill its goals,
and the opposite is true. For a stronger relationship, companies should voluntarily invest a
significant amount of resources back to the community. In other words, companies should not
only focus on benefiting from society and the environment without giving back. Stakeholder
theory push for a stronger relationship between organisations and their stakeholders as proposed
by sustainability and integrated reporting (Deegan, 2013).
Legitimacy theory also establishes a relationship between a company and the society. The
theory states that the survival of any organisation depends on its respect to social values and
norms. The legitimate theory stipulates a company must be to act legitimately before its external
stakeholders. Therefore, companies can earn a legal status by voluntary providing information
about social and environmental disclosures in the annual reports. The theory recognises the
importance of social and environmental disclosures for the survival of any organization.
Remember that external stakeholders have the power to influence the legitimacy status of a
company (Deegan, 2013).

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d) Tabular analysis on the components of an integrated report as well as their application by
Vivo Energy Plc in South Africa.
Components of an
integrated report
Application by Vivo Energy Plc.
External environment and
organizational overview
Vivo Energy Plc. Operate in a competitive energy industry. The
market is characterised with high market growth. The African
energy market has the fastest growth globally based on GDP,
urbanisations, population, and social class (Vivo Energy Plc.,
2019).
Governance structure The company’s culture is based on respect, integrity, and
honesty. Vivo’s board of directors comprises of nine members
who have been tasked to ensure the success of the company. All
members of the board are experienced business people with vast
skills to ensure the achievement of the company’s strategy. The
company also has an audit committee, nomination committee,
and remuneration committee (Vivo Energy Plc., 2019).
Stakeholder relationships Vivo Energy Plc. identifies its key stakeholders like employees,
customers, investors, partners, government, and investors. The
company’s business activities impact stakeholders. Vivo strives
to establish a positive relationship with each group of
stakeholders. The company has developed programs/ activities
that benefit respective stakeholders. Lastly, the company used
stakeholder dialogue to foster a good relationship with
stakeholders (Vivo Energy Plc., 2019).
Strategies The company uses proven, responsible and performance-based
strategies. Vivo focuses on remaining to be a respected and
responsible business in the community. To achieve this, the
company will continue to act ethically and professionally as
expected by the customers, shareholders employees, community,
and other stakeholders. Vivo is a commitment to protecting the
safety of the community at any given time (Vivo Energy Plc.,
2019).
Performance The company publically discloses its audited financial reports for
its stakeholders to read and use in making useful decisions.
Business model Vivo’s business model is based on creating value for the
stakeholders. The company believes that addressing the
particular needs of stakeholders would, in return, help it to gain
competitive and market advantage. Vivo has diversified its
supply chain as well as pushed for economies of scale besides
creating a close relationship with stakeholders (Vivo Energy
Plc., 2019).
Internal controls, risks, Vivo Energy Plc. has put in place an effective plan to identify,

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and opportunities assess, classify, and mitigate risks and risk exposure factors.
Some of the risk factors that hinder the effective operations of
the company are deteriorating relationship and reputation of
partners, oil price fluctuations, health and safety of employees,
currency exchange risks, credit management and non-compliance
risks, fraud, criminal activities, and bribery. Vivo has put in
place a countermeasure to address each of the risk factors.
Lastly, Vivo has invested heavily in maintaining/ improving the
quality of its assets and products (Vivo Energy Plc., 2019).
e) Sustainability/ integrated/ corporate social reports by the Oil Search Limited 10 Toea
Company.
Just like Vivo Energy Plc., Oil Search Limited 10 Toea Company also releases its social
responsibility report. First, OSH has a social responsibility strategy focus on identifying the
social and environmental issues caused by its activities and then create acceptable and sustainable
solutions. Supporting sustainable development remains a critical part of the company. Second,
stakeholder engagement is also a component of OSH’s sustainability report. The company
acknowledges that mutual respect with its key stakeholders is important in creating value. OSH
has given much priority to stakeholder dialogue. OSH’s leading stakeholders are shareholders,
suppliers, communities, government, employees, customers, and Non-government organisations.
The company engages each of these stakeholders based on mutual priorities (Oil Search, 2019).
Third, the company acknowledges that it operates in communities with different ethical
standards and cultural practices. Some communities are associated with a high level of corruption
and bribery risks. Therefore, OSH’s operations are guided by the principles of transparency and
integrity. Moreover, contractors and employees must adhere to the company’s code of conduct,
social responsibility policy, and corruption preventions policy (Oil Search Company, 2019).
Fourth, OSH has ensured that its activities have a minimal negative impact on the environment