HA3011 Advanced Financial Accounting: Conceptual Framework & Issues

This essay provides an analysis of advanced financial accounting concepts, focusing on Oil Search Limited as a case study. It describes key accounting concepts such as the business entity, money measurement, going concern, accounting period, accounting cost, dual aspect, realization, accrual, and matching concepts. The essay examines the conceptual framework, addressing issues related to measurement, objectivity, matching, revenue recognition, and consistency. It also discusses fundamental qualitative characteristics like relevance and faithful representation, emphasizing completeness, neutrality, and freedom from error. The report concludes by highlighting the importance of managing qualitative characteristics for effective financial statement management. Desklib offers a wide range of solved assignments and past papers for students.

Advanced financial accounting

Table of Contents
Introduction........................................................................................................................................3
Description of Accounting Concepts..........................................................................................3
Conceptual framework and issue related to measurement....................................................6
Fundamental qualitative characteristics.....................................................................................8
Conclusion.......................................................................................................................................11
References.......................................................................................................................................12

Introduction
This report is associated with financial accounting, which is advancing in nature as it
is concerned with the summary, examination along with the reporting associated with
monetary activities of business organization. This report provides an effective focus
on Oil Search Limited as it deals in oil and gas exploration in Australia. This report
includes the accounting concepts description. Along with this, the examination needs
to be done of a conceptual framework as well as issues of measurement. Apart from
this, it also includes the qualitative characteristics in understanding the application
authenticity.
Description of Accounting Concepts
The accounting principles are prepared by using the basic concepts as it helps in
preparing effective financial statements. Basic accounting concepts cannot be ,
which is listed by the other authors. These concepts are widely accepted in
preparing the financial statements and needs to verify these statements by hiring the
auditors.
Business Entity Concept: This concept based on different assumptions that
financial statements and also the other accounting information are included for the
specific business purpose as it is different from its owners. The assets and liabilities
of the business organization are associated with the business activities, but the
transactions are related to the owners of business organization. This concept helps
in distinguishing the personal as well as business transactions, and also apply to the
different enterprise (Accounting Tools, 2019).
Money Measurement Concept: This concept describes that accounting is a
measurement along with the communication process of activities because this helps
in measuring the value in monetary terms. The financial statements describe the

used money. This concept implies the two limitations of accounting that is it is
associated to the limited production of data which is expressed in terms of the
monetary unit and another is it concerns with the limitations of monetary unit as a
unit of measure. The main characteristic of this unit is purchasing power and also the
goods which obtained money by his concern.
Going Concern Concept: This concept helps business organization in providing the
justification to the valuation of assets according to the non-liquidation and also calls
for the utilisation of historical cost for the different valuations. In this concept, the
fixed assets, as well as intangibles, are amortised for the useful life instead of a
shorter period in providing the expectations of early liquidation. This concept leads to
the proposition of financial statements, which becomes part of continuous
improvements. Apart from this, it is a concept which is helpful for data
communication, which is tentative in nature as well as discloses the adjustments
which are revealed by more developments (Chatterjee, 2016).
Accounting Period Concept: According to this concept, financial accounting offers
the information or data associated to the economic activities of the business
organization but for a specific period of time that is lesser than the life of the
business organization. In this concept, the time period is of equal length, which aids
in facilitating the comparison. In the financial statements, the time period is identified,
but usually, the time period is taken 12 months but sometimes quarterly as well as
half-yearly statements are also issued by the company.
Accounting cost concept: This concept describes that all the assets along with the
resources of the company are recording in the financial accounts on their purchase
price as it includes the cost of acquisition of a product, installation cost,
transportation cost but not at its market price. This concept includes fixed assets

such as building, plant and machinery and so on which are included in the
accounting books but at a paid the price for them. Apart from this, the accounting
cost concept also helps in computing the depreciation on fixed assets (Schaltegger
and Burritt, 2017).
Dual aspect concept: This concept is the basic concept as it includes the recording
of business transaction in books of accounts, and this transaction has a dual impact
on the financial statements. In this, both aspects are recorded in the books of
accounts. This concept demonstrates effective by using this equation that is
Assets = Liabilities + Capital
Realisation concept: This concept describes that profits generated from business
transactions are included in the accounting records but only when it is realised. This
concept assists in creating the legal right to receive the money. For example, selling
the products and services is a realisation, but the receiving order is not included in
the realisation concept.
Accrual Concept: This concept assists in measuring the income for a period of time
as the difference among revenues are documented in that period along with the
expenses which are related to the revenues. Under this concept, generally, profits
are the same as cash receipts from the consumers as well as expenses are not
matched with the disbursement of cash (Granof et al., 2016).
Matching Concept: This concept needs to fulfilled after using the realisation
concept, and it is having been completed with the help of accountant that is first
revenues are measured with the utilisation of realization concept and after that costs
need to calculate with the revenues. In this concept, costs match with revenues only
not others.

Oil Search Limited has prepared the consolidated statements which describe the
general purpose. The statements are prepared according to the Australian standards
along with the other regulations of the Australian Accounting Standards Board as
well as International Financial Reporting Standards. The company is preparing the
financial statements according to the going concern concept along with the
conventions associated to historic cost include investment properties which are
under construction and assets which are held for sale are measured on decreasing
carrying value along with the selling cost (Parker and Northcott, 2016). The revenues
of Oil Search Limited are restrained on the far value as well as expenses of business
organization are examined on an accrual basis as it assists in examining the actual
profit or less. This helps business organization in getting ready information reliably
and also includes exact books of records which encourage the partners to
comprehend the genuine financial position of the organization.
Conceptual framework and issue related to measurement
The measurement of accounting describes the computation of different activities,
whether it is economic and financial in terms of money or other units. These
measurements demonstrate as a unit which includes some measurable elements
which assist in comparing and examining the accounting data. The accounting
measurement needs to be done in terms of money. Moreover, there are some
principles for the accounting measurement, which include:
 Objectivity: This principle includes the concept of financial statements should be
based on solid evidence. In this concept, financial information must be reliable (Zeff,
2016).

 Matching: In this principle, all the expenses must be matched in the same accounting
period as it assists in earning the revenue. It is a combination of revenue recognition,
along with accrual accounting.
 Revenue recognition: This principle demonstrates that revenue should be recognised
along with the recorded when it is realizable (Kieso et al., 2016).
 Consistency: It states that to follow it consistently in the future accounting periods
and the variation in the accounting principle assist in improving the financial results.
As commented by Libby (2017), it has been analysed that financial accounts based
on the appropriate measurement but there are diversified issues which are
associated with it and its impact on the decision making associated to the policies,
processes along with the controlling. This generates the performance issue along
with the disclosure of information or data in the financial statement. Apart from this,
for effective communication, it is necessary to resolve the issues associated with
complexity as well as the need to clarify the applicability of principles of materiality.
Moreover, issue related to maintenance of capital along with the current cost is
included in the new conceptual framework.
As commented by Cheng et al. (2014), it has been reviewed that the existing
Conceptual Framework for Financial Reporting provides the direction on the
measurements of financial accounting as it describes the gaps which occurred in the
framework. The IFRS standards adopt the mixed measurement biases as it includes
the historical cost, realisable value along with the fair value. There is diversified
information according to the bases of different measurement which is associated to
this in different situations. A specific measurement base is more verifiable, easy to
understand along with this; it is less costly to implement. Thus, the company adopts

the appropriate single measurement method which utilises the current values to offer
the appropriate and correct information.
According to Salas et al. (2017), it has been examined that the fair value accounting
depends on the current market price and the company's liabilities, as well as assets,
are documented according to the latest value. This can be said that the estimated
value of selling the assets of the organization along with the liabilities to the other
parties are settled and decided on the effective market conditions. To manage the
measurements, the fair value of the company's investments is computed according
to the orderly transaction. It is necessary for the enterprise to identify the fair value
for the product so that they can sell the product and services in the current market,
which help in making an effective position in the market. The company adopts the
Generally Accepted Accounting Principles which offers the different sources of
information or data according to the hierarchy level as this hierarchy classifies into a
different range from level 1 to 3 which assist in determining what is best and what is
worst (Baumgartner, 2014).
Oil search limited calculates its financial statements according to fair and relevant
value. But while managing the statements, some issues are faced by the business
organization. The measurement concept of financial statements includes diversified
threats. The accounting and financial statements of Oil search limited to require the
fair value with the relevant data. Because of the variations in the market economy of
Australia on a continuous basis, it is difficult for a company to measure the fair value.
To decrease the risk, Oil search limited need to manage the fluctuations of the
market because assets along with the liabilities of the business are affected by the
interest rates, transaction price as well as the exchange rate. Oil search limited has
implemented the appropriate and relevant policies for offering the measurement

associated with a fair value which assist the company in managing the value of
assets and liabilities at a current market price.
Fundamental qualitative characteristics
In order to manage the financial statement company, need to manage the qualitative
characteristics. As per the conceptual framework, information associated with
financing is useful when it is relevant and also represents faithfully. But on the other
side, the usefulness of financial information is improved when it is comparable,
verifiable, and understandable.
Relevance: This characteristic of financial statement describes that information
which is included in the statements should be relevant and also help in making the
variations in the decisions of users. In terms of accounting information, it possesses
the confirmatory value and predictive value for future events. Thus, the accounting
information of business organization should be relevant as it includes the data
related to past events as well as aid in forecasting future events. This information or
data of the company affect the decision-making power of an individual (Accounting
Verse, 2018).
Faithful representation: This characteristic describes the information in the financial
statements must be complete, and they are free from error. It also can be said
reliability because it reflects the resources, transactions along with the obligatory
claims. For the accounting information, representational faithfulness it includes:
 Complete: All the financial information needs to be recorded and not exclude any
type of transaction.
 Neutral: Information should be free from bias that is no errors and estimation also
need to be included in financial statements.

 Free from error: Accounting statements of business organization include the
unbiased information which determines the appropriate and real position of the
company (Accounting Verse, 2018).
Enhancing qualitative characteristics
Understandability: This defines the qualitative characteristic of financial statements.
The statements of the company should include the information and data which are
understandable to the use which has appropriate knowledge of business along with
the economic activities. All the information in the statement should be written in a
clear and concise way.
Reliability: It classified into two parts that are verifiable and timeliness. The
appropriate and verifiable information should be faithfully represented as these are
free from errors or frauds. In the financial statement, the information reflects the
underlying substance of events as well as denotes the uncertainties by the proper
disclosure (Accounting Verse, 2018).
Comparability: It defines as a degree related to accounting standards and policies
which are applied from one year to another. This information assists in recognising
and determining the trends, and these trends help in improving the performance of
the company. Apart from this, comparability also describes the capability which can
compare the financial statements with the other business organizations.
These characteristics of accounting information are essential because this process
makes it easier for the company management and also stakeholders to use the
financial statements in making an effective decision.
By utilising the annual report of Oil Search Limited, it examines that company is
using the relevance along with the representational faithfulness for preparing their
financial statements. The company conducts the audit, which assists in getting the

assurance associated with the books of accounts because of audit help business
organization in identifying the errors as well as a different type of frauds. According
to this, financial statements of the company are effective as there is no material
misstatement (Accounting Verse, 2018). Directors of Oil Search Limited holds the
appropriate responsibility for presenting the appropriate, relevant, and true value in
their financial statements and also include the standards Australian Standards and
Corporation act. Apart from this, directors of Oil Search Limited need to examine the
data which are included in the financial statements are free from the material
statement or not as well as fraud and errors need to identify by conducting the audit.
The main objective related to the financial statements of the company is to offer a
relevant and faithful picture of financial information. For example, Oil Search Limited
provide the true and fair value related to their investment in subsidiaries or in joint
ventures. It is necessary for the business organization to conduct the audit for
examining the financial accounts so that auditors can identify that company is
providing reliable data or not. All the transactions and information of Oil Search
Limited recorded in financial statements by managing the legal aspects associated
with the accounting standards. Hence, it is essential that to manage the success Oil
Search Limited need to provide the relevant information in their statements as well
as auditor need to provide a true review.
Conclusion
After completing the report, it has been summing that in preparing the accounting
statements, accounting concepts play an essential role. Accounting principles are
based on the Australian Accounting Standards Board. Oil Search Limited following
the diversified concepts effectively and efficiently. Moreover, by utilising the
conceptual framework, it has been identified that there are diversified problems

faced by the business organization related to the measurement in accounting. Apart
from this, the company utilises the appropriate financial information by using the
appropriate and relevant concepts, and that also describes the qualitative
characteristics of accounting. It is necessary for the company to manage the
financial statements as it helps in attaining the success.