ACCT20074 Contemporary Accounting Theory

Introduction

The report evaluates the various provisions and guidelines that are laid down under International Financial Reporting Standards and the Australian Accounting Standards. The report defines and evaluates the conceptual framework under financial reporting structure. It also sates the benefits and disadvantages or limitations under the conceptual framework that are faced by various companies within the country. The study financial report analyses of AGL Energy Limited and provides qualitative analysis of the reporting standards and accounting provisions that are followed by the company for effective reporting of the financial statements of the company during the financial year.        

a

The preliminary purpose and the job of the conceptual framework is to make assistance in the development and incorporation of future IFRS framework and to create a review mechanism to the already existing IFRS framework. The conceptual framework helps to assist to maintain and prepare the financial statements of ta company. Conceptual framework helps to develop and construct the various accounting policies for the transactions of financial data or any event that are not covered within the existing standards (Jones & Wolnizer, 2003). The conceptual framework is a structure or a body of fundamentals and interrelated or interconnected objectives. The goals and the financial reporting purpose can be identified by this objective. The objectives are achieved by the incorporation of the fundamental theories within the conceptual framework (Fosbre, Kraft & Fosbre, 2009). This provides rules and guidelines in the selection of the accounting transactions, circumstances and events that are to be accounted and measurement and recognitions and should be effectively summarised, measured and reported. The conceptual framework helps to provide a set and framework of common practices and promises on the basis of the discussion process. The conceptual firework provides precise and conscious terminologies and its helps to ask for the effective and right question. The makes the areas of judgement limited and it excludes from potential consideration and discretion that are in conflicting nature. A reasoning process and imposition of intellectual property and discipline of the historically subjective are done within the framework. The direct effects of the conceptual framework statements are not done. The generally acceptable accounting principles are not changed under this framework. Their lies conflicts within the conceptual framework and generally acceptable accounting principles that is some transaction scan be considered with the generally accounting principal theory but are not reported under conceptual framework. The accounting practices are affected over a period of time due to development of new and advanced standards for accounting within the conceptual framework methodology. The various standards and different concepts related to framework provides useful tools to resolve various questions relating to reporting and accounting. This provides a guidance in the development of the analysis of the consideration issues related to the conceptual framework. The effective development of accounting standards and financial reporting are done form the recommendation given in the conceptual framework. The issues related to the specific standards are discussed for the important concepts related to the conceptual framework structure. The basic revaluation and reasoning are provided by this framework in order to takes into account the problems related to complex solution and alternative aspects of the reporting framework. The inconsistencies of the accounting transactions are effectively eliminated by efficient utilisation of the conceptual framework techniques. It helps to implement grater amount of standard, consistency and efficiency in the development and incorporation of the for avoiding against various issues related to fundaments concepts in the financial reporting (Ball, 2006). The conceptual framework also provides detailed guidance and highlights the issues that are to be mitigated to enhance the reporting standards to the board of directors and management of the company. The personal baseness is reduced and standard setting for the decision-making process are improved by the effective utilisation of the conceptual framework. The implementation of the financial reporting framework can be set by the utilisation of conceptual framework as the companies have to report the accounting transaction and ad report the financial transaction on rules, guidelines and policies set within the conceptual framework. The confidence of the investors and other stakeholders in the market are enhanced by the incorporation of conceptual framework due to enhancement of credibility under the utilisation of this framework (Pearce and Pinto, 2018). The internal control mechanism and internal audit of a company can be improved after implementation of this framework as the management and the board of directors of the company can effectively evaluate and measure the actual performance with that of the standard performance that are set by the board of directors. This also helps to take necessary decision about the future prospect and business objective of the business operations. The conceptual also helps the investors of the company to make clear and effective decision based on the efficient reporting and unbiased reporting of financial transactions within the financial statements of the company. The framework helps to project the financial transaction presentation and helps to project the financial reports of the entity (Donnelly, 2007). The increase in the complexity of the accounting transactions and financial activities required for the impropriation of conceptual framework.

b

The conceptual framework for the reporting of the financial statements creates a direct effect on the International Accounting Standards Board. The conceptual frameworks that are followed by the companies have to develop and structure accounting policies that are within the internationals accounting standards. The conceptual framework sets out objectives such as general purpose for the reporting of the financial transactions, financial data reported by evaluating the qualitative perspective of the transactions. It also includes reporting entities bounders and effectively defines the liabilities, assets, expenses, income and equity doing the particular financial year. This also includes guidelines that are to be followed by the company for reporting of the assets and liabilities into the financial statements (Andreeva and Shevchik, 2017). It also includes presentation, measurement guidance and maintenance of the capital structure within the framework. In the US the financial reporting and accounting transactions of the companies are guided under the Financial Accounting Standards Board. All the companies or the organisation that are operating within the US have to follow the rules and guidelines laid down under the Financial Accounting Standards Board. The guidelines are sync as per the rules, guidelines and provisions that are set in the International Financial Reporting Standards (Ball and Shivakumar, 2015). The standards of Generally Accepted Accounting Principles in UK are Financial reporting Standards 102. It is based on the provisions and guideless as laid down under the International Financial Reporting Standards. In the case of Australia, the country has adopted Australian Accounting Standards Board, under which the rules, provisions and guidelines are same with that of the International Financial Reporting Standards. The Australian Accounting Standards Board was modified and adopted the new guidelines and provisions that are set by International Financial Reporting Standards in order to come with par with the international standards (Black et al., 2018).

C

The benefits of conceptual framework are that it related and constructed on established framework and body of objectives and concepts. It provides method in order to solve a emerging and new problems related to accounting transactions and complex financial reporting. The financial reporting of the company is enhanced as the investors can easily understand the financial information and financial status of the company during the financial year. It creates comparability and incorporates standards among the organisation’s financial statements. Due to the development of standards the problems related to the accounting transactions can easily be identified (Bentley et al., 2018).  The policies of the company can be easily undertaken by the boards of directors and management to the company by evaluating the standards for financial data reporting and by identifying the accounting transactions under the conceptual framework (Black et al., 2017). The accounting standards can be concentrated in the case of income statements of the company and some can be concentrated in the net assets of the company for a particular financial year.

The disadvantages of the conceptual framework are that a particular or an individual concept may be suitable for every user or every companies operating within the country. The diversity of requirement by the users is needed for the variation of the policies and rules within the framework, this creates the framework more complex and costly process (Berrada, Loudiyi and Zorkani, 2017). This framework is very difficult and time consuming to set ups within the country. In the developing and third world countries it can be time consuming and expensive job to set up the accounting standards. The standard guidelines create rigidity with the system and creates difficulty to incorporate new ideas and objectives within the management of the company. It also creates conflict within the older and prior accounting standards with that of the current and latest standards. The framework only helps and benefits some users and are not acceptable by all parties due to higher cost and time constraints.                           

d 

1

AGL Energy Limited is a public related company having business operations into the generation, distribution and retailing of gas and electricity for the use of residential and commercial purpose. The company is headquartered in Sydney and was founded back in the year 2006 as The Australian Gas Light Company. The business operations and products of the company involves energy, wind power, coal gas, natural gases and telecommunication services. The services that are rendered by AGL Energy Limited are generation, retailing and distribution of electricity. The revenue of the company during the financial year 2018 is $12.857 Billion and the total income of the company is 1.023 Billion during the financial year 2018. The company is the largest company in Australia that has business ventures in the areas of electrify and telecommunication services. The company is included in the ASX 200 benchmark, that is the benchmark index in Australia.    

2

The conceptual framework of AGL Energy Limited is based on the guidelines, rules and provisions of Australian Accounting Standards Board. The financial statements of the company are reported under the guidelines and provisions of International Financial Reporting Standards and the frameworks under the Generally Acceptable Accounting Principal. The financial statements of AGL Energy Limited as per the annual report includes Consolidated Statement of profit and Losses for the financial year ended (Cascino and Gassen, 2015). It also includes Consolidated Statement of Comprehensive Income during the financial year ended. The financial statement of AGL Energy Limited includes Consolidated Statement of Financial Position and Consolidated Statements of Changes in Equity for the financial year ending 30^th June 2020 (Shroff, 2017). It also includes Consolidated Statements of Cash Flows for the year ending 30^th June 2020. The guidelines and provisions of Australian Accounting Standard Board is equivalent and sync with the guidelines and provisions under the International Financial Reporting Standards. The Australian Standard of Accounting also includes elements, provisions and requirements that are specific and individual to the Australian companies. The requirements of the Australian Standards of Accounting are restricted only for the private enterprises or non-profit making companies within the country as the private and non-profit making companies are not able to follow the guidelines and policies under the International Financial Reporting Standards (Chen and Tsang, 2015). The Australian Accounting Standards are based on the applicability under the laws and provisions in the Corporation laws. Under the provisions of the Australian Corporation Act 2001 all the entities operating within the county have to follow the guidelines and provisions of the Australian Accounting Standards. The Australian Accounting Standards are based on the rules and regulations as obliged by the International Financial Reporting Standard Framework. The Australian Accounting Standard Board laid down various measurements, recognitions and requirements of the accounting principles under the Generally Acceptable Accounting principal framework. The members of Australian Accounting Standards Board are the members of the Australian Institute of Chartered Accountants (Christensen et al., 2015). The members are obligated in order to take reasonable steps and responsible steps to ensure that all the entities with the country effectively follow the Australian Standards of Accounting during the preparation of the financial statements. The international standards for the reporting and Australian Accounting Standard are followed by AGL Energy Limited in order to maintain transparency for the reporting of the financial and accounting transaction of the company during the financial year. The Australian Accounting Standards was further amended during the financial year 2020 for the classification of total liabilities of the company into current and noncurrent liabilities for a financial year (De George and Shivakumar, 2016). The Australian Accounting Standards laid down specific ways to report the insurance contracts, non-current assets, operating segments, fair valuation measurement, reporting of accounts related to regulatory deferral, reporting of the accounting transactions for the revenue generation from the contracts, accounting of leases and contracts for insurance. The cost of borrowings, adjustments for the changes in the foreign exchange rates and disclosures under the related party transactions of the company during the financial year. The calculation for earnings per stock, impairments for assets, transaction related to contingent liabilities, assets and provisions are too reported under the prescribed provision of the standards (DeFond, Hung and Li, 2015). The reporting of investment assets, properties and intangible assets and contributions are to be recorded as per the standard guidelines under the accounting framework.

The statements of the conceptual framework of the company are done under the provisions as laid down and developed by Australian Accounting Standards Boards and by the Public Standards for accounting standards. The conceptual framework of series of financial statements related to statement of profit and loss, statement of balance sheet, statement of changes in equity and statement or cash flows. The recognition for the assets is based on the probability which arises from the future benefits of the economy that can be generated and evaluated from the assets of the company (Florou and Kosi, 2015). The measurement of cost and expenditures associated with the assets are to valued and measured in a reliable manner. The recognition for the liabilities of the company forms the statement of financial position are from the future or forecasted sacrifice that can be made for the purpose of economic benefits. The amount from the liabilities of the company during the particular financial year can be measured reliably (Shen, Hu and Tzeng, 2017). The revenues of the company are the inflows, enhancements and other savings from the cash outflows of the benefits of future economic perspective from the increase in the value of the assets and reductions in the value of liabilities of the organisation, excluding from the owner’s contribution which creates in the advancement of or increase in the equity valuation during the particular reporting of the period. The revenue is recognised and evaluated from the operational statements for the determination of the results for the particular reporting period. The probable consideration is that it includes the inflows, savings from the outflows and other enhancements and savings from the cash outflows of the futuristic benefits arising. The measures of savings in the cash outflows and inflows and enhancements can be measured under reliability (Isidro and Marques, 2015). The notes of accounting for the individual items such as assets, liabilities and revenues are reported by the company after the reporting of the comprehensive financial statements. The clear definitions of revenues, assets and liabilities are evaluated within the annual report of the company. The statement of profit and loss exabits financial information related to the revenue generation and net profits of the company. That is, it generates profitability position of the company by evaluating the operating profit and net profit margin of the company during the particular financial year. The statement of balance sheet of the company measures the financial position of the company by analysing the total assets and total liabilities of the company during a particular financial year. The total assets and liabilities of the company are further divided and segregated into current and non-current assets and liabilities for the measurement of short term and long-term obligations of the company during the particular financial year (Kraft, 2015). The cash flow statement of the company measures the cash flows from the operating activities, cash flows from investing activities and cash flows from financing activites to measure the net cash generation of the company during the financial year. It measures the overall cash position of the company and also includes the cash reserves of the company from the previous financial years. The statement showing changes in equity for the company measures the classification of total equity capital of the company in the capital structure framework. It also evaluates the changes in equity from the previous years is respective of the current financial year. The notes to the accounts are evaluated after the preparation and reporting of the income, profit and loss, balance sheet, cash flows and changes in equity statements (Samaha and Khlif, 2016). The notes of accounts evaluate the individual items that are reported in the financial statements of the company. It provides comprehensive measures, calculation and definition in order to provide detailed evaluates of each important item under the f8inancial reporting framework.

Conclusion

The report analyses the provisions and guidelines that are related to the conceptual framework under the International Financial Regulatory Framework, Generally Accepted Accounting principals and Australian Accounting Standards. The evaluates the financial statements of AGL Energy Limited and analyses the provisions and guidelines that are filled by the company in the preparation and presentation of the financial statements. The assessment also recognises the effective reporting of assets, liabilities and revenues of AGL Energy Limited. The sturdy also provides comprehensive analyses of the benefits and disadvantages or limitations associated with the conceptual framework of the accounting standards.    

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