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ACCT20074 Contemporary Accounting Theory Naspers Limited and REA Group Assessment 3 Answer

ACCT20074 Contemporary Accounting Theory

Term 1 Assessment 3: Practical report (Major assignment)

Nature of task
Individual
Total marks
50 (50% of the unit)
Return date
Results will be published with other units university-wide (not before certification date)
Word limit
3,000 – 3,500 words including the executive summary, introduction, responses to the
requirements in 2 parts & conclusion but excluding the list of references and appendixes.
Format
Report format as per the marking criteria and guidelines. Prepare MS Word document.

Main tasks:

This assessment requires to undertake research and report on several aspects of corporate external reporting practices. The assessment has two main parts, Part A and Part B.

Part A: Conceptual framework

  1. Undertake a review of literature regarding the history and development of the Conceptual Framework for Financial Reporting in the USA, UK, Australia, and globally under the umbrella of the International Accounting Standards Board (IASB).(4 marks)
  2. Discuss the Australian accounting profession’s concerns regarding the application of the (IASB/IFRS) Conceptual Framework for Financial Reporting.(3 marks)
  3. Based upon a review of journal articles, critically discuss academics’ concerns about the quality (potential benefits and limitations) of the Conceptual Framework for Financial Reporting.(3 marks)
  4. Download the annual report of 2018 (or 2017, if not available 2018 annual report) of the selected company listed on the Australian Securities Exchange. Carefully read this report and explain how the conceptual framework has been applied by this company while it prepared its financial statements and notes to the accounts. Present your answer considering the (i) how many statements/reports have been prepared as per the Conceptual Framework and what are their major components, (ii) which recognition principles and measurement bases have been applied for revenue, assets and liabilities, and (iii) what qualitative characteristics of information exhibit in company’s various financial reports. (10 marks)

Part B: Integrated/sustainability reporting

  1. Compare and contrast the Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI) and the International Integrated Reporting Framework of the International Integrated Reporting Council (IIRC) for explaining a holistic view (broader view) of corporate social responsibility reporting in addition to reporting of corporate financial performance.(4 marks)
  2. Explain the rigour (strengths and limitations) of the conventional accounting, based upon the Conceptual Framework for Financial Reporting, to explain the contents of sustainability as well as integrated reports.(3 marks)
  3. Discuss the applicability (usefulness or limitations) of the theories you learned to explain the contents of sustainability as well as integrated reports.(3 marks)
  4. Prepare an index (a table or checklist) of various components (criteria) of an integrated report, and then discuss whether and how the selected South African company has disclosed information against each of those components (criteria).(5 marks)
  5. Discuss whether the selected Australian company prepare an integrated report. If not, then what alternative report/s this company prepares for reporting corporate social responsibility in addition to reporting of its financial performance. Compare the contents of Austrian company’s corporate social responsibility reporting in addition to reporting of financial performance with the index and contents of the integrated report of the South African company presented in Part B (d) above.(5 marks)

Required: Prepare a research report as per the template, marking criteria and relevant guidelines

Answer

Executive Summary

With the ramified changes in economy, each and every organization maintain the transparency in the books of account by complying with the conceptual framework. Conceptual framework and accounting standards always necessitate the preparation of the financial reports which will avail information regarding expenses, liabilities and the assets of the company. It helps company to set up harmonization in the domestic and international reporting framework. It is analysed that data presented in the financial statements of Naspers Limited and REA Group resembles materiality and have been recorded by complying with the Accounting standards and set reporting framework. However, in context with the sustainability reporting, it is found that it is important to understand that preparation as per the conventional accounting that reports reasonable in evaluation of cost when comparing to the sustainable reporting and integration.

Introduction 

Each and every organization needs to strengthen the transparency of the recorded items in the books of account. It is analysed that every organization need to set up proper conceptual accounting frameworks to set up harmonization in the reporting framework. Conceptual framework has been constructed on the basis of framework that already exist for the financial accounting and reporting and make it more relevant and faithful for the stakeholders. It is analysed that companies follow proper conceptual accounting formworks are more sustainable and attracted towards investors. In the first part of this report, conceptual accounting framework are followed. After that, assessment of the company in relation to the recorded financial items in the books of account in context with the conceptual accounting framework have been assessed.  It is analysed that if company wants to sustain its business in long run then imperative non-financial and financial information should be disclosed on the timely basis and it could be verified on the basis of environment in which it operates This report reflects the key understanding on the conceptual framework followed by company and how well it helps it to strengthen the transparency and true and fair view of the recorded items in the financial statement. 

Part A: Conceptual framework

(A)

On 18th September 2002, Norwalk agreement was marked as the foundation of the transparent decision-making so that there can be development of globally accepted framework based on accounting principles. Conceptual framework has been constructed on the basis of framework that already exist for the financial accounting and reporting (Bosse, & Phillips, 2016). The initial stage of development of the conceptual framework completed by FASB and IASB, 28th September 2010 (Lang, & Lawrence, 2015). At first, the stage of development of the joint conceptual framework that further consists of four chapters with its introduction. Initial chapter of conceptual framework consists of an introductory section that describes about the scope, purpose, and the scope. In the second chapter, conceptual framework elaborates the concept of the reporting organisation. Last part of the chapter entails regarding the qualitative features laid down in the appropriate financial data in order to enhance the relevance and the representation. The features such as timeless, understand ability, comparability, verification, and timelessness (Bosse, & Phillips, 2016).  It is analysed that information should be disclosed on the timely basis and it could be verified on the basis of environment in which it operates to strengthen the transparency of the recorded items. 

While forming the global standards, it is seen that the time span defined by framework for phase (2001-2005) because global financial crisis was the main reason that necessitates the formulation of convergence complying with the FASB as from 2006-2009 (phase 2). Phase-3 of development was determined in 2010-2013 where it is seen that main standards have been derived by working upon FASB and IASB (Bosse, & Phillips, 2016). These standards have considered five separate MOUs that include leases, Revenue, presentation of financial statements and financial instruments, and the association with the features of equity. Phase-4 was the transformation of development of IFRS (International Financial reporting standards) that necessitates the use of IFRS as a listed company in Australia, USA, UK, and other global countries. Nearly 144 jurisdiction over the globe, it is seen that IFRS standards have been implemented (Secundo, Dumay, Schiuma, & Passiante, 2016).  This helps in setting up harmonization in the reporting framework of the international companies. 

(B). 

Major concerns relevant to the accounting profession above the compliance of the conceptual framework for the financial reporting are given below- 

  • Development and implementation of conceptual framework are costly. 
  • Issues related to conceptual framework did not consistently add to the accounting profession rather than complying with the same existing practises with pinpoint modification and served differently (Secundo, Dumay, Schiuma, & Passiante, 2016)
  • The qualitative measures do not have any ground in the financial statements. Only monetary transactions represented until now. Another important corporate performance include honesty of employees, quality of output, quality of input, and skills of the labour. However, they are not directly reported in the financial statements (Kozlowski, Searcy, & Bardecki, 2015)
  • It is seen that conceptual framework demands certain clarity at some time when it differs from relative accounting standards that further create difference in perception of the applier of the conceptual model (Kozlowski, Searcy, & Bardecki, 2015)
  • Implementation of conceptual frameworks demands a change. As change is denied to be accepted by the organisation as observed according to AAPC (Australian Accounting Profession Community). 

(C)  

Advantages of the conceptual framework

  • It bridges the gap between the standard setting authorities and accounting practitioner with the help of communication 
  • It is observed that the reliability of the financial reporting has been improved
  • Confidence of the users depends on the financial reporting and its perception in regards to tuned favourable conditions (Michelon, Pilonato, & Ricceri, 2015).
  • It is an consistent approach availed by the conceptual framework for accounting  
  • It is a standard available in regards to the accounting practises in order to measure and test qualitatively. 

Cons of the conceptual framework

  • It is too rigid to incorporate new ideas through accounting. There is zero flexibility to enable the application of new ideas.
  • In the underdeveloped and developing countries, implementation of set of the conceptual framework and it`s adoption via IASB`s is quite difficult that finally owe to the cost constraints.
  • Sometimes conceptual frameworks can be conflicting in regards to the accounting standards that will finally lead to difference in the opinion of both.

(D). 

In order to analyse the implementation of the conceptual framework, the companies chosen are Naspers Limited and REA Group. The examination is on the basis of annual reports of 2018-

1. How many statements/reports have been prepared as per the Conceptual Framework and what are their major components

Conceptual framework and accounting standards always necessitate the preparation of the financial reports which will avail information regarding expenses, liabilities and the assets of the company. As per the conceptual framework, the minimum requirement are statements of the cash flow statements, comprehensive statement of income, notes to the financial statements of accounts, and the statement in the change of the equity.  When the company has many separate entities then a comprehensive group and consolidated statements of the reporting organisation with all the subsidiaries of the company.

The statements made by the Naspers Limited and REA Group to see the accomplishment of conceptual framework and the relevant elements are- 

Consolidated statement of the Profit and Loss account and other comprehensive income- This statement of the companies include profit before interest and tax, income tax expense, diluted income per share, and the total comprehensive income. This helps in strengthen the overall conceptual framework and strengthen the overall outcomes in effective manner. 

Consolidated statement of the financial position- it includes current assets, non-current assets, current liabilities, non-current liabilities, and equity. 

Statement regarding the change in equity- This component of balance sheet includes owners and capital transaction of the both the companies with the profit and loss in 2018. The part of total income and expense that is attributable to the parent company of both the companies and their associated interest equity holders. 

Notes to the financial statements- It is a type of description of the financial statements of the Naspers Limited and REA Group, which includes important information given in the consolidated statements. As it will be reflected in consolidated balance sheet, income statement, and cash flow statements. For instance- details against income expense taxation, regarding the revenue measurement and asset valuation. It helps company to prepare the supporting evidence to disclose the imperative information in the books of account. 

(ii) Which recognition principles and measurement bases have been applied for revenue, assets and liabilities

Revenue 

Measurement- Fair valuation measurement that has been adopted for revenue as received and receivable on the basis of consideration of the contractual terms (Karadag, 2015).

Recognition- Naspers Limited and REA Group have recognised the revenue according to conceptual framework on the basis of probability of future economic benefit as estimated flowing to it (Karadag, 2015)

Assets

Measurement- All the major assets except the investment property as required by the subsequent measurable on the basis of historical cost that is less than accumulated amortisation and depreciation. For the investment property, fair value technique has been observed at Naspers Limited and REA Group (Karadag, 2015).  

Recognition- Naspers Limited and REA Group recorded by the Naspers Limited and REA Group when the future economic advantages are possibility to flow of entity and its related cost to be measured accordingly. Initial recognition is calculated on the cost except in case of assets that acquired in the business combination. 

Liabilities

Measurement- liabilities have measured on the basis of costing when there is an independent living unit including the living unit, apartment entry contribution, and derivative financial instruments. These items are valued on the basis of fair value. 

Recognition- Naspers Limited and REA Group recognise the liabilities in the books of accounts when the resource outflow turns as a possible attachment with economic benefit inflow. Important condition is that it will be a reliable measurement of the settlement costs.

iii) What qualitative characteristics of information exhibit in company’s various financial reports

Financial data has been presented by Naspers Limited and REA Group, which further exhibit both faithfulness presentation and the qualitative features as given below to the relevance-

Faithful representation- The base behind the application and implementation of assumptions clearly justified at the necessary places so that it could keep the substance over form. Financial reports are presented in such a form that can be easily understandable and it can be easily compared. Whole information should be disclosed on the timely basis and it could be verified on the basis of environment in which it operates (Hąbek, & Wolniak, 2016)

Relevance- it is observed that the information presented in the financial statements of Naspers Limited and REA Group resembles materiality. The users have been informed with the use of Australian dollar as it has operates as per the AASB and it is rounded off nearest to ‘000 dollars. Main business risks such as difficulty in retention of the key management with the adverse coverage of media that appears to be material that have been disclosed. With the use of material estimates and other assumptions when financial statements are to be disclosed properly (Hąbek, & Wolniak, 2016)

Part-B  (Interrupted reporting)

(A)

The definition of sustainability reporting guidelines as given by the Global reporting initiatives.  It is seen that IIRC (international integrated reporting council) that further adds to the value to financial report by prioritising the CSR activities equivalent to the financial performance (Fernandez, 2016). The main aim can be same yet with the difference in approaches-

The suggesting policies in regards to the sustainable reporting are very well concerned with environment and the society that further relates to the non-financial reports (Fernandez, 2016)

The guidelines necessitates as per the sustainable reports, it is seen that the organisation should have communicated the approach that is further related to the management of environmental and social issues to the external stakeholders. Integration of reporting frameworks is step ahead of the sustainable reporting (Fernandez, 2016). It assists the organisation to reflect it to the stakeholders and its relative integration of the sustainable and financial risks in organisation and the way in which long term sustainable strategies are constructed to build so that it can deal with them (Fernandez, 2016)

The framework principle guideline for the sustainable reporting, it is seen that financial and non-financial principles were interpreted (Fernandez, 2016). Their integration is equally important. 

For the sustainable stakeholder`s reporting, it is seen that sustainable reporting considers wide range of customers, investors, general community, business suppliers. Reporting framework focuses on building for the report mainly for the financial stakeholders as the provider of the debt broker, equity investor, and debt finance.

(B).

The strengths of the conventional accounting seems to be sustainability and the integration reporting are-

  • It is important to understand that preparation as per the conventional accounting that reports reasonable in evaluation of cost when comparing to the sustainable reporting and integration.
  • It is convenient to include quantitative data that are measured reliably aspects of quantitative relatable to environment and society. 

The limitation of the conventional accounting as comparable to integration reporting and sustainability- 

  • Impact of organisation performance over environment and society that cannot be measured and examined with the help of conventional accounting types as per the sustainability reports.
  • This ignores “Examination of long term visibility” of the organisational strategy implemented with the conventional accounting types as being observed from sustainability reporting. 
  • Integration and their sustainability reports work in highlighting for the overall financial and other non-financial approaches rather than financial aspects according to conventional. 

(C ). 

Affiliation that are learnt in order to explain to the contents of the sustainability and its integrated reports-

Agent theory- The management is different from working and owners to the interest of the stakeholders interest and owner`s interests. Management enables as the agent so that it can achieve the goals and the intended for the benefits of the owners. The sustainability reporting which require highlighted by the benefits (Chen, Feldmann, & Tang, 2015).

Legitimacy theory- The organisation has been allowed so that to operate and usage of the resources as provided by the environment and society as the value of society as valued and followed. Therefore, the integrated and sustainable reporting the organisational reports in such a manner as it responds to the environment and society (Chen, Feldmann, & Tang, 2015).

Signalling theory- This theory is related to incorporation and creation of the voluntary disclosures such as capitalisation need theory as at the end there is an different image created in comparing it to other players (Chen, Feldmann, & Tang, 2015). The main purpose willingly disclosing the social as well as the environmental aspect in regards to the integrated reporting and relating it to the application (Michelon, Pilonato, & Ricceri, 2015)

Capital need theory- This theory necessitates the organisation to disclose the information so that they can attract the new investment at low cost. Voluntary disclosures are created and more amount available at such a lower cost for the company. The same scheme has been adopted by integrating reporting (Chen, Feldmann, & Tang, 2015).

(D). 

Illustration of the checklist as per the required components of the integrated plan and its application in relation to Naspers Limited 

Requisite componentsAnalysis of Naspers Limited 
Communication of tactics, projections, governance, and presentation of company in regards to its external environment for all long and short-term creations (Simnett, & Huggins, 2015).Naspers Limited has obviously revealed in the financial statements for the approach followed as per the key strategies for risk mitigation and management (Simnett, & Huggins, 2015)
The explanation of relations with the key stakeholders and manner in which their wants and benefits will be addressed. Naspers Limited has undertaken actions to mitigation the risks associated with the relevant business strategies (Michelon, Pilonato, & Ricceri, 2015)
Providing information in financial reports that is clear, concise, and materialistic, that finally aids to the value creation.Information has been delivered in such a way through a summarised way in order to reflect few actions. Risks in regards to matter that would hamper organisational performance (Lang, & Lawrence, 2015)
The material information mentioned in the annual reports have both pros and cons. The reflection of information in the financial reports of Naspers Limited is reflecting both the material operations as well as uncertainty of corporates. The result obtained out of these material operations have also been obtainable faithfully (Lang, & Stice-Lawrence, 2015).   

(E )

REA Group

The chosen Australian organisation “REA Group” that do not prepare any integrated financial reports rather than preparing the sustainable reporting. Sustainability reports presented by the REA Group have been integrated with the integrated reports (Cardona, Chica, & Barragán, 2018). 

Integrated report of Naspers LimitedSustainable report of REA group 
It has followed governance approach and managed the key business riskThe sustainable report is prepared apart from the annual report. 
It has focused on managing the risk and mitigating the business risk related to the strategies taken.The sustainable future and alignment of the society interest has been made with the organizational development
Transparent records of the books of account has been made.The material information are disclosed through the sustainability report. 
Both material and non-material information are disclosed and risk are also revealed with the processKey risk related to the society and environment are disclosed. 

Conclusion 

As per the conceptual framework and principle, the company has followed accounting that to value and empower the accounting principles and conceptual frameworks in regards to maintain the transparency in the recorded books of accounts in relation to financial transaction. It is seen that analysis represents the information in such a manner that will consistent for the years. In both companies, fair valuation measurement that has been adopted for revenue as received and receivable on the basis of consideration of the contractual terms to identify the true and fair view of recorded items in the books of account.  It is important to compare with the information associated with the financial reports of peers.  Nonetheless, Naspers Limited and REA Group have recognised the revenue according to conceptual framework on the basis of probability of future economic benefit as estimated flowing to it. It is analysed that if company wants to sustain its business in market then whole information should be disclosed on the timely basis and it could be verified on the basis of environment in which it operates Even after examining the annual reporting, it is seen that inference through consistent polices for accounting and the practises applied by the Naspers Limited and REA Group for the information as disclosed in the financial statements of the company.

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