Theoretical Foundations of Accounting for Rozycki - myassignmenthelp

Question: Discuss about theTheoretical Foundations of Accounting for Dodd and Rozycki. Answer: Introduction The accounting researchers are placing emphasis on conducting researches on various contemporary accounting issues for developing a deep insight into them. The contemporary accounting issue refers to the current topics evolved in the accounting field that has caused large scale changes in the respective field. Thus, as such it is essential for the accounting professional to develop an adequate knowledge of these accounting concepts for their effective implementation and adoption. There are many accounting issues that are evolving in the present business environment that will have a significant impact on the accounting professionals such as increasing demand to skilled professionals, globalization, control of fraudulent accounting activities and many others (Walton, 2011). In this context, the present research report is developed for analyzing the contemporary accounting issue of usefulness of current accounting framework in meeting the needs of financial reports users. Background The International Accounting Standards Board (IASB) has established the conceptual accounting framework for defining the fundamental concepts that guides the development and preparation of the general purpose financial statements. The conceptual accounting framework seeks to meet the needs and expectations of external users such as investors and creditors through providing them high quality financial reports. Aims and Objectives of Research The main aim of the research study is to evaluate and examine the effectiveness of conceptual accounting framework in developing high-quality financial reports as per the interests of end-users. In this regard, these are the following objectives of the research study: To develop an insight into the various qualitative characteristics of conceptual accounting framework To examine its usefulness in meeting the objectives of general purpose financial reports Research Questions The main research question that the overall research study will aim to address is How conceptual accounting framework for financial reports in is effectives in satisfying the interests of users? Literature Review Wolk, Dodd and Rozycki (2012) stated that the conceptual accounting framework is developed on the basis of normative theory of accounting. The theory provides guidelines to the accountants regarding the ways of practicing accounting in managing the financial activities of an entity. The theory has stated that the major role of accounting theory is to provide suggestions to the accountants regarding the adequate accounting approaches to be adopted for resolving a particular problem. The theory has stated the qualitative characteristics that should be possessed by financial information for meeting the needs and expectations of the end-users. The qualitative characteristics are relevance, understandability, comparability and reliability. These characteristics have laid to the foundation of conceptual accounting framework that seeks to identify the objectives of financial reporting. As per the normative theory, the conceptual accounting framework provided fundamental and some enhanced qu alitative characteristics that financial information should possess. The characteristics provide guidance to the accounting experts in development of high-quality financial reports as argued by the normative theory of accounting. Thus, it can be said that conceptual accounting framework is mainly developed for meetings the needs of users of financial reports (Wolk, Dodd and Rozycki, 2012). As per the information gained from Conceptual Framework for Financial Reporting 2010 (2010), the framework as per the normative accounting theory provides the general purpose financial reporting objectives of disclosing all the necessary information required in decision-making process of end users. The primary users of financial reports are present and future investors, creditors and lenders that need to obtain the financial information of an entity for making decisions relating to purchasing or selling their equity and debt instruments. As such, the framework has provided that the main aim of developing financial reports is to protect the interests of its primary users so that they are able to take error-free decisions regarding their investment. Thus, the accounting professionals in developing financial reports should meet some qualifying characteristics to ensure the development of high quality financial statements. The conceptual accounting framework has stated two fundamental an d some enhanced qualitative characteristics that financial information disclosed by an entity should possess. Mir and Nekoueizadeh (2015) stated that the fundamental qualitative characteristics of financial information are relevance and faithful presentation. The relevance characteristics states that financial information disclosed should possess both a predictive and confirmatory value. The predictive value should be able to provide an estimate of the future growth of an entity while confirmatory one should disclose information relating to its present financial condition. The faithful presentation of financial information ensures that it should be complete, neutral and error-free. In addition to these characteristics, there are some enhancing qualitative characteristics to be possessed by financial information. These are comparability, verifiability, timeliness and understandability. The comparability of financial information means that it should be comparable with the results of previous years for assessing the increase in financial growth in the current year. The verifiability states that financial information should accurately depict the economic facts and figures related to it. Also, timeliness means that the information should be available to the decision-makers timely and should be simple and easy to interpret as per the understandability principle (Mir and Nekoueizadeh, 2015). As per the Hoffman (2016), these all are the characteristics that should be possessed by financial information disclosed by an entity to effectively meet the end-users requirements and are prescribed by normative theory of accounting. In addition to this, the conceptual accounting framework has also provided the definition, recognition and measurement of elements of financial statements such as assets, liabilities, equity, income and expenses. These financial elements depict the accounting transactions of an entity as per the IASB framework. The framework has regarded assets, liability and equity to state the financial position of an entity in its balance sheet. On the other hand, the financial elements reflecting the financial performance in the income statement of an entity are income and expenses. The asset refers to tangible and intangible resources of an entity while liabilities represents its financial obligations that it is expected to meet in short and long-term period of tim e. The equity proportion is the remaining resources of an entity while meeting all the liabilities. On the other hand, income represents the economic benefits achieved by an entity while expenses relates to the depletion of equity incurred during a reporting period. The financial statements are recognized in the balance sheet and income statement through meeting the definition provided in the conceptual accounting framework for each element. The criteria for recognition of these elements as per the framework are that they should be stated in the financial statement only when there is an expected economic benefit associated with these elements. Also, the value can be assessed accurately by an entity. Also, as per the framework the financial elements are measured during financial reporting through the use of different methods such as historical cost, current cist, net realizable value and present value (Hoffman, 2016). Hussey and Ong (2017) stated that the conceptual accounting framework as directed by IASB need to be followed by all the reporting entities across the world. The AASB (Australian Accounting Standards Board) has also emphasized all the business entities in the country for complying with the conceptual accounting framework as stated by IASB. This can be demonstrated form examining the financial reports of different business entities operating in Australia. For example, the annual reports of Wesfarmers Limited states that it effectively complies with the principles of conceptual accounting framework. The annual reports are prepared in accordance with the AASB and IFRS standards so that it meets the needs of end-users adequately. The financial statements provide relevant, complete, understandable and comparable information as per the conceptual accounting framework. The company has effectively disclosed the accounting policies adopted in developing financial statements in notes to statem ents section. The particular accounting methods adopted for identification, recognition and measurement of different financial elements are also discussed in detail in the financial reports of the company (Wesfarmers: Annual Report, 2016). According to Horngren et al. (2012), there are some debates relating to the usefulness of conceptual accounting framework in meeting the needs of end-users among the accounting professionals. There are some limitations to its use that have restricted its usefulness in developing high quality financial reports. The major difficulty in establishing the conceptual framework is that it is very complicated and therefore the accounting professionals are not able to effectively meet its various aspects. The development of financial reports as per the conceptual accounting framework is also time-consuming and therefore the accounting experts find it very difficult to effectively implement during the preparation of financial statements (Horngren et al., 2012). Kabalski (2009) stated that the framework is based largely on normative theory of accounting and thus it is difficult for the accounting professionals to bring forward new ideas through its use as it is based on rigid principles. The ac counting professionals also face problems in obtaining congruence between its nature of business activities and the accounting principles of conceptual framework at the time of developing financial reports. Also, it only aims to protect the interest of some users of financial reports and does not meet the expectations of other users such as consumers, government and social groups. Therefore, the IASB should aim to overcome all these limitations of conceptual accounting framework for promoting its larger use in developing quality financial reports as per the needs of users (Kabalski, 2009). Research Approach Research methodology is very significant for any research as it lays down the path to complete the research project in the successful manner. It is provides the smooth platform to carry out the proceeding of the research work. It is true that there is need of guiding map for organizing, arranging and conducting the research process to complete the study. After discussing the research topic in detail under literature review section, there is need to collect some data in order to support it so that research objectives can be completed. There are multiple sections of the research methodology like research approach, research design, data collection method etc (Fink 2005). The proper understanding of the research objectives will help to select the most appropriate research approach. There are two main research approaches, inductive and deductive research approach. Inductive research approach collects information related to the specific parts of the research topic after that analyzed to make the general observation (Fowler 2002). On the other hand, deductive approach is similar to top down approach where information collected as general and after that specific conclusion is made to approach at definite conclusion. In this research report information is needed to analyse how conceptual framework helps to improve the quality of the financial information to meet the expectations of the users of the annual report. So here it is important to analyse how the annual reports of various companies are being prepared to maintain quality of the financial information. Therefore inductive research approach is needed to research for the specific information and then c ollective decision will be taken on the basis of such information (Gillham 2000). Explorative research design has been used in this research process as it seems most suitable and profound for this study. The selected research design is useful in collecting the required information and also to investigate them in detail (Crowther Lancaster 2008). The techniques and tools required to collect the data and information is called as the research methods. The methods used to collect and interpret the data are known as the research methods (Karami 2007). The research methods are used to collect both forms of data i.e. qualitative and quantitative data. In this research only qualitative research data has been explored and research methods are applied in accordance with it. In this research study only secondary information is collected from publically available data sources (Kimmel 2007). As there is need to analyse the how conceptual framework is worth needed to present the qualitative information in the financial reports, therefore various information on International Accounting Standards website and various annual reports of companies in Australia are being examined to make proper opinion on the given research topic. So it can be said that information has been gathered through secondary sources using the online websites sources and some literature sources like books and journals. Data collected has been analyzed through conducting secondary analysis like literature review (Denzin Lincoln 2000). There are many ethical issues related to the research work such as reliability of the online sources used and copyright. So due consideration has been taken to avoid the ethical issues such as proper referencing has been done to give credit to the information sources authors or concerned entity (Johnson Duberley 2000). Results The overall research project has helped in developing an insight into the importance of conceptual accounting framework during the preparation of financial reports. The research report has indicated that conceptual accounting framework has identified and developed the objective of general purpose financial reports. The framework is mainly designed to meet the needs of primary users of financial reports that are its present and future investors and creditors. The framework is developed on the basis of normative theory of accounting that has identified and developed the qualitative characteristics of conceptual accounting framework. The framework has stated the accounting procedures in identifying and measuring the different financial elements of the financial reports. Thus, its use is helping the investors largely to easily understand and interpret the financial information without much analysis and as such largely beneficial for them. Discussion The research report has stated that conceptual accounting framework is necessary to be adopted for business entities around the world in developing high quality financial reports. This is done through providing the objective of general purpose financial reports that is to satisfy the needs of primary users of financial reports that are analysts and investors as discussed in the research report. The framework has provided the qualitative characteristics that financial information should possess for meeting the primary users expectations. The qualitative characteristics are based on the normative accounting theory that is mainly developed in order to provide suggestions to the accounting professionals for quality financial reporting (Pietra, McLeay and Ronen, 2013). The theory is based on morality grounds and aims to describe the economic future of a company based on the subjective assumptions. Thus, as such the conceptual accounting framework also aims to incorporate the use of ethica l principles in developing the financial reports so that users gain faithful and neutral financial information. The conceptual accounting framework qualitative characteristics thus seek to develop a code of conduct for the accounting professionals so that financial formation disclosed in its true sense without any manipulation (Sheridan, 2016). The conceptual accounting framework though is adopted by various accounting boards such as AASB but yet its effective adoption is impacted by various difficulties as stated in the research report. The major problem in this context is complex nature of conceptual accounting framework and therefore accounting professionals find it difficult to meet the varying aspects of the framework. The developing nations are still founding it difficult to adopt the conceptual accounting framework due to significant cost and time required for it implementation (Mintz, 2013). Conclusion It can be summarized from the discussion held in the research report that conceptual accounting framework is providing to be extremely beneficial for the primary users. This is because the financial information presented through its use is reliable, comparable, and understandable and is free from nay biasness and errors. However, the IASB should overcome the significant difficulties faced by different boards across the word in its effective implementation for providing benefits to all the primary users across the world. References Conceptual Framework for Financial Reporting 2010. 2010. [Online]. Available at: https://www.iasplus.com/en/standards/other/framework [Accessed on: 11 October, 2017]. Crowther, D. Lancaster, G. 2008. Research Methods: A Concise Introduction to Research in Management and Business Consultancy. 2nd ed. Oxford: Butterworth-Heinemann. Denzin, N. Lincoln, Y. 2000. A Handbook of Qualitative Research. 2nd ed. London: Sage. Fink, A. 2005. How to Conduct Surveys: a Step by Step Guide. 3rd ed. London: Sage. Fowler, F.J. 2002. Survey Research Methods. 3rd ed. London: SAGE. Gillham, B. 2000. Developing a Questionnaire. London/New York: Continuum. Hoffman, C.W. 2016. Revising the Conceptual Framework of the International Standards: IASB Proposals Met with Support and Skepticism. 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