ACC307 Accounting TheoryAssignmentName: Chun Ho HuiStudent ID: na2010!1"Case Study 11#Conce$tua% &rame'or( can )e de*ned as +an attem$t to de*ne the nature and $ur$ose o& accounting, -Team. 201/#Conce$tua% &rame'or( is essentia% &or $rinci$%e0)ased standards )ecause it %ays out a &undamenta% structure &or $rinci$%es0)ased standards# Setting the standard on andre%ate to an esta)%ished )ody o& conce$ts and o)1ecti2es. ena)%e 3AS4 and IAS4 to +issue more useful and consistent standards over time (Essays, 2013). For any future developments or armaments on the standards, the framewor will ensure the chan!es will "e within its fundamental concepts and will not !et to a personal or an inconsistent standard.#$$# has mentioned %the availa"ility of a conceptual framewor could lead to &principles'"ased( system where"y accountin! standards are developed from an a!reed conceptual "asis with specific o")ectives (*eam, 201+), which in other words, a consistency on the principle'"ased standards and a!reed on a common !round. ,ithout a sound conceptual framewor, principle'"ased standards could lead to inconsistency for users internally (accountin! practitioners) and e-ternally (report readers). "ias on the use of standards and standard settin!s, which leads to misdirection on financial statements. and the difficulty of future developments on the standard itself (not "een "ounded "y any concepts or ideas.$onceptual framewor can "e seen as the %root and the principles can "e seen as the %tree. *he root has to "e firm and sta"le in order to let the tree to !row and e-pand. Even the trun !rows taller and the "ranches spreads, it still connects to the root.2#A: To de2e%o$ a common conce$tua% &rame'or( )et'een IAS4 and 3AS4 is to a%%o' 3AS4 to meet or con2erge their accounting standard to an Internationa% %e2e%# 4rue 5ounder has mentioned the goa% o& this is to achie2e +a)sence o& di6erences in accounting standards among countries, -5ounder. 2007/#As $re2ious%y mentioned. a $rinci$%e0)ased accounting standard a$$roach has to)e de2e%o$ed &rom its conce$tua% &rame'or(. there&ore a common &rame'or( has to )e con2erged or shared )e&ore con2erging its standards# The im$ortance o& the common conce$tua% &rame'or(can a%so )e re&erenced )y its aim:+to de2e%o$ an im$ro2ed. common conce$tua% &rame'or( that )ui%ds on their e7isting &rame'or(s, -3AS4. 201!/#Sharing a common conce$tua% &rame'or( 'i%% )e the *rst ste$ o& con2erging the accounting standard o& 3AS4 'ith IAS4#8n%y )y doing so. 3AS4 is a)%e to &u%*%% the 4oards9 goa% o& +de2e%o$ing standards that are $rinci$%es0)ased. interna%%y consistent. and internationa%%y con2erged. and that %ead to *nancia% re$orting that $ro2ides the in&ormation in2estors need to ma(e sound and e6ecti2e decisions, -Dona%d :# ;ieso. S a$$%ies to a $articu%ar transaction. e2ent or condition and assist a%% $arties to understand and inter$ret I3>S#, -I3>S. 201!/# It is sti%% im$ortant to other $arties %i(e *nancia% statements $re$ares. &or them to understand the idea )ehind standards or to see it as a re&erence $oint o& accounting standard setting in their o'n organi?ation#The sta6 $a$er -I3>S. 201!/ has re$orted that some res$ondents re$%ied +The Conce$tua% 3rame'or( &aci%itates a common understanding o& )asic $rinci$%es or conce$ts o& *nancia% re$orting among a%% those 'ho use the Standards#,So in other 'ords. the conce$tua% &rame'or( is to gi2e rationa% &or the standards so that the *nancia% statements $re$ares can gain a higher %e2e% o& understanding#In summary. the conce$tua% &rame'or( is more im$ortant to IAS4 than other $arties as a%% o& the standards 'i%% need to de2e%o$ )y the &rame'or( itse%8ther $arty might re&er it in some cases )ut in genera% cases they 'i%% )e using the standard on a dai%y )asis#!#+Cross0cutting issues are common%y de*ned as to$ics 'hich. )y their 2ery nature. ha2e a strong im$act on a%% o$erations in a gi2en *e%d and. there&ore. must recei2e s$ecia% attention, -H8>I@8NT3000. 201/# Aost o& the case cross0cutting issues are re&erring to socia% and en2ironmenta% issues such as gender and c%imate changes# In accounting area. cross0cutting issues arises in some e7tends# 3rom the $a$er 'ritten )y I3>S in 200. the di6erences o& economics resources and accounting assets ha2e )een discussed under the section o& cross0cutting issue -I3>S. 200/# Accounting assets ha2e )een 'e%% de*ned )y the standards )ut economic resources are de*ned in 2aries 'ays#In the $a$er. it has )een conc%uded as +accounting assets do inc%ude a%% economic resources. )ut on%y i& economic resources are de*ned in a manner to restrict them to those that are scarce and use&u% &or carrying out economic acti2ities. such as consum$tion. $roduction. and e7change, -I3>S. 200/#Another e7am$%e &rom the same $a$er -I3>S. 200/ is the Does contro% )e%ongs in the asset de*nition or shou%d it )e $art o& the recognition criteriaB, The I3>S has gi2en a de*nite ans'er on this cross0cutting issue in asset recognition: +Contro% does not ha2e a ro%e in the de*nition o& an asset, -I3>S. 200/#As the recognition o& asset is one o& the most &undamenta% $rocesses o& $re$aring *nancia% statement and the issues re%ated 'i%% create an im$act on mu%ti$%e %e2e% o& accounting $rocesses. the di6erentiation o& economic recoursesand accounting asset. as 'e%% as the use o& the term +contro%, in either de*nitionor recognition criteria are cross0cutting issues in accounting theory#Case Study 21#A: Csing any cost measurement $rinci$%e has its o'n ad2antage# It is u$ to the situation and the s$eci*c economic en2ironment to choose the a$$ro$riate one# That is. historic cost measurement has its 2a%ue#DAA5 has )een critici?ed on the use o& historic cost measurement $rinci$%e 'hich does not correct%y measure the actua% $rice o& assets and %ia)i%ities# It is e2en )eing accused to )e one o& the &actors that induced the *nancia% crisis in 200" -S:>A;I4I. 201/# 3undamenta%%y. +the o)2ious $ro)%em 'ith the cost $rinci$%e is that the historica% cost o& an asset. %ia)i%ity. or eEuity in2estment is sim$%y 'hat it 'as 'orth on the acEuisition dateF it may ha2e changed signi*cant%y since that time, -Too%s. 201/# This does not reGect theactua% 2a%ue in the mar(et and there&ore can )e decisi2e or can )e mani$u%ated )y the management team o& the organi?ation# The actua% economic condition and 2a%ue has )een ignored and there&ore the *nancia% statements )asing on historic cost measurement 'i%% %ac( o& re%e2ancy#The need o& introduction o& &air cost measurement is necessary )ut a %e2e% o&Ge7i)i%ity on the use o& cost measurement $rinci$%e is a%so 2ita% to )a%ance the re%e2ancy and re%ia)i%ity# I )e%ie2e the )iggest $ro)%em is that DAA5 does not ta(e action on the changes on their cost $rinci$%e rather than the Ga's on the historic cost measure $rinci$%e a%though it is true that historic cost measurement $rinci$%e does ignore inGation. mar(et $rice and other re2a%uation &actor#2# I thin( reGecting the economic rea%ity is &undamenta%%y essentia% as a core $rinci$%e o& measurement in accounting# 8ne o& +the %i&e )%ood o& ca$ita% mar(ets is *nancia% in&ormation that is a &aith&u% de$iction o& economic rea%ity, -T'eedie. 2007/# As to assist users o& the *nancia% statement $re$are )y *nancia% accountant. it is 2ery im$ortant that it ser2es their needs# >eGecting economic rea%ity is 2ita% &or *nancia% decision ma(ing#It is 2ery easy to *nd any re%e2ant document $oints out the im$ortance o& accounting reGecting economic rea%ity# The conce$tua% &rame'or( and standard itse%& has a%ready assumed +The descri$tion o& a com$any that reGects economic rea%ity is the $rimary $ur$ose o& the C3 -conce$tua% &rame'or(/ and accounting standards, -DAHID 4# SCTT8N. CA>8IJN D:>J. T8NJ HAN @IeGecting economic rea%ity is one o& the im$ortant e%ements &or a *nancia% document to )e re%e2ant# An unrea%istic accounting )oo( 'i%% ha2e no use &or any manager to re&er or assist its o$eration#3#It 'i%% de$end on ho' 'e de*ne the term +economic rea%ity,# 3or e7am$%e. 2a%uating an asset de$ends on the nature o& the asset itse%&F it cou%d )e a tangi)%e or intangi)%e asset. a cash or cash eEui2a%ent asset or e2en intangi)%e asset# =e sim$%y count the cash )ut 'e 'i%% ha2e to Euote a mar(et $rice i& it is a tangi)%e asset -gi2en there is an esta)%ished mar(et/# Csing the a$$ro$riate 2a%uation method 'i%% )e one o& the 2ita% $art o& measuring the economic rea%ity#A%so. the actua% user 'i%% ha2e hisKher o'n $ers$ecti2e on the term +economic rea%ity and thus a range o& s$eci*c consideration#An o$eration manager 'i%% consider more a)out o$erating cost and manu&acturing costs. an in2estor 'i%% $ay more attention on the %iEuidity or the earning a)i%ity -earning $er share/ and an accountant 'i%% &ocus on the actua% transaction throughout the year#As Luestion 1 has mentioned. reGecting the economic rea%ity on *nancia% statements is one o& the core $rinci$%e o& measurement in accounting area. ho'e2er. the actua% +economic rea%ity, might di6ers and *nancia% statement$re$arers 'i%% need to )e Ge7i)%e and hand%e e2ery c%ient on a case0)y0case manner#!#In %ayman terms. +re%ia)i%ity, means trust'orthy and can )e de$end on# In accounting. 'e ha2e a simi%ar )ut more com$rehensi2e de*nition#>e%ia)i%ity can )e de*ne as +the Eua%ity o& in&ormation that assures that in&ormation is reasona)%y &ree &rom error or )ias and &aith&u%%y re$resents 'hat it $ur$orts to re$resent# =ith res$ect to measures. it states that +MtNhe re%ia)i%ity o& a measure rests on the &aith&u%ness 'ith 'hich it re$resents 'hat it $ur$orts to re$resent. cou$%ed 'ith an assurance &or the user. 'hich comes through 2eri*cation. that it has that re$resentationa% Eua%ity,-$aragra$h O/# Thus. the $rinci$a% com$onents o& re%ia)i%ity are re$resentationa% &aith&u%ness and 2eri*a)i%ity, -Counci%. 200!/#3aith&u%ness is more a)out honesty and integrity# Com$%ete%y re$resent a%% necessary in&ormation in an un)iased manner 'ithout error is 'hat )asica%%y &aith&u%ness re$resentation reEuires# Heri*a)i%ity re&ers to the actua% in&ormation recorded can )e traced and re2ie'ed# Transactions are re&erenced 'ith re%e2ant documents. in other 'ords. communication o& *nancia% statements and the origina% documents#Case Study 31#3rom the artic%e. the en&orcement o& en2ironmenta% costs o& retiring an asset 'i%% cost mi%%ions o& %ia)i%ities on com$anies9 )a%ance sheet# =hich in other 'ords. the +reser2e en2ironmenta% %ia)i%ities +'i%% )e signi*cant on their )a%ance sheet and so a6ecting their net asset# 8n a com$any9s $ros$ecti2e. they 'ou%d o)2ious%y 'ant to minimi?e their %ia)i%ity and ma7imi?e their asset 2a%ue and so the 2a%ue o& the com$any# =ith the reEuirement on the additiona% $ro2ision re%ation to en2ironmenta% costs o& retiring assets. the com$any 'i%% ha2e more consideration on their use o& asset and )e 2ery care&u% on deciding to dis$ose their asset &rom no' on#:2en so. the retiring o& an asset is an e2ent that must ha$$en sooner or %ater# The com$any might 'ant to $ut stress on their accountants to see i& there is any chance o& de%aying the recognition o& the %ia)i%ity or minimi?e the im$act# 8n the estimation o& the cost. as the $ro2ision 'i%% occur on%y i& +its &air 2a%ue cou%d )e reasona)%y estimated,. com$anies might say most o& theirdis$osed assets has en2ironmenta% cost that are una)%e to )e estimated reasona)%y and disc%ose the $articu%ar asset and the corres$onding reasons that the $ro2ision cannot )e reasona)%y estimated on the &ootnote o& the *nancia% statements# 2# CS com$anies de&erred their recognition o& a %ia)i%ity )y Pmoth)a%%ingP a contaminated $ro$erty according to the artic%e mentioned#, ;ee$ing the site id%e -a $ractice o&ten ca%%ed +moth)a%%ing,/ is o&ten used in such circumstances in order to a2oid immediate%y triggering reEuirements to reso%2e $otentia% en2ironmenta% %ia)i%ities# Id%ing &aci%itiesis o&ten $re&erred o2er c%osing. se%%ing or trans&erring them. )ecause those other o$tions are more %i(e%y to trigger reEuirements &or en2ironmenta% assessments and remediation# 82er time. these moth)a%%ed sites )ecome +)ro'n*e%ds, contaminated $ro$erties 'hich are a ma1or )%ight on the ur)an American %andsca$e and 'hose o&ten not Euanti*ed as to7icity is a ma1or o)stac%e to economica%%y $roducti2e, -San&ord Ie'is. ecogni?ing such %ia)i%ities actua%%y comes 'i%% good intension# 8ne is to recogni?e the $otentia% ris( on en2ironmenta% re%ated cost# Another reason is that this attracts in2estors or to (ee$ them satis*ed# +In &act. some in2estors ha2e come to regard cor$orate en2ironmenta% $er&ormance as an e7treme%y Euanti*a)%e $ro7y &or the o2era%% Eua%ity o& cor$orate management# And here is 'here the %ogic and the %a' merge# Denying shareho%ders in&ormation a)out e7$ensi2e en2ironmenta% %ia)i%ities e2en i& the $recise costs o& those %ia)i%ities may )e diQcu%t to $redict 2io%ates )oth the %a' and common sense# The intention to $rotect the com$any and its current shareho%ders may )e sincere. )ut thee6ect may )e to $ena%i?e those same shareho%ders )y $re2enting them &rom %earning a)out their com$any9s en2ironmenta% %ia)i%ities unti% a&ter the %oss. the %ea(. the s$i%%. the %a'suit or other catastro$hic e2ent that triggers )oth $u)%ic disc%osure and an immediate negati2e mar(et )ac(%ash + -San&ord Ie'is. S A2ai%a)%e at: htt$:KK'''#i&rs#orgKAeetingsKAeetingDocsKIAS4K201!KA$ri%KA510:0Conce$tua%T203rame'or(#$d& MAccessed 7 Augustus 201N#5ounder. 4#. 2007# Le0era)e1 L!)i"# M8n%ineN A2ai%a)%e at: htt$:KK'''#accounting'e)#comKaaKstandardsKa0con2ersation0'ith0)ruce0$ounder0the0im$act0o&0con2ergence0on0us0gaa$ MAccessed ! August 201N#San&ord Ie'is. ose 3oundation &or Communities and the :n2ironment A2ai%a)%e at: htt$:KKrose&dn#orgK'$0contentKu$%oadsK201!K10K3oo%ing0In2estors0>e$ort#$d& MAccessed 11 Augustus 201N#S:>A;I4I. 8#. 201# Pleae Min1 The GAAP Be$'een The Hi$!ri"al C!$ An1 The Fair2al%e# M8n%ineN Academia A2ai%a)%e at: htt$:KK'''#academia#eduK3"01OKHistorica%UCostU2sU3airUAar(etUHa%ue MAccessed O Augustus 201N#Team. 5#3#:#. 201# ACCA# M8n%ineN A2ai%a)%e at: htt$:KK'''#accag%o)a%#comKanKenKstudentKe7am0su$$ort0resourcesK&undamenta%s0e7ams0study0resourcesK&7Ktechnica%0artic%esKconce$tua%0&rame'or(0need#htm% MAccessed ! Augustus 201N#Too%s. A#. 201# A""!%n$in) Prin"i#le# M8n%ineN A2ai%a)%e at: htt$:KK'''#accountingtoo%s#comKcost0$rinci$%e MAccessed O Augustus 201N#T'eedie. D#. 2007# Ma"4%arie Uni0eri$y Reear"hOnline# M8n%ineN AacEuarie Cni2ersity A2ai%a)%e at: htt$:KK'''#researchon%ine#mE#edu#auK2ita%KaccessKmanagerK>e$ositoryB&0RsmUcreatorT3AT22T'eedieT2CWDa2idT22 MAccessed 10 Augustus 201N#=ard'e%%. D#5#S#. 200O# En0ir!n&en$al /i"l!%re in SEC Filin)# M8n%ineN Da2is 5o%( S =ard'e%% II5 A2ai%a)%e at: htt$:KK'''#da2is$o%(#comKdo'n%oad#$h$B*%eRsitesKde&au%tK*%esK*%esK5u)%icationK&a7e&dd00X""0!2&0a!c100d3dO337d&K5re2ie'K5u)%icationAttachmentK)XOe7d17032ad0!))0aOd"010233Xc&X&32K01#21#0O#en2#disc%osure#sec#*%ings#$d& MAccessed 11 Augustus 201N#