Important Issues in Accounting-Free-Samples-Myassignmenthelp.com

Question: Write a report to the chairpersons of the Financial Reporting Council and the Australian Accounting Standards Board, commenting on the following argument: Attempts to bring about radical change through the introduction of a conceptual framework have failed. When it appeared as though SAC 4 would require firms to report a greater number of liabilities, lobbying began in earnest and business ensured that any innovation was quashed.As such, the best that can be hoped for from a conceptual framework is that it legitimises current practice, maintains existing social and economic status, and staves off public sector attempts to control accounting standard setting. Answer: Introduction This report is addressed to the accounting Standards Board and the Financial Reporting Council. The report gives an in depth analysis of various important issues in accounting and reporting of financial statements. The main issue discussed in the report is the failure to successfully change the conceptual framework. SAC 4 was expected to require companies and business organizations to report a greater number of liabilities in their financial reports but lobbying was done and the attempts failed. The current practice is expected to legitimize the ongoing practices and maintain social and economic status reporting. The paper is a discussion of the accounting issues on the proposed changes on the conceptual framework of the accounting. The changes in the conceptual framework were proposed by people outside the regulatory bodies. The changes in the conceptual framework proved to be very difficult and almost impossible due to the challenges that the change in the conceptual framework woul d have brought about (Camfferman, Zeff, 2015).SAC required firms to report more liabilities in the yearly financial statements by the companies but the amendments also failed. The conceptual framework of accounting is the set of policies and frameworks that govern the recording and reporting of accounting information. The Framework is constructed over a long period of time and it was not formed in one day. The framework is developed by continuously developing the accounting standards. The accounting standards are developed on a continuous basis depending on the challenges that are experienced in the accounting field of study (Hoggett, 2012). The following are the aims and objectives of the current framework: It seeks to ensure that the accounting standards have a consistent approach to help solve problems. It ensures that the accounting standards do not represent a series of ad hoc responses but are instead well thought and relevant policies that helps in improving the accounting The frameworks assist the International Accounting Standards Board in developing of coherent and consistent accounting approach The framework is an important guide for people preparing financial statements and presenting the same at the end of the accounting period. The conceptual framework helps accountants to understand the limitations and the scope of accounting in their profession. It also enables accountants and other users to understand their legal restriction and liability to the shareholders (Idowu, 2009). The contents of the conceptual framework depend on the aim of preparing financial statements. The primary aim of preparing the financial statements is to financial information about the organization in question and for use by various stakeholders in the organization such as shareholders, lenders, and employees of the company. The change of the conceptual framework means a change in the uses of the financial statements and their purpose. The new framework needed to address the term useful information since it is the basic in preparation of a new conceptual framework for Australian firms. The information to be included in the reports as per the conceptual framework must also be relevant. This means that the information obtained should be useful to the users and should help them to make better and more informed decisions (Saudagaran, 2009). The introduction of changes to the conceptual framework should also consider the nature of the firm which is preparing the financial statements. The current Framework identifies three important components of the balance sheet. These include the assets, liabilities, and equity of the business organization. The components of the statement of profit and loss include income and expenses. For the conceptual framework to be changed, it has to be proved overtime that problem currently exists in preparation of financial statements and that the current framework does not address the challenge. The challenge is investigated over time and to ensure that the problem is real and it has material effect on the financial reports. The Accounting standards board has to make sure that the identified challenge has a significant effect on the financial statements. The association has to identify how the proposed changes could affect the financial reports in different industries. The radical changes in the conceptual framework are not possible since the changes need to take time and they need to be reviewed and analyzed by various stakeholders. The stakeholders have to make contributions and suggestions to the proposed changes before the change is listed in the Financial Reporting Council and the Australian Accounting Standards Board. The changes in the conceptual framework can not be radical since the changes are influenced by different environmental conditions which may motivate the changes to be carried out. The framework of accounting of Australia needs to be compared with those of many other different countries to identify where changes need to be made and where improvements need to be made. The changes in the conceptual framework should not be influenced by the general public with no specific agenda. If any changes need to be made, they should be considered by the various stakeholders from different industries. Changes to the conceptual accounting framework must also be in line with the International Standards of Accounting. This is because the changes in these policies should not contradict the internationally recognized standards since this may make it difficult for international companies to report their financial information (GodfreyCchalmers, 2007). The radical changes in the conceptual framework are difficult to implement since the changes need to be considered over time and they have to be relevant to the financial statements. SAC 4 seeks to introduce a policy requiring firms to recognize a greater number of liabilities. The nature and purpose of the statement accounting concept is outlined in policy statement 5. It is prepared by the (ASSB) and the public Sector Accounting Standards Board(PSASB) (Hancock, Bazley Robinson, 2015).The primary objective of SAC 4 is to guide AASB and PSASB in developing and revising accounting standards in Australia. SAC 4 required entities to report a greater number of liabilities in their financial statements. A liability can be defined as a future sacrifice of economic benefit that an organization is currently obliged to perform to other entities. It is mostly a financial obligation owned to other organizations. The characteristics of a liability under SAC 4 are that the existence of a liability at law means the existence of a liability in financial reports (Hoggett, 2012). The existence of a present obligation means that the entity has a duty or responsibility to fulfill t he agreement by paying what they owe other entities. A liability should be recognized in the financial statements on only two conditions. The first one is when there is a high probability that the sacrifice if future economic benefits is required. This means that for a liability to be recognized in the financial statement there must be a sacrifice of future benefit for the organization. This is because, a liability is an obligation or a commitment to undertake a future activity or to pay someone or another entity an amount owed to it. The fulfillment of this obligation means that an organization will have to sacrifice either financially or otherwise to meet this legal obligation (Herz, 2016). It must have an effect on the economic aspect of the entity. The amount of the obligation should be measurable in a reliable manner. An item being recognized in the financial statements as a liability must be measurable in a reliable manner. This is because the obligation needs to be identified accurately for it to be recorded in the financial statements to ensure that the future economic sacrifice is recognized in an accurate manner. The requirement by SAC 4 also meant that entities need to disclose liabilities that are not disclosed in the financial statements. The entity has to list the notes section of the financial reports since the entity is aware of the obligation thou it has not been recognized yet. SAC 4 required organizations recording financial statements to recognize the existence of each and every liability that the organization had so long as it is measurable. The liability does not have to involve future sacrifice of economic benefit (Carmichael Graham, 2012). The proposed changes faced opposition and through intense lobbying, the innovations were quashed. Many of the entities were not willing to recognize a higher number of obligations in their financial statements. This is because recording a high number of obligations means that the liquidity if the busi ness reduces. The recognition of a higher number of liabilities means that the other important ratios considered by lender while making their assessment on the ability of a business organization to meet its current obligation are affected. Therefore the intense lobbying to quash the changes was due to the interest of the business in ensuring they recognized as few liabilities as possible. The attempts to change the conceptual framework have been futile and the best thing that can be done is for the framework to legally recognize the current practices in accounting. The public sector has resisted the changes in all manner possible and therefore it is important that the current accounting practices be recognized in the conceptual framework by ASSB (Caanz, 2017). This move will ensure that the practices are applied and the rule and they are regulated by the relevant accounting body and hence there is uniformity in recording of financial assets. The framework also should not interference with the current social and economic status. This is because, the attempts to interference with the social and economic status by changing the accounting principles would be resisted by the entities and it would have significant impact on the organization financially and economically (Saudagaran, 2009). The public sector should not be allowed to control the setting of standards of account ing. Accounting in the public sector is significantly different from accounting in the private sector. Control of standard setting by the public sector means that the some of the standards set may not be suitable for the private sector and may negatively affect reporting in this sector. The Australian Accounting Standards Board needs to be in control of the setting of accounting standards while taking into consideration the opinions of various other stakeholders. Conclusion The changes on the conceptual framework should not be radical and consideration has to be made before a decision to make changes in the conceptual framework. The Australian Accounting Standards Board together with the Financial Reporting Council needs to consult relevant stakeholders so that any relevant proposed changes can be implemented successfully. SAC 4 requirements of greater recognition of liabilities were met with a lot of resistance. Lobbying was done to quash the innovations and it was successful since most entities were opposed to the changes since they would have a significant effect on their reporting. Greater recognition of liabilities would mean increase in number and amount of total liabilities for the business which is undesirable for many entities. The conceptual framework needs to legitimize the current practices that have been used by various entities in different industries and maintain the social and economic status References Caanz, C. (2017). Financial reporting handbook 2017 australia. [s.l.], wiley australia. Carmichael, D. R., Graham, L. (2012). Accountants' handbook, financial accounting and general topics. 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