The Significance Of Conceptual Framework In Accounting And Quality Financial Reporting

Conceptual Framework in Accounting and Financial Reporting

In the past decade, the conceptual framework in Accounting and Quality of Financial Reporting has become a vital aspect in accounting and management of financial reporting system of organization. Without a useful conceptual framework, organizations face challenges in the maintainer of the financial reports. The conceptual framework in accounting and quality financial reporting was developed to guide users and prepares of the financial reports, and this has been made mandatory by the IFRS to all organizations across the world (Krippendorff 2018, p.1229). Organizations such as Financial Accounting Standards Board (FASB), Australia Accounting Standard Board (AASB), International Standard Board (IASB), and many others maintain that the financial accounting and quality reporting provide accurate and fair information and financial position and economic status of an organization, therefore, have developed different frameworks to facilitate the same (Avran et al. 2015, p.383). The proposal entails the identification of the various aspects of the conceptual framework of accounting and the importance in the financial report preparations in the organizations. This is achievable through the review of the relevant literature and collection of primary data from the most relevant sources.

Several surveys have found financial statement fraud as the most significant contributor to the loss of funds in many organizations (Tribuzi 2018, p.821). The frauds committed through misreporting of the available and used funds come as a result of the inadequate or poor framework. These poor financial reports tend to deter investors away from focusing on the development of the organization, as they lack a proper framework to use in making strategic decisions. The conceptual framework in accounting has been efficient in enhancing the qualitative aspects of the financial statements of most of the organizations across the world through proper decision making. Different kinds of decision making aspects  such as buying and selling of shares, assessment of shares and their returns, and investment of shares in the organization. 

The conceptual framework in accounting is a new and dynamic approach towards creating quality-based financial reports. Financial reports are not merely used to understand the net cash flow and inflow; various other aspects make financial reports a significant aspect of an organization. The project tries to identify various aspects such as:

• The significance of the conceptual framework in accounting and role it plays in enhancing the quality of the financial reports.
• The significance of the conceptual framework in accounting
• The significance of financial reporting
• Analyzing the effectiveness of the conceptual framework in accounting through the stakeholder theory

From the onset of the industrial; revolution, the financial accounting and reporting regulation was majorly centered on profit as investors protection was required to safeguard from unscrupulous reports by the agents. Accurate information helps in enhancing the organization reputation, and make the business profitable (Rayman 2013, p.652). Every shareholder of organizations always embraces accurate information especially in the matters of finance. Many countries have embraced international Financial Reporting Standards (IFRS) and due to the conceptual framework. Accounting and the financial reporting does not only determine the reputation of the organizations but also offer accurate information for better decision making that continues to steer forward the objectives(Avran et al. 2015, p.386). The conceptual framework in accounting, therefore, has been made compulsory in organizations by the IFRS across the world to revolutionize the reporting system after understanding the significance of the conceptual framework in accounting and quality in finance report.

Qualitative Aspects of the Accounting and Financial Reports

Krippendorff (2018,p.1231) indicates that different working accounting standards in different countries pose difficulty for many organizations to work across the world as the managers are unable to plan for the future strategic actions. Due to this every organization and country have revised the standards to enable effective operations: AASB in Australia controls the working standards of organizations in accordance to the conceptual framework by the IFRS such as relevance, comparability, understandability, timelessness and faithfulness representation

Reliability is a critical factor in accounting and financial reporting quality. The provide information must be reliable to be useful to the organization since the users depend on it to make a sound judgment (Figlioli,Lemes & Lima 2017, p.339). The information is required to entirely free from the material mistakes, verifiable and the information must be neutral. 

The information provided must be of high understandability and this achievable through effective communication. According to Pounder (2013, p.31),understandability is one of the enhancing aspects that improve the information presented and therefore, makes it easier for the users to comprehend what the reports entails and needs.  The understandability can also be enhanced through the use of tables, graphs to help the dissemination of the information more clearly.

Timelessness insists that the financial information provided must be available to the users before losing the power and influence .the quality of accounting and financial report is always based and evaluated on the period between the year-end and the date of issuance by the auditor.

Faithful representation is an aspect that requires representing the real economic status of the financial information after the auditing (Khanna 2017, p.26). The representation entails how economic resources such as transactions have taken place and therefore, needs high quality and neutrality.

Comparability allows the report users to compare the financial statements against the achievements, and other organizations to determine the position of the organization (Caneghen 2016, p. 2686). For an adequate comparison, two identical situations are always represented in the accounting facts and figures to explain the changes that have taken place during that specific period, therefore, ease the understanding of the similarities and differences.

The financial information contains all these qualities enables the investors and the stakeholders to predict the future outcomes and their returns, eventually enhancing the decision making process. The conceptual framework also works alongside Stakeholder theory that states that the purposes of the business are to create value for anybody that affects and is affected by the business (Thomas & Thompson 2012, p.1761). These people entail suppliers, employees, communities and the shareholders; the theory is significant as it stresses the importance of financial report through various aspects and enhances the understanding of responsibilities of every stakeholder in holding the entity accountable regarding resources invested. These qualitative features should always be maximized in the financial report as this can attract more investors in an organization (Sinclair & Bolt 2017, p.777).To achieve this, the organization will have to spend a considerable amount of money and time in preparing the accounting and the financial report.

Stakeholder Theory and Financial Reporting

The literature reviews inevitably contain abstracts descriptions of the conceptual frameworks that cannot be used as standards across all countries. The conceptual framework keeps on changing to accommodate all the countries and therefore, an individual is required to make interpretations of the contents whenever auditing is supposed to take place. 

Primary Question

Do accounting and financial reporting frameworks impact the quality of the financial reports in Australia Organizations as measured by quality measuring tools?

Secondary Questions

 Do the international financial reporting frameworks affect the quality of the financial reports of Australia organizations?

Hypothesis

Based on the primary and the secondary research questions, the following hypothesis is guided by the study.

• HO1: the conceptual framework does not have a significant impact on the quality of the accounting and financial reports as measured by the quality measuring tools(FPO and NFPOs).
• HO2: Internationally designed and accepted financial reporting systems do not have a considerable impact on the quality of the financial report as measured by the quality tools.

The study adopts both the qualitative and quantitative research designs. The mixed method is chosen base on the objectives to establish the impact of the conceptual framework on the quality of the financial and accounting reports in Australia.

In this study, the accounting and the financial reporting frameworks are the independent variables, which are considered in two categories. The categories are internationally accepted IFRS and IASB. The dependent variable is the quality of the accounting and the financial report as determined by the framework and measured by the quality tools.

The qualitative research design is appropriate for the study as it provides the basic understanding of the topic. The review of the literature provides information on the evolution of the conceptual frameworks, the importance, and the qualities aspects.

The quantitative research design is more appropriate for the study as it analyzes the relationship between the financial reporting frameworks and the quality of the financial reporting of the IFRS and IASB. The approach will help in testing the objectives through the casual-comparative of the impacts of the past, current, and future of the framework on the organization financial position.

Australia contains a large number of organizations that are both national, and international. Some of these organizations are profit-based while some are non-profit based. The lists of all these organizations with relevant information are, therefore, obtainable from the Ministry of Internal Affairs. From the list, there are approximately 3,500 registered organizations: given the population the estimated sample size is about 130(power {1-β } =0.80;α=0.05;effect size-0.03;(Conde et al. 2018, p.18).  

The researcher will employ a purposive nonprobability sampling method to identify respondents and participants. The sampling design is chosen based on the complex nature of establishing the degree of chance to which a unit sample can be drawn from the entire population. Purposive sampling is more appropriate when specific characteristics are required within the sample unit such as in this study that might not be well represented through random sampling.

Hypothesis and Research Methodology

Introductory letters will be disseminated to the selected organizations to request their consent to the participation of the research study, the purpose and assurance of the confidentiality. The financial reports from the selected companies are critically evaluated with the assistance of the managers or representative from the organizations (Kilinc & Firat 2017,p.1464). Thereafter, the participants are interviewed using a designed questionnaire that ensures all the data are collected. 

Qualitative data analysis

The qualitative data will be analyzed through the content analysis method-Thematic analysis (Jaranowski & Krolak 2012, p.21). The choice is based on the available themes under the study: the impact of the conceptual framework on the quality of the accounting and financial report.

Quantitative data analysis

The study applies both content analysis and one-way analysis of covariance (ANCOVA) for the data analysis. ANCOVA is chosen to test the hypothesis differences that exist in one independent variable and has more than two categories grouped by one quantitative dependent variable (Lai & Kelley 2012, p.352). The independent variable in the study is the financial reporting frameworks that are grouped into two categories that are: IFRS and AASB.  The two variables will be analyzed against the dependent variable which is the quality of the accounting and the financial reports.

Limitations

The purposive sampling of the participants might provide low validity and enhance data manipulation. In this proposal, there are assumptions made. The first assumptions are that quality is influenced by the class of audit firm irrespective of the geographical position since big firms tend to use the designed conceptual framework to make the reports: however, this might not be the case, as no familiar framework guides on the same.

Conclusion

Every organization depends on the financial statement and accountability to make a strategic decision; therefore, fraud statements tend to deter investments. Misreport of financial status has been a problem for many leading to the development of the conceptual framework by IFRS, to aid in making appropriate, reliable, relevance, and comparable reports. These reports in Australia are measured through the use of quality tools developed by AASB and IASB.

The study, therefore, aims to determine the level to which the conceptual framework of accounting and financial reports is affected by, both the national and the international conceptual frameworks such as IFRS. The study predicts that the IFRS have direct impacts on the quality of the financial report, and is also determined by the class and level of the auditing firm. The qualities of the financial report eventually keep the organization reputation, and enhance future development 

Conclusion

List of References

Avram, C, B, Grosanu, A , & Rachisan, P 2015,’ Does country-level governance influence auditing and financial reporting standards? Evidence from a cross-country analysis, Current Science ,45, 4, p. 381-386,Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Caneghem, T 2016,’ NPO Financial Statement Quality: An Empirical Analysis Based on Benford’s Law. Voluntas: International Journal Of Voluntary & Nonprofit Organizations, 27,6,, p.2685-2708, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Conde, S, Xu, X, Guo, H, Perola, M, Fazia, T, Bernardinelli, L, & Berzuini, C 2018), ‘Mendelian randomization,  analysis of clustered causal effects of body mass on cardiometabolic biomarkers, BMC Bioinformatics, 13, p. 1-36, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Figlioli, B, Lemes, S, & Lima, F 2017,’ IFRS, synchronicity, and financial crisis: the dynamics of accounting information for the Brazilian capital market, Revista Contabilidade & Finanças – USP, 28,75, p.326-343, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Jaranowski, P, & Królak, A 2012,’ Gravitational-Wave Data Analysis. Formalism and Sample Applications: The Gaussian Case, Living Reviews In Relativity, 15,4, p. 1-47, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Khanna, P 2017,’A conceptual framework for achieving good governance at open and distance learning institutions, Open Learning, 32,1,p. 21-35, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

K?l?nç, H, & F?rat, M 2017, ‘Opinions of Expert Academicians on Online Data Collection and Voluntary Participation in Social Sciences Research, Educational Sciences: Theory & Practice, 17,5, p.1461-1486, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Krippendorff , K. 2018,’ Content Analysis: An Introduction to Its Methodology, SAGE Publications, 106, 7, p. 1227-1240 , Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Lai, K, & Kelley, K 2012, ‘Accuracy in parameter estimation for ANCOVA and ANOVA contrasts: Sample size planning via narrow confidence intervals, British Journal Of Mathematical & Statistical Psychology, 65,2, p.350-370, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Pounder, B, 2013, ‘A Common Framework for Accounting Standards, Strategic Finance, 92,5, p.20-61, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Rayman, A 2013.,’Accounting Standards: True or False? Routledge. Stata Journal, 16,3, p.650-661, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Sinclair, R,  & Bolt, R 2013,’ Third Sector Accounting Standard Setting: Do Third Sector Stakeholders Have Voice?. Voluntas: International Journal Of Voluntary & Nonprofit Organizations, 24,3, p.760-784, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Thomas, R, S, & Thompson, R, B 2012, ‘A Theory Of Representative Shareholder Suits And Its Application To Multi Jurisdictional Litigation, Northwestern University Law Review, 106,4, p. 1753-1819, Academic Search Premier, EBSCOhost, viewed 17 September 2018.

Tribuzi, E, 2018, ‘The Inevitable United States Adoption of IFRS: How and Why the United States Should Be Prepared, Indiana Journal Of Global Legal Studies, 25, 2, p.817-839, Academic Search Premier, EBSCOhost, viewed 17 September 2018.