Conceptual Framework For Financial Reporting Research Articles

CSR disclosure quantity to CSR disclosure quality – in pursuit of a disclosure quality index

PurposeStudies in corporate social responsibility (CSR) disclosure were initially focused more on disclosure “Quantity” than “Quality” and while they have started to explore “Disclosure Quality”, their assessment mechanisms are found to be immature. Thus, while a number of papers have sought to assess the quality of CSR disclosure, this paper aims to suggest an approach tied closely to both expectations in assessing “quality” derived from the Conceptual Framework for Financial Reporting (revised 2018) and the global reporting initiative. The outcome is to offer a best practice approach to assessing CSR disclosure quality.Design/methodology/approachIn this paper, prior literature is reviewed, qualitative characteristics from the Conceptual Framework for Financial Reporting (revised 2018) and globally recognised guidelines such as the GRI are reviewed. The framework for a “CSR disclosure quality index” as an assessment tool to assess CSR disclosure quality is developed from qualitative characteristics and criteria identified.FindingsThe proposed CSR disclosure quality index is developed in stages from the qualitative characteristics identified in the Conceptual Framework for Financial Reporting (revised 2018) and criteria identified from the guidelines discussed. A table was then developed linking the qualitative characteristics to criteria providing a Likert scale approach to assessing the disclosures made by companies to make an assessment of the quality of the companies’ reports. It is argued this provides a robust assessment, being a direct and comprehensive measure of disclosure quality.Research limitations/implicationsAs with most qualitative work, there are alternative approaches to establishing an index, but the authors believe this is an approach offering links (and, therefore, credibility) to globally recognised guidelines in the assessment of CSR disclosure quality. Future work could enhance the alignment of this index with the sustainable development goals (SDGs), building on the preliminary connections established in this study.Practical implicationsAt a practical level this index offers an approach to reviewing the quality of CSR disclosures which could prove useful to policymakers and in the future development and expansion of this framework offering greater objectivity to assessments and justification for proposed improvement in reporting practice. Also, this index serves as a benchmarking tool for companies to meet the disclosure expectations of stakeholders.Social implicationsThis approach has the potential to substantially fulfil stakeholder expectations by addressing the growing demand for transparency in this area, while avoiding practices that could be perceived as superficial or misleading (greenwashing). Focusing on social issues enables stronger connections between companies and their stakeholders. Furthermore, the index helps companies link their CSR efforts with SDGs and show their commitment to long-term social value building in discussion of governance factors to show accountability expectations are being met.Originality/valueThis paper contributes to CSR disclosure quality literature and provides a reliable method of assessing the quality of CSR disclosures. Opportunities for further and broader developments can be envisaged while offering a credible and reliable approach.

Determining the Appropriate Accounting Treatment of Cryptocurrencies Based on Accounting Theory

The International Financial Reporting Standards (IFRS) do not make explicit provisions, in terms of a specifically dedicated standard, for the accounting treatment of cryptocurrencies. This creates uncertainty, and guidance is therefore required in terms of accounting for such investments. Accounting theory has the potential to provide the foundation for this guidance. This study aimed to determine the most appropriate accounting treatment for cryptocurrencies based on the International Accounting Standards Board’s (IASB) Conceptual Framework for Financial Reporting (as a form of accounting theory) that results in decision-useful information. The research further investigated the proposed accounting treatment in terms of IFRS and sought to determine whether this treatment was aligned with the IASB’s conceptual framework. This qualitative study conducted a non-empirical interpretative analysis of the literature (focusing specifically on accounting theory) to address the research aim. The conceptual framework indicated that the most appropriate way to account for cryptocurrencies was to recognise an asset at fair value. This accounting treatment aligns with accounting for assets under International Accounting Standard (IAS) 2 commodities held by broker-traders and the IAS 38 revaluation model. Addressing the problem of accounting for cryptocurrencies with reference to accounting theory makes this study novel. The guidance provided could reduce uncertainty among entities holding investments in cryptocurrencies and could increase the decision-usefulness of financial information.

Financial reporting, debt covenants and convertible debts

PurposeThis study proposes an alternative perspective on why firms issue convertible debt, to supplement the largely theoretical motives identified in the existing literature. It hypothesises that the separate presentation of convertible debt into its equity and liability components has economic consequences and advantage that explain why firms issue convertible over non-convertible debt, consistent with the debt covenant hypothesis. The purpose of this paper is to address the proposed perspective and hypothesis.Design/methodology/approachData on convertible debt, gearing (debt assets and debt equity), debt issuance and retirement, etc. were collected for a sample of 1,104 firms listed on Bursa Malaysia. Regression analyses were then used to assess the hypotheses on how gearing affects the use of convertible debt and the impacts of its use on changes in gearing over the financing cycle.FindingsFirms with higher gearing, and possibly those close to violating debt covenants, are more likely to issue convertible than non-convertible debt. In addition, the use of convertible rather than non-convertible debt both reduces the increase in gearing when debts are issued and leads to a larger decrease in gearing during debt retirements via conversion.Practical implicationsThese effects on gearing provide firms with additional financial flexibility and enhance firms' capacity to borrow more from other sources, a lower-debt advantage.Originality/valueThis study demonstrates the informational role of financial reporting in addressing the stewardship emphasis, as part of the decision usefulness objective of financial reporting in the Conceptual Framework for Financial Reporting.

The concept of accounting for contractual obligations: Searching for accounting development areas

Subject. This article discusses the possibility of including a system of changes in market relations and their impact on the financial results of the organization's activities in the field of accounting and economic analysis. Objectives. The article aims to determine the possibility and necessity of forming information in the field of accounting containing a prognostic function, which can be achieved by including a new concept in the structure of accounting, namely the concept of accounting for contractual obligations, and prove the necessity and objectivity of information when including in the field of accounting its new objects, i.e. contractual law and contractual obligation. Methods. For the study, we used academic economics in the field of accounting, namely the economic theory of ownership of an economic resource, the theory of contractual relationships, and the theory of contractual obligations. Results. The article presents a proof of compliance of the concept of accounting for contractual obligations with the International Conceptual Framework for Financial Reporting (2018), which defines an economic resource as a right to an asset that has the potential to create economic benefits in the future, and a contractual obligation corresponding to this right, namely to transfer an economic resource. Conclusions and Relevance. Contractual obligations, by virtue of their objectivity, must find their place in the structure of accounting, since information about them is formed on the market. The systematic reflection of contractual obligations expands the scope of accounting to include market relations in it. The concept of accounting for contractual obligations makes it possible to reduce the gap between academic economic science and accounting theory.

The concept of accounting for contractual obligations in the accounting for revenue from contracts with customers

Subject. This article discusses the possibility of using the concept of accounting for contractual obligations in the accounting for revenue from contracts with customers. Objectives. The article aims to present changes in the methodological approach to the reflection in the accounting for revenue from contracts with customers, based on the recognition of contractual obligations arising from these contracts as accounting objects and elements of financial reporting. Methods. The article defines a promising area for the development of the theory and practice of accounting related to the use of institutional theory, in terms of the contract theory, and contractual obligations arising from contracts, the Conceptual Framework for Financial Reporting, as well as the provisions of IFRS 15 – Revenue from Contracts with Customers. Conclusions. IFRS 15 – Revenue from Contracts with Customers is an additional confirmation of the use of the theoretical concept of accounting for contractual (constructive) obligations arising from past events (signing of an exchange transaction agreement) and are objects of accounting.

Application of Professional Judgement in International Financial Reporting Standards

This essay accesses the use of professional judgements in the preparation and implementation of international financial reporting standards by preparers of financial statements. The article samples some domains of professional judgement in financial reporting contained in the Conceptual Framework for Financial Reporting (2018) and selected IAS/IFRS to demonstrate how judgement is exercised in the preparation and presentation of principles-based standards. The sampled domains or action areas for the exercise of professional judgement are going concern, materiality, accruals accounting, accounting policies, presentation/disclosure, measurements, estimates, recognition/de-recognition, classifications and revenue recognition. From the analyses of these domains, the essay concludes that (i) the exercise of professional judgement is a sine qua non in the implementation of IFRSs; and by extension, the ability to exercise professional judgement is not only the key skill for preparers of PBS-based financial statements; it is also the hallmark of an accounting professional.

IFRS meets the realities of a post-communist Balkan State

Research Question: How will the Substance-over-Form (SoF) ‘organism’ survive, mutate and develop in a new and unfamiliar ‘environment’? Motivation: Our study is motivated and inspired from a previous study published by Alexander et al. (2018) on “philosophy of language and accounting”. Alexander et al. (2018) used the “Substance-over-Form” principle as a case study investigation of the practicability, or non-practicability, of harmonising changes in accounting regulation across seven countries (and six languages). The objective of this paper is to investigate on a very different context: Albania (an EU candidate country, an ex-communist “Balkan state”, a different socially-constructed reality). Idea: This analysis shows the evolution of the SoF concept, by emphasizing the importance of the translation of official documents from English to Albanian and vice versa, comparing the content, the quality, and the level of translation in accounting. Data: We first analysed the main Albanian legislations on accounting from 1990 (opening year of the country to the free market economy) until 2021. Then, in order to assess the quality of translation from English to Albanian, we also critically examined the content and the level of translation of the 2018 IASB Conceptual Framework for Financial Reporting. Tools: The paper follows a deductive approach, as the results come from contextual data or clauses. A manual content analysis is implemented. Subsequently, a critical semantic analysis and an in-depth investigation on the level of translation of the accounting concepts, with an explicit focus on SoF treatment, is performed. Findings: The exposition, analysis and results are fully consistent with our theoretical framework, “social Darwinism”. We add the Albanian case to previous studies, providing a contrasting scenario in that Albania has a significantly different history over recent decades. We illustrate a different socially-constructed reality from the seven countries of Alexander et al. (2018), and extend the overall understanding and the overall picture. The Albanian “organism” (accounting GAAP system) is consistent with its socially-constructed reality/environment. SoF seems to be distorted in its passage from Directive/IFRS originating sources, and this may well be fully consistent with local needs, realities, and cultures. Contribution: This research contributes to academic debate in three ways. First, it adds evidence to the literature on harmonisation processes, analysing the evolution of financial reporting regulation for a specific country and the application of a fundamental concept, such as SoF, comparing it to other national regulations. Second, this work contributes to further research, being a pioneer for the application of the “social Darwinism” to the analysis of a GAAP system. Finally, the paper contributes to the development of research on translation issues in accounting, by technically analysing the level of translation of the IASB Conceptual Framework for Financial Reporting and back-translating from national Laws.

The “secret life” of the Statement of Cash Flow: A bibliometric analysis

The International Financial Reporting Standard Foundation issued a new Conceptual Framework for Financial Reporting. According to this document, the general purpose of financial reporting is to provide financial information about the reporting entity which is useful to existing and potential investors, lenders and other creditors in making decisions related to raise resources for the entity. Focused on the Statement of Cash Flow analysis the main objective of this paper is to provide an overview about how academic researchers have evolved about the usefulness of this Statement. Firstly, we sought to find the best database to perform a bibliometric analysis on the sample identified about the Statement of Cash Flow research. Secondly, we analysed the different stages of the research trends and the main topics. As interesting results of the analysis we can highlight that the clusters in the bibliographic network match with the research lines identified and connections between the papers have been increasing further through networks. The research lines mentioned by the accounting regulators, who issued the cash flow standards, have mostly concluded that the Statement of Cash Flow is useful to fulfill those purposes together with the researchers.

Erratum

The publisher, American Accounting Association, regrets an error on the title page of “Pathway to an Integrated Conceptual Framework for Financial Reporting” by Christine A. Botosan in the July 2019 issue (Volume 94, Number 4, pp. 421–436; doi: https://doi.org/10.2308/accr-10683) of The Accounting Review. The following statement identifying the piece as a Presidential Scholar address was omitted:The online version of the article has been corrected. The error only exists in the printed version.

Current issues of using discounted value in financial statements

Subject. We address the determination and use of discounted value in the preparation of financial statements under IFRS and problems associated with this estimate, including in circumstances of pandemics. Objectives. We focus on a comprehensive study of the purpose, reasons, methods of calculating and applying the discounted value in the process of preparing the financial statements, and consider factors that affect the estimate and its changes, as well as its impact on the indicators of financial statements. Methods. The study employs methods of logical, statistical, comparative, and linguistic analysis. We also review foreign and Russian scientific and practical literature, the rules contained in the Conceptual Framework for Financial Reporting, consolidated financial statements of Russian public companies for 2019 and 2020. Results. We unveil problems associated with the use of discounted value and the area of its influence, make proposals to improve its measurement and disclosure in the preparation of financial statements. The scope of application of the results obtained includes: building up regular reporting by economic entities, primarily in terms of determining the discounted value, including in the direction of coordinating financial and non-financial reporting information and improving the reliability of disclosures and their analytic function. Conclusions. To improve the reliability of financial statements, it is crucial to expand disclosures about approaches and assumptions used in measuring the discounted value and coordinate information about the elements of discounted value with non-financial reporting data.

A comparative analysis of the use of fair value and alternative valuation methods in IFRS

Subject. This article analyzes the various types of value used in IFRS to assess assets and liabilities. Objectives. The article aims to conduct a comparative analysis of the types of value used in IFRS when assessing assets and liabilities, and identify the features of the use of fair value as a type of value, considering the use of certain levels of fair value and restrictions on their use. Methods. For the study, we used the systems analysis, comparative study method, information structuring, data grouping, deduction, and other methods of scientific research. Results. The article summarizes the advantages and disadvantages of each of the valuation methods described in the Conceptual Framework for Financial Reporting – IFRS. It systematizes the standards that use certain types of value, and analyzes the features of the use of fair value. The article also identifies factors that affect the ability to measure a higher level of fair value. Conclusions. Fair value is one of the most used valuation methods in international accounting practices. However, the use of fair value in estimating the value of reporting items is limited due to the complexity and high cost of its qualitative valuation. This makes companies use alternative valuation methods.

Conceptual Framework for Financial Reporting: Problems and Prospects

The objective of this paper is to define the theoretical basis and clarify the fundamental concept of the Conceptual Framework for Financial Reporting (CFFR). This is because the theoretical basis for CFFR has not been properly defined, and the articulation of the fundamental concept in the document does not correspond to its actual meaning. In clarifying, we will analyse these attributes from a critical perspective and propose an alternative articulation.
 We apply a research method widely used in the USA based on semiotics, which construes accounting as a business language and requires analysis of the key accounting concepts from three viewpoints: syntactic, semantic an pragmatic. Two different theories form the theoretical basis for CFFR: the organisation theory and the residual equity theory. We further propose that the articulation of the fundamental concept of “objective of financial reporting” is self-contradictory, which is aggravated by the fact that the document deals with users of financial reporting and their objectives.
 We identify major drawbacks in both theories. The organisation theory requires specific financial reporting which is incompatible with standardisation, and the residual equity theory is extremely difficult to understand and is not completely satisfactory for any of its user groups. These drawbacks and inaccuracies occlude understanding of CFFR and financial reporting.As a result, we propose that it is advisable to do the following when developing the next version of CFFR:
 • define the uniform theoretical basis in CFFR clearly;• use the proprietary theory as the uniform theoretical basis;• the definition of financial reporting oriented to informational needs of company owners should be the fundamental concept of CFFR.
 This will enable CFFR and financial reporting to be simpler understand and the primary needs of all user groups will be satisfied.

The duality of goodwill assessment in financial accounting and reporting

Subject. This article considers Goodwill as an indicator of the organization's market capitalization and internally created Goodwill as a set of transaction expenses, and discusses the dual nature of Goodwill as an economic resource of the organization. Objectives. The article aims to explore the economic content of the Goodwill category and interpret it in terms of accounting considering differences in the measurement of Goodwill value as a result of a business merger transaction and internally created Goodwill that shapes its value by capitalizing transaction expenses. The article also aims to prove the need to reflect Goodwill in financial statements as an indicator of the organization's market capitalization and internally created Goodwill as a set of transaction expenses. Methods. To methodologically substantiate the economic category of Goodwill, we used the Conceptual Framework for Financial Reporting, International Concept of Integrated Reporting, institutional economics, and the International Financial Reporting Standards. Results. The article proves the dual nature of the economic category of Goodwill, which is crucial in the development of the methodological provision of this category in the organization's accounting and financial reporting system and the assessment of its value. Conclusions. Lack of transparency in the financial statements of individual economic entities and consolidated reporting of the group's enterprises allows for combining different economic resources in one item, for example, Intangible Assets. The inclusion of Goodwill, which is the result of a business merger transaction, does not correspond to its economic content, as Goodwill in this case is part of the investment made by the investor in the object of investment. Even for this reason alone, this figure should be reflected in the structure of financial capital.

Contractual obligations as an element of transaction costs of the exchange deal

Subject. This article discusses the issues relating to the reflection of contractual obligations in the accounting system as an economic category of transaction costs. Objectives. The article aims to describe a market-based approach to defining contractual obligations as transaction costs of the organization and the specifics of their separate reflection in the accounting system. It also aims to define the content of the organization's obligations in terms of the rights of claim for economic resources to reduce the gap between accounting theory and institutional theory. Methods. For the study, we used the theory of institutional economics, the Conceptual Framework for Financial Reporting that help expand the scope of accounting by incorporating market relations reflecting the obligations to provide exchange transactions. Results. The article defines and proves the importance of the obligations of the exchange transaction parties to reflect them in the accounting system, and that transaction costs expressed by obligations determine the future rights of the market agents. The economic content of the exchange transaction parties' contractual obligations is significantly different from the accounting understanding of receivables and payables. The article proposes to separate the transaction costs determined by the exchange transaction parties' obligations, subsequently capitalizing and reflecting them in financial (integrated) reporting in the structure of client (reputational) capital. Conclusions. It is necessary and possible to develop the accounting theory by incorporating new economic phenomena, such as the contractual obligations of the exchange transaction parties. This approach will help change the retrospective view of understanding accounting information to some extent.

Symmetric Prudence in New Definitions of Conceptual Framework for Financial Reporting

Since the version of the Conceptual Framework for Financial Reporting is revised, the interest in accounting concepts that are fundamental in financial reporting has been growing. The purpose of this article is to investigate the evolutionary logic of prudence in the definitions and recognition criteria of assets and liabilities, the causes and consequences of new changes in the Conceptual Framework of 2018. As a result, it was obtained that different interpretations of probability and asymmetric asset and liability identification caused the new changes. The reconciliation between the intentions of new asset and liabilities definitions and their correct understanding results has been illustrated. The new complication in defining obligation such as “no practical ability to avoid” was found. In conclusion, we constant the new definitions as the positive consequence from a psychological point of view, simplifying individuals judgments, as from a conceptual point of view, leading to the common understanding and improvements of qualitative characteristics of financial information. The direct evidence of conceptual improvement is symmetric prudence as support of financial statements’ fundamental qualitative characteristics – faithful representation.

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING: INTEGRATED POLICY

Abstract. The project of the International Accounting Standards Board that updates and develops international accounting standards (IASB) has been lasting more than twenty years. In Ukraine, International accounting standards were adopted as the national standards for business and public sectors. The article analyzes the Conceptual Framework for Financial Reporting for the business sector entities, compares it with the Conceptual Framework for financial reporting for the public sector entities, and the current requirements of the Ukrainian legislation in the field of accounting and financial reporting. The necessity of creating a single Conceptual Framework for financial reporting, based the needs of information users, is substantiated. The relevant International Standards for the business sector entities became fundamental for the development of International Public Sector Accounting Standards. The similar needs of financial reports users support this approach. At the same time, part of the IPSAS, and the Conceptual Framework take into account the functional peculiarities of the entities in this sector of the economy. Financial reporting concepts for entities in any sector of the economy determine the aim of financial reporting as that to acquire information concerning the entity. Investors, creditors, other lenders are prior users of financial information in the business sector while society as a whole uses information in the public sector. The Conceptual Framework for the public sector takes into account the peculiarity of this sector of the economy, the main purpose of which is to provide services to society, rather than generating profits and ensuring the return on capital of investors. The common features of financial reporting standards and their Conceptual Framework, taking into account current trends and global challenges, indicate the possibility and feasibility of creating a unified (integrated) Conceptual Framework for Financial Reporting. Keywords: the Conceptual framework for financial reporting, International Financial Reporting Standards for the entrepreneurial sector, International Public Sector Accounting Standards, National Accounting Statements (Standards). JEL Classification M41 Formulas: 0; fig.: 1; tabl.: 2; bibl.: 20.

Symmetric Prudence in New Definitions of Conceptual Framework for Financial Reporting

Since the version of the Conceptual Framework for Financial Reporting is revised, the interest in accounting concepts that are fundamental in financial reporting has been growing. The purpose of this article is to investigate the evolutionary logic of prudence in the definitions and recognition criteria of assets and liabilities, the causes and consequences of new changes in the Conceptual Framework of 2018. As a result, it was obtained that different interpretations of probability and asymmetric asset and liability identification caused the new changes. The reconciliation between the intentions of new asset and liabilities definitions and their correct understanding results has been illustrated. A new complication in defining obligation such as “no practical ability to avoid” was found. In conclusion, we constant the new definitions as the positive consequence from a psychological point of view, simplifying individuals judgments, as from a conceptual point of view, leading to the common understanding and improvements of qualitative characteristics of financial information. The direct evidence of conceptual improvement is symmetric prudence as support of financial statements’ fundamental qualitative characteristics – faithful representation.

Evaluation of the cause-and-effect relationship of internal controls on financial reporting in the Ministry of Health and Social Services, Namibia

This article evaluates the effect of the internal control environment on the quality of financial reporting in the Ministry of Health and Social Services (MOHSS) in Namibia. The Internal Control- Integrated Conceptual Framework of the Committee of Sponsoring Organizations (COSO) of the Treadway Commission was applied as the standard of measurement against the variable internal control, and the Conceptual Framework for Financial Reporting of the International Financial Reporting Standards (IFRS) was used to measure the qualitative characteristics of the financial reporting process. A mixed research method was used to evaluate the cause and effect relationship between the key variables and to measure the perceptions of the respondents on the quality of the financial report. Probability sampling techniques were used on the 269 staff members of the MOHSS, and data were analysed using both descriptive and inferential statistics, using the SPSS software programme. The validity and reliability of data were computed using Cronbach’s Alpha. The results of the study indicated that there is a positive relationship between the key variables although it is weak. Therefore, the study recommends the strengthening of governance systems to improve the safeguarding of financial resources.

Development principles for preparing financial reporting in the context of digitalization

The information technology development and the digital economy have a significant impact on the business units’ information system. The impact has resulted in a significant increase in the amount of business data used. With increased information availability, development of new processing methods and algorithms, the approaches to financial reporting need to be adjusted and modified. All changes to the basic principles of financial reporting have been included in the new version of the Conceptual Framework for Financial Reporting. It will come into force on January 1, 2020 for all business units developing their reporting policies under IFRS. The paper overviews the amendments and innovations introduced by the new version of this document. The Conceptual Framework dialectics has been reviewed based on all document versions since 1989. We analyzed the impact of digital technology on the transformation of accounting methods and principles and on the preparation of financial statements. The paper is of practical importance and helps to assess various areas of system development of the IFRS methodology in the context of digital economy.

Аудиторські процедури щодо визначення плати за право земельного сервітуту

The article proves, that the audit of the accounting valuation of land easement as a type of intangible asset in accordance with the disclosure of this item in the financial statements of the enterprise, foresees establishing of compliance with the Conceptual Framework for Financial Reporting and the requirements of IFRS 13 "Fair Value Measurement". In order to reduce uncertainty when checking the compliance of the accounting valuation of the amount of easement payments for the use of somebody’s steading to market criteria, it is developed methodological tools, using which the auditor can reduce the risk of significant distortions in verifying this valuation.