Theory and Social Dissclosure Analyses †MyAssignmenthelp.com

Question: Discuss about the Theory and Social Dissclosure Analyses. Answer: Introduction: The fundamental or the main features of reporting of the financial information is projected through relevance, as well as faithful representation. It is of paramount importance because the users to the financial statements are able to get a clear view and aids in the process of decision making. Moreover, attaining faithfulness, as well as relevance is subjected to the benefits that accrue from such features and surges ahead of the costs to attain them. Relevance can be defined as that qualitative feature that helps in tracing which element is needed to be reported. On the other hand, the relevant information contains a value that is predictive and confirmatory in nature and when it is recognized completely the faithful representation happens. The presence of such a feature provides that financial information is of utility when it is able to provide relevant financial information and faithfully projects it as complete and devoid of all errors (Brigham Daves, 2012). Relevance can be stated as the most important feature in the conceptual framework as faithful representation can be important when it comes to a broader fundamental feature that dwells on the concept of reliability. When it comes to relevance, information can be tagged as relevant when it is in a condition to make a difference in the process of decision making. On the other hand, information can be represented faithfully if the financial information is complete and is devoid of errors. Both the features are important for the users in the process of decision making. As per IASB, professional judgment is vital for knowing if the financial information that forms a part of the financial statement is mixed with the faithful representation or not. The present structure of the conceptual framework stresses that faithful representation is a vital parameter for reliability. On the other hand, there is a big risk that the financial information might ranks less than the faithful representation of what is actually needed. This can be cited not due to any biases rather the complications that are present in the business while spotting the transaction. It can be the major reason why the goodwill that is generated internally is unable to be recognized in the financial statements (Gibson, 2010). Specifically, the intensive use of the estimates of accounting plays a vital role in lessening the value of faithful representation in the financial statements. Various estimates of accounting that are non-recurring in nature disturb the concept of faithful representation. As per the conduct of various studies, it came to the forefront that the relevance concept is affected marginally by the concept of faithful representation. Going by the need of the conceptual framework, the information depicted must be free from errors so that faithful representation can be depicted, however, the IASB clarifies that it is difficult to attain that in every condition. In other words, it can be commented that the information might be material so that relevance can be proved, however; faithful representation cannot be attained at every situation (IASB, 2010). When it comes to the concept of relevance, it can be said that the most relevant factor is the predictive value and it plays a major role in the process of decision making. Moreover, measurement of the predictive value can be done by utilizing three different elements. The expectations of the management can be explained in a proper manner because the statements are forward looking. Such information is vital for the capital providers and various other parties because management contains a prior access to the data that is private so that the process of forecasting can be done. However, if the information is irrelevant in nature then it cannot meet the condition of the faithful representation (Everingham et. al, 2007). Further, in respect to the annual report, it remains of utmost difficult to ascertain the faithful representation as there is a big requirement of the financial phenomenon to get it assured. Such facts give a clear cut indication that the concept of relevance is of more n ecessity as compared to the faithful representation. As per the accounting standard, it has become too complex for the prepares to attain faithful representation. It is imperative that in order to make the financial statements reliable, as well as relevant, financial data must adhere to the accounting standards and must represent the fact in a rational manner. In the current scenario, there are innumerable transactions that are undergone by the organizations and the changes need to be tackled by them. A historical cost accounting measure which is used in the accounting system to ascertain the price of the assets of the company in the balance sheet is contingent upon nominal cost or its original cost at the time of acquisition process carried out by the company. The GAAP module method is a popular tool to assess the costs of the assets of a company. As the assets of the company are maintained in the records at the original cost by adopting historical cost accounting system and continue to use the historic cost figures throughout the life span of the assets without considering the time value eliminating any change in the cost of the assets. Therefore, historical cost accounting system is not considered as a reliable module, instead, various innovative accounting methods have originated in the existence. Further, in addition to that, a historical cost accounting system is of having no significance at a time when the cost of the assets rising time-wise and there is no point of any comparison considering the cost of the past years that with the cost of current year cost. In the historical cost, it appears that there are many faults and shortfalls, therefore, it is advisable to switch to a more effective and reliable alternative cost systems to be taken into consideration. The first alternative option to the historical cost accounting system is the current cost accounting system that competes to provide book value of the assets which are reasonable in nature by valuation at the current prevailing market price. In The historical cost, the system has a practical flow in inventory costs like LIFO and weighted average. In case of historical cost accounting system, it is established that it does not consider the changing prices of the assets during the years gone by and therefore, will automatically increase the profit when the price rises and accordingly higher profit distribution can lead to a reduction in the operating capabilities of the company. Whereas, In the current cost accounting (CCA) the business profit generated, reflects how the company has enriched itself in the financial aspect of changing times and the rise in the cost of assets and resources whereas it is virtually ignored by the historical cost accountant. The second alternative method is the exit price accounting system that determines the assets that are calculated at exit price mechanism and the financial statement of the company is ready to migrate to the proposition. When it comes to the count of the historical cost it undergoes from the disadvantage of importance when it comes to the price rise scenario. There is always a difference in terms of consistent addition to the assets of the organization over a different point of time during the years with the ones acquired with currencies of various purchasing powers. The financial statement in historical cost accounting will not give the clear picture and will ultimately fail to serve the decision-making process of the investors (Milne, 2002). Hence it is prudent that the accountant in the organization must exhibit accurately the profits and losses as determined in the competitive market system so that disposable assets must be assessed at affair market price. The third alternative method is the Positive Accounting and the efficient market assumption. The positive accounting system tries to deliver an idea of the theory and links between multiple accounting information, organization, and managers etc (Mosambe Talebnia, 2016). On the contrary, the method anticipates in the fact that it reflects an understanding how the business operates in the world instead of how the business should operate in a competitive business environment world-over. In conclusion, the alternative theories of the accounting system are helpful in providing a meaningful solution to the difficulties that are not adequately answered in the historical cost accounting system. Whereas in the current cost accounting is well defined to provide sufficient and meaningful information to the investing communities and investors. The unique feature of CCA is that it takes into consideration the time value of money and inflation which is totally invisible in the historical cost accounting method. However, it can be confessed that in the current cost accounting method through the meaningful information provided, all of the information cannot be termed as correct. Both success and success ratio can be obtained only when the policy can be implemented following the scenario in which the organization operates. Finding of a conceptual framework is impossible because it has to be constructed, as said by IASB. It is always visible that the basic segments are similar and gathered from others but the final structure is a unique ad is not available ready-made. Research, experimental knowledge, and sufficient theory are the key features for construction of conceptual framework (IASB, 2010). Firstly, attention should be paid towards the financial information obtained from the financial statement which is enough to highlight the ongoing communication with the related topic (CF, 2016). Secondly, the important traditions which act as the building parts of the framework have to be studied thoroughly. Thirdly, loopholes are to be identified seriously. All this should be done on a regular basis by initiating different methods and identifying the outdated policies. Also, the different terms adopted by the company have to be checked from time to time recording their efficiency. It is to be understood that with the help of conceptual framework, maintaining the accounting standards is easy. It is also to be seen that in cases where no significant accounting standard is applied, it is necessary to deal it in accordance with the rules of the Financial Accounting Standard Boards. The advancement of the conceptual framework leads to great advantages. Firstly, Revenue Recognition Program initiated by the FASB is a way to increase the efficiency of the conceptual framework. The specialty of the project is that it has proved to be a boon in checking the outdated and incorrect elements of the financial statements belonging to the earning methods (FASB, 2015). The Fair value project has proved to be the second boon by the conceptual framework in terms of the accounting standards (IASB, 2010). This project acts as an important one in checking the methods and the efficiency and also the reliability to adopt a premium output method. Therefore, we can say that advancement of the conceptual framework has to lead to healthy accounting standards in terms of less economy applied. Due to a described conceptual framework, the standard-makers can become more efficient in terms of the financial statements used by the people (Melville, 2013). In this way the company can interact well with the people so they are able to identify the departure from the principles set out in the ASB. It should also be taken into consideration that conceptual framework comes with a package of advantages and its limits as well. Firstly, a conceptual framework may prove to be negligible in reality because the building blocks of a conceptual framework are based on imaginations and may not seem efficient to the users (Lemke, 2014). An example of this can be the case of preparation of the statements in which the accounting standards can be shown theoretical thus resulting in frauds. It is also to be seen that it is far more complicated for the people to understand the conceptual framework thus affecting their decisions and plans for the making of reports (CF, 2016). Also, the base on which the conceptual framework lies or depends in directly accredited to the fiscal terms. The reason behind such limitations is that both financial and non-financial information has got to be prioritized by the accounting principles and it is impossible for the monetary concerns alone to increase the abil ity for decision making for the users. It should also be seen that the dominance of the organizations operations plays a key role in the investment plans of the investors by changing their perspective. In many cases, this vision is neglected as the economic happening is given preference. Observing all the above points and cases it is much obvious that one conceptual framework is not enough to satisfy all the users and so many more frameworks are required to cope with the demands of different users (Carmichael Graham, 2012). It is also important to include the basics for which the conceptual frameworks must delete all the inadequacies. Corporate failures like Enron, Arthur Andersen happened though they were very clear in submitting the financial statements for the goodwill of the company. It can be clearly visible that the goodwill or the respect of the organization was used in a wrong way by these companies that highlight the limitations of the conceptual frameworks in the today wo rld. Due to these limitations the FASB and IASB have proposed for the revisions and changes and to report all the discrepancies (Tysiac, 2015). Due to these cases, many changes have been recommended for the advancement of a conceptual framework that includes the trade-off betwixt other qualitative characteristics like reliability, comparability, etc References Brigham, E Daves, P 2012, Intermediate Financial Management , USA: Cengage Learning. Carmichael, D.R Graham, L 2012, Accountants Handbook, Financial Accounting and General Topics, John Wiley Sons. Conceptual Framework 2016, Conceptual Framework Pronouncements, viewed 28 August 2017, https://www.aasb.gov.au/Pronouncements/Conceptual-framework.aspx Everingham, G.K, Kleynhans, J.E Posthumus, L.C 2007, Principles of Generally Accepted Accounting Practice, Juta and Company Ltd. Gibson, C 2010, Financial Reporting and Analysis: Using Financial Accounting Information, Cengage Learning. International Accounting Standards Board 2010, Conceptual Framework for Financial Reporting, viewed 28 August 2017, https://www.aasb.gov.au/admin/file/content102/c3/Oct_2010_AP_9.3_Conceptual_Framework_Financial_Reporting_2010.pdf Lemke, L 2014, Regulation of Investment Advisers, Oxford University Press. Masume B Talebnia, G 2016, Challenges Positive Accounting Theory, International Journal of Basic Sciences Applied Research, vol., 5, no. 2, pp. 119-122 Melville, A 2013, International Financial Reporting A Practical Guide, Pearson, Education Limited, UK Milne, M.J 2002, Positive Accounting Theory and social dissclosure analyses: a critical look. Critical Perspectives on Accounting vol. 13, no. 3, pp.369-395 Seilber J 2015, FASB removes concept of extraordinary, retains guidance on unusual item, viewed 27 August 2017, https://www.pwc.com/us/en/cfodirect/assets/pdf/in-brief/us2015-01-fasb-extraordinary-unusual-items.pdf Tysiac K 2015, No more extraordinary items: FASB simplifies GAAP, viewed 27 August 2017, https://www.journalofaccountancy.com/news/2015/jan/gaap-extraordinary-items-201511630.html