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The role of Conceptual Framework as a theory of accounting
Introduction of accounting standards
The balance sheet reports
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TQ1.
The statement of financial position (the balance sheet) is one of the basis statements of financial reporting. The balance sheet is expected to present an objective view of the wealth of the entity.
The term ‘wealth’ can be interpreted as the current capital/ equity that the entity holds. Thus, as preparing a balance sheet, accountants have provided users with information of the ‘wealth’ of the business. In addition, all financial statements are prepared in the same manner, based on the Conceptual Framework and accounting standards. So, in such a way, the balance sheet can reflect the objective ‘wealth’ of the entity. Besides, the Corporations Act has implemented ‘true and fair view’ criteria that every accountants need to comply with in preparing financial statements.
On the other hand, there are also many limitations of the balance sheet is presenting an objective view of an entity’s wealth. Based on accountant’s choices of measurement methods i.e. depreciation, doubtful debt, balance sheet can be seen as subjective. For example, the choices of depreciation methods may affect the carrying amount of non-current assets and the business’s estimation of equity, i.e. wealth, as a whole. Additionally, the balance sheet leaves out many assets and liabilities that cannot be expressed in monetary terms i.e. intangible assets, contingent liabilities. Also, in the estimation of fair value, the use of Level 3 of the fair value hierarchy may raise the subjectivity of the balance sheet. Level 3 uses information that is unobservable from the market and models that are decided by the managers/ accountants. Hence, with the use of some measurement methods above, the balance sheet give some subjective opinions of the business’s wealth.
In co...
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...lue. o More possibility for error to happen in the process of fair value estimation.
Amortised cost measurement method seems to fit the concept of faithful representation from the AASB Framework more.
TQ5.
• Jack Noble and Gary Owens were two trackers that volunteered in joining the police in the capture of Ned Kelly gang in 1879- 1880.
• They were promised with “a fair share of the reward offered” if they succeed in “leading to the capture or death” of Ned Kelly.
• The Victorian Police Rewards Board listed Noble and Owens simply as "native trackers" and passed on the sums to the Queensland and Victorian governments.
• They didn’t received the money they were promised and now their descendants are in a legal battle with the Victorian and Queensland governments resumes in the Queensland Supreme Court.
• The descendants are claiming $42 million for each tracker.