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Semester 1 2015
Overall Essay Feedback
In an essay between 1000 and 1500 words (+/- 5%), students are to answer the
following:
The development and use of a Conceptual Framework instead of accounting
standards will solve the problem of inconsistency in the application of accounting
in practice. Discuss this Comment
Bentley campus had 4 markers ALL of whom have worked on the unit.
Average grade Bentley = 8/15
Highest grade overall = 14.5/15
Fails = 23%
To achieve a grade higher than 7.5/15 students needed to do more than just restate the
textbook. Restating the textbook and just substituting another textbook as a reference is
the same as restating the textbook.
To achieve a grade greater than 11/15 students needed to have provided some examples
where appropriate and used good quality references (obscure websites and accounting
simplified type websites are poor sources.) 2 or 3 references is not evidence of research.
The essay must be well thought-out and organised well and have good quality grammar
and spelling throughout.
All markers required to review Turnitin reports papers reviewed for high similarities and or
lack of referencing. A higher than 20% similarity may be OK as the word count is 10001500 and only a few direct quotes can increase similarity dramatically. (if referenced
correctly then this is not plagiarism just copying. A high similarity may be indicative of too
much copying and not enough original thought.) End-text references were not included in
similarity%
Points in the essay students could have addressed
Areas to consider for the main content:
There are 3 key paths all of which may be acceptable depending on how the student
backs up their position with evidence (references). NOTE: The question implies having
a CF and NO accounting standards (hypothetical).
1)
2)
3)
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principles which provide insufficient guidance on the most appropriate accounting practice.
For example accounting standards AASB 102 concisely defines inventory and its
measurement, leaving no room for inconsistent interpretations. Strictly speaking standards
in fact encourage consistency by their definition, creating uniformity by discouraging many
varied treatments of the same thing (Obradovic, Vladimir, and Stefanovic 2012, 2).
Naturally its fair to derive that standards create consistency advantages through the
specific guidance they supply, setting a minimum standard that must be adhered too, a
view shared Nobes (2005, 25-34). Still despite this standards for a number of reasons do
fail on this matter of consistency.
Accountings standards have paradoxically created inconsistency due to their contingent
nature, their complexity (Nelson 2003, 175-202 , Arthur et al. 2006, 11, Herdman, 2002a )
and lack of completeness (Rankin et al. 2012, 68 ). Standards are contingent in that they
try to foresee every possible situation, a difficult objective that can result in complex
standards that are confusing and susceptible to manipulation, consequently resulting in
inconsistency issues (Arthur et al. 2006, 11). Incompleteness of standards undermines
there prescriptive nature leading to inconsistency given the lack of certainty (Alfredson
2001, 12). The sheer complexity, multitude of options and exceptions as noted by Nobes (
2004, 25-34) allows for many varied interpretations. For example IASs Measurement
standard uses a mixed measurement model for measuring values, offering historical cost,
current cost, realisable value or present value (IFRS, 2015). This means the same assets
or liability could have four different values. These issues also allows entities to structure
transactions, to manage earnings and to circumvent unfavourable reporting which can
consequently deliver reduced reliability, relevance and ultimately diminish the decision
usefulness of the information, again creating inconsistencies (Arthur et al. 2006, 13 ,
Rankin et al. 2012, 68, Nelson 2004, 91-105). So while standards claim increased
consistency the standards themselves are inconsistent while also powerless to control how
preparers strategically follow them to meet their entities and or managers objectives.
Accounting standards clearly have a range of problems contributing to inconsistency,
problems it is argued the conceptual framework can help resolve.
The conceptual frameworks principle based approach sets general concepts which are
used as a boundary to guide the judgement of the decision maker (Rankin et al. 2012, 67,
IFRS , 2015) and it is this that proponents argue will better deal with consistency issues
(Rutherford 2003, 372-96). Principles offer a general basis to guide decision making
instead of relying on rules narrower interpretations, placing emphasis on accountants
making sound and appropriate judgements based on these principles (Rankin et al. 2012,
25 - 67 ). These principles will simplify accounting practices, for example leases as
discussed by Nobes (2004), through offering broad guidelines instead of the existing
multitude of complex and incomplete rules, allowing accountants to use their judgement to
assess the substance of the transaction, translating into more faithful and consistent
accounting practices and reporting (Rankin et al. 2012, 69). Evidence also suggests that a
principles base discourages earnings management issues (Nelson et al. 2002, 175-202 ).
An area where the conceptual framework does provide much needed consistency is the
standard setters themselves. The establishment of a conceptual framework for the
standards setters to work from creates a boundary to base the standard creation process
from, creating a greater degree of certainty and thus consistency (Attmore 2009, 1, Rankin
et al. 2012, 39-40). This is unlike current circumstances where every principal needs
restating each time a new standards is developed. Principles would also seem to provide a
strong foundation for confronting new accounting issues as they emerge, apply principles
against new problems to determine a solutions that are consistent with accounting
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Reference List
Alfredson, Keith. 2001. "Accounting for Identifiable Intangibles--an Unfinished StandardSetting Task." Australian Accounting Review 11 (2): 12-21.
http://search.proquest.com/docview/217563444?accountid=10382.
Arthur, Alex . June Crawford . Suzanne Hillier . Ross Lindsay . Melissa Spence . 2006 .
Principles-Based or Rules-Based Accounting Standards? A Question of Judgement
. The Institute of Chartered Accountants of Scotland.
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Attmore, Robert H,C.G.F.M., C.P.A. 2009. "What is the Significance of GASB's Conceptual
Framework?" The Journal of Government Financial Management 58 (4): 8-10.
http://search.proquest.com/docview/222387145?accountid=10382.
Australian Accounting standards Board. 2015. Student Queries .
http://www.aasb.gov.au/About-the-AASB/For-students.aspx#qa1441
Herdman , R.K. (2002a). Testimony: Are Current Financial Accounting Standards
Protecting Investors? by Robert K. Herdman Chief Accountant, U.S. Securities and
Exchange Commission, Before the Subcommittee on Commerce, Trade and Consumer
Protection, Committee on Energy and Commerce, U.S. House of Representatives,
February 14, 2002. http://www.sec.gov/news/testimony/021402tsrkh.htm
Hoggett, John., John Medlin, Lew Edwards, Matthew Tilling, Evelyn Hogg . 2012 .
Accounting 8th edition . John Wiley & Sons. Australia .
International financial reporting standards. 2015. Accessed April 10. http://www.ifrs.org .
MacArthur, John B. 2006. "Cultural Influences on German Versus U.S. Management
Accounting Practices." Management Accounting Quarterly 7 (2): 10.
http://search.proquest.com/docview/222801364?accountid=10382.
Nelson, Mark W. 2003. "Behavioral Evidence on the Effects of Principles- and RulesBased Standards." Accounting Horizons 17 (1): 91-104.
http://search.proquest.com/docview/208926931?accountid=10382.
Nelson, Mark W., John A. Elliott, and Robin L. Tarpley. 2002. Evidence from Auditors
about Managers' and Auditors' Earnings-Management Decisions. Rochester: Social
Science Research Network. doi:http://dx.doi.org/10.2139/ssrn.294688.
http://search.proquest.com/docview/189902906?accountid=10382.
Nobes, Christopher W. 2005. "Rules-Based Standards and the Lack of Principles in
Accounting." Accounting Horizons 19 (1): 25-34.
http://search.proquest.com/docview/208895882?accountid=10382.
Laureen A Maines, Chair; Eli Bartov; Patricia Fairfield; D. Eric Hirst; Teresa E. lannaconi;
Russell Mallett; Catherine M. Schrand; Douglas J. Skinner; Linda Vincent (principal author)
. Evaluating Concepts-Based vs. Rules-Based Approaches to Standard Setting .
American Accounting Association Accounting Horizons Vol. 17 No. 1 March 2003 pp. 7389
Obradovic, Vladimir, Radoslav Stefanovic, and Emilija Vuksanovic. 2012. "A
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING: BASIS FOR THE
DEVELOPMENT OF FINANCIAL REPORTING STANDARDS AND PRACTICES."
Metalurgia International 17 (12): 117-123.
http://search.proquest.com/docview/1184392053?accountid=10382.
Rankin, Michaela. Patricia Anne Stanton. Kimberly Ferlauto. Susan C. McGowan. Matthew
Tilling. 2012. Contemporary Issues in Accounting . John Wiley and Sons Australia,
Limited.
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