Conceptual Framework Standards System †MyAssignmenthelp.com

Question: Discuss about the Conceptual Framework Standards System. Answer: Introduction The general purpose financial statements are developed by a business entity in order to provide information to end-users about its financial position. The IASB has developed and provided the standard guidelines for all business entities for developing the financial statements through the development of conceptual accounting framework. The conceptual accounting framework has stated the qualitative characteristics of relevance, reliable ad comparable to be adopted by businesses for financial reporting. This is done for improving the quality of financial reporting in order to meet the needs of end-users such as potential investors and creditors. The AASB (Australian Accounting Standards Board), in this context, holds the responsibility of ensuring the compliance of international accepted accounting standards and conceptual accounting framework principles by the Australian business entities (CCH Australia Limited, 2009). The present report has demonstrated the need of complying with conc eptual framework principles and AASB standards by demonstrating an example of Australian accompany who has failed due to its unethical and fraudulent accounting activities. The company selected for the purpose is 7-Eleven and its financial reports are evaluated for assessing the arsons if its failure. Analysis of Reason of Failure of 7-Eleven with Respect to its Accounts The 7-Eleven is a recognized Australian retail company that is widely known for operating chain of convenience stores across the country. The company is a franchise of US based 7-Elevne Inc and is involved in providing diverse products such as drinks, confectionary, gift card and others (7 -Eleven: Annual Report, 2015). The company has however being alleged of conducting corrupt and fraudulent activities in relation to its remuneration and financial reports. The screenshot of the remuneration report of the company as extracted from its annual report as follows: The remuneration report aims to provide information in relation to the accounting policies adopted for deciding over the matters of compensation provided to its directors and employees. The remuneration report of 7-Eleven has stated its effective compliance with the Corporations Act 2001 and AASB standards for developing and maintaining its remuneration policy. The remuneration report of the company has also stated the remuneration of its executive and non-executive directors is dependent on the operating profit of the company. This remuneration policy of the board has introduced an organizational culture within the company of driving the profitability by directors; in order to increase their compensation and as such promoting the occurrence of corrupt financial practices (7 -Eleven: Annual Report, 2015). The remuneration policy developed by the Board ensures that fair compensation is provided to all of its employees and has disclosed the information of employee benefits and expenses in its remuneration report. However, the company has faced allegations regarding the occurrence of unethical employee wage policies and practices. The company has been accused of forcing the employees to work till long hours and also providing them half pay. The management was accused of threatening the employees to work till extended hours by saying that they would be expelled of they complained to the parent company about their salary issue. The identification of the wage scandal in the company has resulted in paying heavy penalties for compensating the exploited workers and also negatively impacted the brand image of its parent company. This wage scandal has caused the parent company of 7-Elevne to adopt strict compensation policies and procedures for its Australia franchises as per the Fair Work Ombud sman (Ferguson, 2016). The company in its annual report has claimed of complying with AASB standards and Companies Act for valuing its inventories. However, the analysis of the directors report of the company has inferred that it has not defined the accounting policies adopted for measuring the inventories cost and recording the inventory losses. Thus, it can be stated that it does not comply with AASB standards for valuing its inventories (CCH Australia Limited, 2009). The screenshot of the inventories account maintained by the company as extracted from its directors report is depicted as follows: Accounts Receivables As analyzed from the accounts receivables financial position of the company, it has not developed proper provisions for recording bad debts. The estimated account of cash inflows from the accounts receivables is done on the basis of past events and this is not valued properly as per the AASB standards by not taking into account the current information about its receivables (Compiled Accounting Standard AASB 108, 2014). The company also possesses contingent liabilities as evident from its annual report analysis. The financial leases are valued at the fair value of the leased assets. The company however has disclosed all the pertinent information about the financial figures in relation to it total assets and liabilities in accordance with conceptual accounting framework. Also, the company does not have any contingent liabilities as evident from its directors report analysis (7 -Eleven: Annual Report, 2015). The principle of prudence was removed earlier from the conceptual framework of accounting as it was found to be in contradiction with accrual accounting concept. The concept states that businesses should maintain a provision of recording the financial transactions that have not year actually realized for developing hidden reserves to be used at contingent situations. However, the prudence concept is gain included in the conceptual framework due to increase in number of corrupt practices by business corporations by manipulating the accounts for their personal benefits as evident form 7-Eleven wage scandal. The inclusion of prudence ensures that business entities will record the financial transactions that have been occurred in reality with no overstatement of profits and understatement of expenses. This is required for protecting the investors interest and maintaining transparency in business operations (Hoffman, 2016). Conclusion As analyzed from 7-Elevnet accounting practices, the company has not adequately complied with AASB and conceptual accounting framework principles. The company needs to comply with all the principle of conceptual framework and include prudence at the time of financial reporting for ensuring its sustainable growth and development. References 7-Eleven: Annual Report. 2015. [Online]. Available at:https://www.7eleven.com.my/pdf/ar-2015.pdf[Accessed on: 6 April 2014]. Compiled Accounting Standard AASB 108. 2014. [Online]. Available at:https://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-04_COMPdec09_01-11.pdf[Accessed on: 6 April 2014]. CCH Australia Limited. 2009. Australian Master Accountants Guide. CCH Australia Limited. Ferguson, A. 2016.7-Eleven's wage fraud sparks $170 billion blow back.[Online]. Available at:https://www.smh.com.au/business/retail/7elevens-wage-fraud-sparks-170-billion-blow-back-20160826-gr264h.html[Accessed on: 6 April 2014]. Hoffman, C.W. 2016.Revising the Conceptual Framework of the International Standards: IASB Proposals Met with Support and Skepticism.World Journal of Business and Management 2 (1), pp. 1-32.