Q This paper discusses about SAC 4 and the Challenge to the Mandatory Status of Concepts Statements Home, - SAC 4 and the Challenge to the Mandatory Status of Concepts Statements SAC 4 and the Challenge to the Mandatory Status of Concepts Statements Introduction The jurisdiction for Commonwealth of Australia have formed a government agency overview that is involved in developing and maintaining the reporting standards in conjunction to the Australian economy. The minister responsible for maintenance of this agency in Australia is “Treasury Portfolio” with the Public Sector Accounting Standards Board acting as its proceeding government agency; and the current superseding agency being the Australian Accounting Standards Board (AASB) (Macve, 2015). The defined standards of reporting (financial) by AASB is applicable to the entities of Australian economy, irrespective of being in public or private sectors. In conjunction to the International Accounting Standards, AASB have introduced, “conceptual framework” and implemented it for the practical purpose in the business firms. The prime objective of implementing the conceptual framework is that it can maintain a uniform standard of accounting, increase the efficiency of the accounting process by reducing the error, will identify and recommend the most efficient accounting procedure, and will be responsible for the overall improvement in the accounting standards. However, this implemented framework can only be used as a statement of principles only when it will be appreciated by the agencies practicing accounting procedures, in accordance to the related discourse (Ellwood & Newberry, 2016). Scope of the present report The above section illustrates the ideology and objective of conceptual framework developed by AASB. The implemented Statement of Accounting Concepts (SACs), no doubt, has beneficial prospects in both public and private sectors of Australia. On the other hand, the framework is also challenging with respect to its acceptance by the third party engaged in accounting procedure, the conflict that will arise between the existing as well as new standards of accounting, and the change in management required in the organization to adopt the new procedures. The present report is written for The chairman of AASB and the Financial Reporting Council of Australia. The objective here is to discuss the impact of implementing the conceptual framework, the government for its success or failure in business firms, address the introduction of lobbying and increased responsibility for reporting in the overall procedure. The discussion also includes the beneficial prospects such as preventing the control of accounting standards by the public sector, identification of the most accurate procedure of accounting, as well as maintaining the social and economic status in the benefit of community. In addition to this, the report also put forward recommendation, such that the visionary objective of this conceptual framework can be directed towards the desired positive direction. Conceptual framework: The objectives behind implementation According to the definition given by AASB, conceptual framework is a coherent system establishes the fundamental and interrelated the objectives which are expected to maintain a consistent standard in the accounting process. Conceptual framework is also considered as an intermediate theory which connects the various models present in the accounting process such as, identification of the problem, the purpose associated, data collection procedure, and the matter of analysis. In a nutshell, the conceptual framework acts as a connecting link to provide coherent for the empirical accounting process in Australia (Macve, 2015). The ideology of implementing conceptual framework is to underline a uniform standard of preparing and presenting the general purpose financial reports. These standards are also known as guidelines and accounting rules which are applicable under two sections, viz. (i) AASB 101 - Preparation of Financial Statements; and (ii) AASB 108 - Accounting policies for estimation and error analysis in accounting. However, it was also implemented in the framework that in case of any overlapping with respect to the defined framework and the International Financial Reporting Standards (IFRS); the final guidelines will be prevailed by IFRS (Macve, 2015). The guidelines covered within the scope of conceptual framework of Australia he's provided as Statement of Accounting Concepts (SACs), include (Ellwood & Newberry, 2016): SAC 1 – Includes the definition relevant to the reporting thing SAC 2 - The objective included within the scope of financial reporting (general purpose) SAC 3 – The characteristics (qualitative) to be present in the financial reporting SAC 4 – Includes the illustration of elements to be included in the financial statements It is noteworthy to mention that, the SAC 1 and SAC 2 falls within the similar scope of the guidance provided by IFRS. In contrary, the SAC 3 and SAC 4 are retained and considered out of date little difference to the framework provided by IFRS. The reasons are associated with the conflict that arises between the previously existing and the newly-introduced guidelines. Note that, the conceptual frameworks are also compared and reviewed with respect to the overlapping concepts present in International Accounting Standards Board (IASB) framework. IASB, further realizes that the elements to be included and the characteristics of the financial reporting can be justified with respect to the varying circumstances, transactions, and events related to the business firms. However, the clear guidelines provided by the conceptual framework are essential, to be involved in the accounting procedure to make the information useful for decision making process. The advantages and disadvantages of conceptual framework The objective of implementing the conceptual framework is to standardized procedure for the process of accounting. The financial reporting and the statement preparation are thus important with respect to the stewardship of business and the usefulness of the content (information) in the process of decision making process. The main users of this financial statements includes the parties involved in money lending, equity investment, and the stakeholders acting as creditors. Hence, it is very much essential to implement a standardized procedure that in turn can resolve any form of dispute among the public funded organization or the private sectors. The positive aspects of the implemented conceptual framework, which can also be referred as the advantages associated, and are detailed in the following points (Andon, Baxter & Chua, 2015). Accounting standard marker - Conceptual framework provides a platform for discussion for various problems arising in the accounting procedure, as well as framing the requisite mitigation strategies. Overall, this tends to bring the matter with reduced error as well as increased efficiency for accounting. Accurate decision making - Conceptual framework motivates the parties to use standardized accounting methods. The approved method for accounting will thus be uniform that in turn will help all the members associated, to understand without error as well as to make accurate decisions (Sunder, 2016). Rationality - Conceptual framework explicitly defines all the objectives and rationalities which must be present in financial statements. Reliability - Since the framework provide a standard approach, which can be applicable to any field. Thus, it helps in enhancing the reliability of the financial reporting system. Clear communication - Another important requirement in the accounting process is related to the communication among the parties. With the standardized procedure, it becomes empirical to establish clear and transparent communication between the accountants and the members of standard-setting Federation (within Australia and International boards). The above points describe how the conceptual framework brings efficiency into the process and aids into reliability of the financial statement preparation and its usefulness. However, the implementation of this framework also comes with challenges that in turn leads to reduced capacity of the firms, increase the lobbying, as well as a pullback factor in conjunction to bring innovation in any organization. These limitations are also referred as the disadvantages associated, and our detail in the following points (Reuter & Messner, 2015). Challenge for establishment - The implementation of new accounting framework is fast and implementable in the urban settings of Australia. In contrary, for the sub-urban and rural locations, the implementation of this framework is challenging because (i) resources are not available; (ii) is a time-consuming process, and (iii) resistance among the users to adopt the conceptual framework. The same challenges are also visible in small scale industries; however, it is easier for implementation in high-capacity firms (Xie, 2015). Conflict between the standards - As discussed in the previous context, the prime challenge is related to the conflict between the existing standards and the newly introduced framework. as a result of which, either the accounting users are resistant towards adoption of the new framework and/or having difficulty to understand the uniform procedure of accounting (Perera & Chand, 2015). Non-acceptance by the users - Lastly, it is also important to discuss that the latest implemented frameworks are not acceptable by all parties. The reason is linked with respect to the benefits of implementing common standards for particular users (mainly the public organizations), while other users are responsible for resistance against the acceptance of universal standards for accounting. The same reason is also responsible for increased lobbying at business firms (Reuter & Messner, 2015). What can be hoped as an impact of conceptual framework? The information related to the decision-making process can be classified into two types, which are (i) the financial information; and (ii) the non-financial information (Perera & Chand, 2015). The financial information are of particular interest to the money lender, parties involving in transaction, and the stakeholders. On the other hand, the non-financial information is relevant with respect to the proceedings of environment and social status of the current economies. It should be noted that, key difference between the informations related to financial and non-financial type, is mainly picked up by the private firms, which in turn affects the overall financial performance of the nation, attributing to clauses of legal regulations (Maroun, 2015). Thus, it is highly essential for the government must appoint an agency that can have the responsibility of maintaining comparable, completeness, and accuracy of these statements. Particularly for Australia, this concept is more relevant as the market-based wealth is the key factor for rise/fall in nations’ GDP. With an implementation of conceptual framework, a similar set of standards becomes essential for sectors include public as well as private. This also leads to increase in the process of accountability and reduction of the public debt (Andon, Baxter & Chua, 2015). An amendment was made with respect to the existing guidelines of AASB and was implemented since 2005. The ideology behind this amendment is that there should be no overlapping as well as conflicts between the framework reviewed by Australian board and the international board. The amendment also suggests following measures (Jin, Shan & Taylor, 2015): • Majority of entities have mandatory provision to apply the accounting standards provided by the AASB. • Public sector entities are also required to follow the conceptual framework in conjunction to the state, territory legislation, and Commonwealth with respect to the preparation and reporting of accounting statement. • Professional obligations to ensure the compliance with the conceptual framework are given to, Institute of Chartered Accountants in Australia, Institute of Public Accountants, and CPA Australia. Recommendations In order to achieve maximum efficiency from the implementation of conceptual framework, with respect to the accounting procedure in Australia; a recommendation framework is presented in this section. Of note, it must be realized by the participating authorities as well as the community members, maintenance of the economic standard in the nation, is only possible with mutual cooperation between the government agencies as well as the citizens (Sorrentino & Smarra, 2015). The accounting department of any company have a tremendous pressure with respect to managing the cash flow account, maintaining the financial statements, and communicating the information for the decision-making process. Following recommendations are thus presented, which have the potential to improve the efficiency of the accounting process and address to manage the conflicts that retard the fruitfulness of this framework: • Both private and public companies must ensure that get accountants who are highly professional and competent with respect to the job responsibilities. Here, it is recommended that offering opportunities of training and education to the finance team, which can ensure reliability of the corresponding financial statements (Sunder, 2015). • Discipline in the financial management is the most critical requirement for any company. It is essential to implement policies and disciplines especially for the payment, invoices, and submission of financial statements every month. • Individual departments in a company are always dependent on each other for the corresponding financial data. In order to enhance the efficiency, improved collaboration is highly essential (Erb & Pelger, 2015). This efficiency can also be improved with respect to using cloud computing are common server to store and retrieve the data.