Question:
Learning Outcome
1. Explain the relationship between accounting theory, the accounting conceptual framework and accounting standards.
2. Identify and apply appropriate accounting standards to a range of authentic accounting scenarios.
Context:
This assignment develops research and thinking abilities. It has two parts. One is a case analysis and second is review of an academic article.
Changes in technology are impacting accounting and how accountants perform their jobs.
This activity will provide students information on new trends in accounting field.
Answer 1
As Per The Aasb Conceptual Framework For Financial Reporting, There Are Both Fundamental Qualitative Characteristic And Enhancing Qualitative Characteristic. Relevance and Faithful Representation are the two fundamental qualitative characteristics of useful financial information ("Conceptual Framework for Financial Reporting", 2022).
Relevant financial information has the capability to make a difference in the decisions that the users make. In order to make a difference in decisions, the information is to have predictive value, confirmatory value or both. There is a predictive value in financial information if the users can use it as an input for predicting future outcome. There is a confirmatory value in financial information if it gives feedback about prior assessments. Materiality is a key aspect in relevance as information can be considered as material if it influences the decisions of the users when the information is omitted, misstated or hidden (Shkulipa, 2020). Faithful representation is different from relevance. Economic phenomena are represented by financial reports in numbers and words. In order to be useful to the users, relevant phenomena must not only be represented by financial information, but the substance of the phenomena must also be faithfully represented by it. Unlike the characteristic of relevance, three characteristics need to be there in a depiction in order to be a perfectly faithful representation; they are complete, neutral and free from error. Therefore, relevance ensures the information is relevant and faithful representation ensures there is not error in the information and the information is complete and neutral (Kythreotis, 2013).
There are cases where it is needed to make a trade-off between the fundamental qualitative characteristics for satisfying the financial reporting’s objective, which is to give useful information about economic phenomena. An example can be used to explain this. The most relevant information about the impairment assessment of non-financial assets may be the uncertain estimations related to the future cash flows. In certain cases, the extent of measurement uncertainty associated to make that estimate may be so high that it may be doubtful whether an adequately faithful representation of impairment assessment would be provided by the estimate. Hence, the highly uncertain estimate may be the most useful information, supplemented by the estimate’s description and a clarification about the involved uncertainties. In other cases, if that information fails in providing an adequately faithful representation of impairment assessment, the most useful information may consist of another type of estimate having somewhat less relevance but it is subjective to lower uncertainty related to impairment assessment. In limited situations, no estimate mat be there which gives useful information, and in those situations, it may be essential to give information having no dependence on an estimate ("Conceptual Framework for Financial Reporting", 2022).
Information must have relevance and provide a faithful representation of what it means to exemplify if that information is of any use to the users of financial statements. Neither a faithful representation related to an immaterial phenomenon nor an unfaithful representation of an important phenomenon assists the users in making sound decisions, which implies that both these characteristics have equal importance ("Conceptual Framework for Financial Reporting", 2022).
Answer 2
The three phases of blockchain technology are as follows:
Phase 1: Information is stored in the block which distinguishes them from other
Phase 2: Information about transaction date, time and value is stored by the blocks.
Phase 3: Information about the participants of the transactions is stored in the blocks.
These are the three phases of blockchain technology. It can be seen from the above that all the three phases are involved in storing different types of information by using the blocks. It is because blockchain is widely known as a shared, absolute ledger which eases processing the recording of transactions and chasing assets in a business network. Blockchain’s main feature is that it stores the transaction data in blocks with value comprising cryptographic references to previous blocks. In order to safeguard the blockchain, “proof of work” which is a decentralized system is used which reduces the potential of manipulating blockchain (ALKAN, 2021).
In this context, it is important to mention that the blockchain technology has numerous potential uses in accounting. Blockchain technology has the power of evolving accounting to Blockchain accounting for assisting the accounting professionals in keeping track of orders using blocks in a protected manner. Through the use of blockchain, the transactions will not only be recorded but they will be corroborated without the necessity for or interference of an intercessor, since the technology is entirely dependent on automated system (Demirkan et al., 2020). As a result, it will result in the elimination of the errors which take place because of the need to pay out commission and other secondary transactions to other parties. Also, the use of this technology will enable any accounting professional in an organization to see the transactions that took place and it is entirely transparent and corroborated by thousands of computers at a time. Moreover, the blockchain algorithm has the potential to be used in accounting for allowing the shared formation of a digital ecosystem with more competences and possessions that go far beyond that is used today (Demirkan et al., 2020). All these imply that the accounting profession will be benefitted and positively impacted by the blockchain technology on real time.
Real-time Blockchain Accounting System (RBAS) can be referred to as a software solution which allows exchanging monetary values between two or more parties, recording this exchange transaction, storing it dependably, and enabling preparing the financial statements when required (Dai & Vasarhelyi, 2017). There are three entries of the accounting transaction in RBAS which are the credit side, the debit side, and the transaction’s cryptographic transaction. Also, three parties are formed by these three entries, which are the seller, the buyer and the blockchain. In other words, after the completion of the records, they are signed, encoded and disseminated to all nodes.
Therefore, the distribution ledger can be regarded as the triple-entry accounting system’s third party (Dai & Vasarhelyi, 2017). The use of RBAS as a third party in the accounting system provides an accounting information system which is self-verifying and transparent and includes cryptographic encryption. It plays a key role in providing dependable information sharing for the users of the information, and a real-time and nonstop reporting for the partners (ALKAN, 2021).
RBAS is a part of the Triple-Entry Accounting System (TEA) which is a distributed ledger system grounded on a three-way agreement mechanism (Chowdhury, 2021). This agreement mechanism includes the buyer, the seller and the blockchain. TEA depends on the signed receipts from all the three sides involved for reaching to an agreement on registration. This system allows monitoring all information in real-time basis by all users having registration in the system, the transaction’s distribution and approval by recording them in the block because of the blockchain’s distributed ledger structure (Cai, 2019). The transaction’s distribution and approval implies that the accounting transactions cannot be deceitful. In this manner, the user of information in the blockchain network will not be required to wait for the interim financial statements as this system will allow the users in tracing the required information in real-time basis (ALKAN, 2021).
References
ALKAN, B. (2021). Real-Time Blockchain Accounting System As A New Paradigm. Muhasebe Ve Finansman Dergisi, 41-58. https://doi.org/10.25095/mufad.950162
Cai, C. (2019). Triple‐entry accounting with blockchain: How far have we come?. Accounting &Amp; Finance, 61(1), 71-93. https://doi.org/10.1111/acfi.12556
Chowdhury, E. (2021). Financial Accounting in the Era of Blockchain - A Paradigm Shift from Double Entry to Triple Entry System. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3827591
Conceptual Framework for Financial Reporting. Aasb.gov.au. (2022). Retrieved 27 July 2022, from https://aasb.gov.au/admin/file/content105/c9/Conceptual_Framework_05-19_COMPdec21_01-22.pdf.
Dai, J., & Vasarhelyi, M. (2017). Toward Blockchain-Based Accounting and Assurance. Journal Of Information Systems, 31(3), 5-21. https://doi.org/10.2308/isys-51804
Demirkan, S., Demirkan, I., & McKee, A. (2020). Blockchain technology in the future of business cyber security and accounting. Journal Of Management Analytics, 7(2), 189-208. https://doi.org/10.1080/23270012.2020.1731721
Kythreotis, A. (2013). Measurement of Financial Reporting Quality Based on IFRS Conceptual Framework's Fundamental Qualitative Characteristics: An Empirical Investigation of 15 European Countries. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2356403
Shkulipa, L. (2020). Conceptual Framework for Financial Reporting: 1989, 2010,
