Accounting Theory And Current Issues: Financial Accounting Essay


Discuss about the Accounting Theory and Current Issues for Financial accounting.



This study deals with accounting theory and current issues faced by KGC Ltd. Karrick Gold & Copper Ltd is an Australian mining firms listed in Australian Stock Exchange (Spiceland, Thomas and Herrmann 2011). It operates in large Open Cast Gold as well as Copper mine in Star Mountain Range in Papua New Guinea from past 30 years. Star Mountain Range in PNG ensures isolated as well as wide range of exotic plants and animals in and around the world. In this particular assignment, KGC Ltd has revenue generated at $30 billion AUD in absence of iron ore finds in the next seven years. It has net book value in PPE amounts to $16.5 billion AUD from past seven years (Scott 2012).
Evaluation of fair value or historical valuation of KGC Ltd
It is recommended to KGC Ltd in revaluation of PPE by using fair value of accounting in comparison with historic cost accounting for the same. Net Book value of PPE is $16.5 AUD as well as another $5.0 billion for the upcoming seven years (Schroeder, Clark and Cathey 2011). There are differences noticed between subsequent valuation of elements in composing non-current assets as per accounting models in and around the world.
Principles of Fair value accounting of PPE intangibles of KGC Ltd
IASB and IFRS standards mainly offer guidance for determination of exact constitution of fair value of assets as well as liabilities at fair measurement system. Fair value measurement applies in accordance with IFRS requirements (Riahi-Belkaoui 2012). It permits ways for fair values measurements as well as disclosures at fair value measurement at the same time. Standard defines fair value on basis at an exit price notion from usage of fair value hierarchy that results in market-based as well as entity-specific measurement in desired firm. Fair value is one of the measurement techniques that objectify initial recognition of assets as well as liabilities. The main objective of fair value accounting is to reflect the market value of assets as well as liabilities at measurement date (Previts, Walton and Wolnizer 2011). It has no observable price of assets. It estimates market price in existence of market in an overall manner.
Potential issues with fair value accounting
Fair value accounting consists of constant reporting among the comparable firms. It faces Enron crisis whereby regulators pushes investors for understanding the company valuation as well as assets in flogging the level of complexity in structured finance for the same (Palaniappan and Hariharan 2012). Assets needs to be labelled on three categories depending upon relative liquidity for anticipating as well as amplifying effects in market turmoil of KGC Ltd. It blames the regulations in case of market volatility as well as expensive capital raising financial institutions.

Risk involved in Fair value accounting Vs historical cost accounting

In fair value accounting practice, it becomes difficult in ascertaining risk most of the time in case of KGC Ltd. Fair value accounting is the practice for measuring assets as well as liabilities at estimated current value (Mucciarone, Godfrey and Rankin 2012). It becomes risky in ascertainment of correct figures in current value evaluation in the near future. It has major departure from the centuries as well as old traditions in maintaining books at historical cost. On analysis, it is noticed that fair value accounting poses less risky in comparison with historical cost accounting in desired form.

Explanation on true as well as fair value of PPE of KGC Ltd

In this particular question, it is required in identifying true and fair valuation of PPE intangibles of KGC Limited. PPE ensures replacement value of $20.5 billion but value in use comprises of $12.0 billion AUD (Libby, Libby and Short 2011). It ensures current expected outcomes operations for the next seven years. It rises amounting to $30 billion AUD in contract renewal for next 10 years. It is advisable to using the qualitative characteristics of accounting that ensures relevance, comparability as well as transparency of information among the investors working under KGC Ltd (Leung 2011).




Valuation Basis

Fair value accounting or cost accounting

Fair value accounting or cost accounting

Independent appraisal in case for revaluation of PPE in KGC Ltd



Treatment of initial recognition in gain or loss







Impairment of PPE and other intangibles of KGC Ltd



International Accounting Standard Board sets up working group for KGC Ltd in proposing of convergence model for revaluation of Property, Plant and Equipment for the same. These proposals are submitted to IASB in developing Exposure Draft of revised IAS 16 in PPE attributes (Krugman, Obstfeld and Melitz 2012). It concerns with quality as well as transparency of US financial accounting and reporting. FASB issues proposal in Principle based approach for US Standard setting in an overall manner. Current rules of measurement of Property, Plant and Equipment provides as per IAS 16. It ensures separate rules for accounting as per investment property in KGC Ltd. IAS 16 reveals cost model on PPE revaluation carried at historical cost. It sets upward assets revaluations in reporting international standards as appeared in the financial statements of accounting firms (Kester 2012).

Under the revaluation method, fair reveals valuation in determination of appraisal ways. It revaluates in case of assets belonging to KGC Ltd (Jones 2012). It is important to understand the fact that measuring impaired assets in outlining IAS 36 for future analysis purpose. It recognizes with recoverable amount of assets in carrying amount. Recoverable assets is higher in comparison with net selling price as well as value in sue. It based upon present value calculations in proper ways. Net selling price amounts for sale of assets as per arm’s length transactions for estimated pre-tax future cash flows (Horngren 2013). It addresses issues regarding assets useful life as well as subsequent disposal in the most appropriate way. It carries revaluation of decreased assets at revaluated amounts for the same.

Figure: Hierarchy of Accounting Qualities

(Source: Hendriksen and Van Breda 2012)

Merits as well as risks faced by KGC Ltd revolving around Triple Bottom Line

KGC Ltd faces risks and merits that describe separate financial, social as well as environmental bottom lines of companies. Triple bottom lines aims at measuring economic values of people account for future analysis purpose (Glautier, Morris and Underdown 2011). It measures KGC Ltd degree of social responsibility as well as company planet account. It measures company environmental responsibility at the same time. It is essential for KGC Ltd in preparing three bottom lines related with finances as well as giving consideration in social, economic as well as environmental impact. Triple bottom line intends in understanding the concept of sustainability goals in business practices in the most appropriate way (Freeman 2011). It helps in measuring profit relating economic values created by KGC Ltd as well as economic benefits surrounding community as well as society as a whole. It indulges in people at fair as well as favourable business practices in regard with labour and community in conducting business activities in proper ways. It challenges with triple bottom line as well as find it difficult in comparing people as well as planet accounts in terms of cash.

It is important to understand the fact that triple bottom line considers as the accounting framework in incorporating three dimensions of performance (Feldmann and Rupert 2012). It includes social, environmental as well as financial measures in the most appropriate way. It differs widely from traditional reporting frameworks as well as includes ecological attributes. It helps in social measurement that poses difficulty in assigning with appropriate means of measurement at the same time. It mainly practices in capturing the essence in sustainability of measuring the organization activities in and around the world (Estrada 2012). It enhances profitability as well as shareholders values in form of social, human and environmental capital in desired form.

It is essential in addressing the risk factors of KGC Ltd considering Triple Bottom Line concept. There is no particular universal standard method that aims at calculating Triple Bottom Line. It is neither universally accepted standards nor measures the TBL categories in any form (Dyckman, Magee and Pfeiffer 2011). It is viewed as strength for allowing users for adapting to the general frameworks for needs in different business entities. It includes different projects as well as projects in case of KGC Ltd. It measures economic attributes dealing in triple bottom line for the flow of money in an overall manner. It views as income or expenditures for taxes of business climatic factors of KGC Ltd. It deals with employment as well as business diversity factors in the most appropriate way. As far as environmental measures are concerned, it deals with representing measurement of resources of KGC Ltd. It reflects potential influences in its viability in case of KGC Ltd (Duska, Duska and Ragatz 2011).

Explanation of legitimacy theory nature as well as importance regarding KGC Ltd

Legitimacy theory in accounting is generalized perception or assumptions that act for business entity in appropriate and socially constructed system. Systems include norms, beliefs as well as values and definitions for the same (Devine 2012). KGC Ltd should legitimacy theory for carrying out the accounting and business activities in desired form. It is one of the cited theories within the social as well as environmental accounting areas in an overall manner. It involves deep scepticism among the researchers in offering real insights into voluntary disclosures of KGC Ltd. It address larger project in addressing the issues faced by KGC Ltd in association with legitimacy theory in the near future. It brings under recent developments in the management as well as ethical literature on legitimacy for business organization (Devi and Hooper 2011). It contributes with theory for accounting researchers in recognizable values for future analysis purpose. Legitimacy theory engages in considering powerful mechanism in understanding voluntary social as well as environmental disclosures in proper ways. Legitimacy theory faces some issues regarding contribution in accounting disclosures in specified time. Problem in the theory lies in applied range of theories as well as disciplines for the same (Deegan and Unerman 2011).

Figure: Layers of Legitimacy Theory

(Source: Deegan and Unerman 2011)

KGC Ltd should seek ways in establishing congruence between social values in association with valued activities in the near future. It includes two value systems for speaking on behalf of legitimacy theory. It involves in actual or potential disparity that exists between values systems in organizational legitimacy in proper ways (Berry 2011). It is argued that legitimacy theories examines relevant stakeholders as well as influences in the floe of resources in crucial organization establishment. It engages in direct control over the effective communication at the same time. It identifies four critical stakeholders of KGC Ltd that needs proper attention as far as possible. The state uses resources like contracts, grants, and legislation as well as regulation tax based upon implementation plan. Public comprises of patronage, support as well as labour. Financial community includes investment for KGC Ltd (Barnett 2012).

It is advisable to KGC Ltd in using legitimacy theory as it ensures continued inflow of capital, labour as well as customers. It ensures regulatory activities in the absence of legitimacy theory in desired form. It engages in further development as well as abstract constructions in the final legitimating process (Albrecht, Stice and Stice 2011). Researchers need to investigate in the flow of resources in and from organizational constituencies in case of content for communications.

Arguments regarding KGC Ltd using legitimacy theory or suffers loses in the particular theory

It is analyzed that KGC Ltd faces risk as well as consequences in implementation of legitimacy theory in business activities. In order to overcome loses; it is advisable to KGC Ltd in undergoing with phases at the same time (Spiceland, Thomas and Herrmann 2011). Organizational legitimacy theory suggest firm for undergoing four phases of legitimacy ways for future. In the first stage, it reveals about establishing legitimacy in the early stage of firm development in revolving around level of competence for future analysis purpose. It enables organization in awaring socially constructed standards for quality as well as desirability in performance. In the next phase, it includes majority of organization for activities includes ongoing role performance as well as symbolic assurances in the most appropriate way. It attempts in anticipating as well as prevention of potential challenges in legitimacy process in the near future. It revolves around maintenance of legitimacy as well as appearing issues at the same time. Legitimacy considers as dynamic construct. Community expectations considers as static ways for changing across time for required organization for responsive in the operational measures. Organization should be responsive to the environment in operational activities for the same. It accepts ways for loosing legitimacy in changed activities in making legitimate decisions.

Discussion on KGC Ltd restoring legitimacy including two types of stakeholder analysis

Stakeholder analysis helps in identification of project stakeholders of KGC Ltd. It aims at assessing interests in affecting project risk as well as validity in stakeholder capacity development for the same. It helps in assessing project environment as well as drawing interests of stakeholders (Spiceland, Thomas and Herrmann 2011). It relates with problems in seeking address in identification of conflicts of interest between stakeholders in an overall manner. It uses concept of stakeholder’s analysis like Right, Responsibilities and Revenue relationships in the most appropriate way. Rights involve access with usage of products. Revenues implements decisions as well as rules in procedures and indirect benefits. Responsibilities include stakeholders in case of conflict for one another in the most appropriate way.

Figure: Stakeholder Analysis

(Source: Spiceland, Thomas and Herrmann 2011)

It is important to understand the fact that stakeholder management proves as an effective management of relationships at KGC Ltd. Effective stakeholder management helps in positive association with financial performance as well as leads in shareholders’ value creation in an overall manner. It stated ways for stakeholder analysis for focusing on the core themes for the same. It requires identification of stakeholders as well as examining circumstances in the near future (Palaniappan and Hariharan 2012). It influences stakeholder analysis organizational decisions as well as operating in different strategies for dealing with shareholders of KGC Ltd. It indicates that firms needs to use innovative strategies in managing different stakeholders group. It includes organizational decisions as well as operations in identification of strategies in dealing with stakeholders for future analysis purpose.

Issues in stakeholder management

Stakeholder management approach helps in integrating managerial concerns like strategic management, marketing as well as human resource management and organizational management (Schroeder, Clark and Cathey 2011). It relates with important issues in development for strategies as well as handling potential conflicts in effective stakeholders of KGC Ltd. Issues includes relationship, communication, leadership as well as commitment and incentives in an overall manner. It involves in better corporations for stakeholders based upon understanding of successful factors for future analysis purpose. It needs proper attention for avoiding decisions as well as prompts stakeholders in addressing the objectives in the near future (Previts, Walton and Wolnizer 2011).

Explanation on General purpose of financial system in accordance with sludge spill in KGC Ltd

It is important to understand the fact that KGC Ltd should use General purpose of financial system for carrying out business activities in desired way. It is because cost of remediating sludge spill expects around $6 billion to $60 billion as per the outcome cases in the ecological group in Australia (Schroeder, Clark and Cathey 2011). It requires claiming for annual benefits in KGC Ltd operations based upon Star Mountain Range in offsetting harm for mining processing involving rare sludge skills in an overall manner. It is essential in using general purpose of financial statements because it issues throughout the year in aiding investors as well as creditors in final decision-making process. It is a set of financial statement including balance sheet, income statement and cash flow statement of KGC Ltd. It is the set of financial statements that will help in mitigating the issues regarding sludge spill from the past recorded activities. It is used by companies in communicating level of performance in and outside the organization in the most appropriate ways (Previts, Walton and Wolnizer 2011). It includes specific financial reports like production flow process as well as market analyzes in set of general purpose of financial statements in desired form. Creditors as well as investors shows interest in setting financial statements in helping predicting future performance of company. It helps in paying off current as well as future debts at the same time. It ensures outside users for gaining users financial information for outside in traditional purpose of financial statement (Schroeder, Clark and Cathey 2011).


From the above study, it is easy to understand the fact that KGC Ltd faces several auditing issues. It needs proper attention by the auditors as soon as possible. It clearly explains that KGC Ltd should use fair value of accounting for evaluation of PPE assets in desired form. This will help in ascertainment of future values as per the accounting standards. It explains qualitative accounting characteristics that establish fair value accountancy in dealing with several features like transparency, comparability as well as consistency at the same time. It clearly argues the importance as well as issues relating legitimacy theory. It is recommended to KGC Ltd in usage of legitimacy theory for future analysis purpose. It defines the triple bottom in respect to reporting approach with justification in the most appropriate way. It identifies the risk as well as stakeholder theory approach of KGC Ltd. At the end of the study, it restores the legitimacy theory and proves better for KGC Ltd in the near future. Last but not the least, it ensures that general financial reporting system helps in defending the problems faced by KGC Ltd.

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