(pdf) Advanced Financial Accounting Solution

1
By student name
Professor
University
Date: 24th May2018.
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Contents
ASSESSMENT PART A.............................................................................................................................3
ASSESSMENT PART B.............................................................................................................................5
ASSESSMENT PART C.............................................................................................................................6
ASSESSMENT PART D.............................................................................................................................7
References...................................................................................................................................................9
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ASSESSMENT PART A
The data that is revealed with the financial statements through the P/L Account, the balance sheet
and the cash flow statement helps the planner and the investors to lead the investment resolution.
Yet, the overall thing that is actually shown in the financial statements might not be of help to
the end users and might not seem to be required for the decision making causes (Bizfluent,
2017). It is necessary to guide the users of financial statements to provide them with proper
advice so that they can properly plan their investment and earn revenue. There are few minimal
financial and non financial data that is required to be a part of the financials so that taking
decision is easier. Few of the pre perquisites for these sort of information include:
1. Clarity: The data that is being stated and shown in the financial statements ought to be
transparent and should not lead to uncertainity in the mentality of the end user. It should
reflect single sense and the user should be able to make out and understand the
information in a better way.It should not be ambious, fake, incorrect, inaccurate, useless,
insensible, as well as needless. Here, user refers to the person having the basic
understanding of accountancy, finance, and tax, and also possesses the business intellect
and sagacity to study and understand the financial statements (Defond & Lennox, 2017).
Incase the information that is stated in the financial statements are unambigious, the user
would be able to conclude from the data stated and hold the decisions to spend or not. If
any part of the financial statements has information that is difficult, then the same shall
be carried on by the required notes and disclosures to escape uncertainity and
misunderstanding.
2. Relevancy: The information given shall be pertinent to the end user and should be adding
worth while in making decision. It should not be mentioned for the purpose of disclosure
and should not be unclear and needless as it objects the only objective of the conceptual
framework of accounting. The users of the financial statements should be conscious of
the knowledge that the huge and much quantity of information only consists of the
quality without adding worth. The information sought should be relevant as when
required and need not be doubtful. It shall reflect true and fair view and shall be helpful
for decision making for the investors. Hence, it should be clear, accurate, unquestionable
and the user should be capable to discover out correct and exact inferences out of the
same (Bae, 2017).
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3. Trustworthyness: The financial accounts of any company cannot be overall independent
from the mistakes and the distortion, yet, the same can be lowered so that the accounts
prepared reflects the correct sight to the end user. The information shall be such that it
shows its reliablility and accuracy. It should be certain and not fake. At the time of
preparing the same, personal interest and favouratism should be kept apart and it should
be prepared in its honest form. The users anticipate all the numerical data to reflect a true
and fair view of the accounts and if, any information cannot be quantified, proper
reasonning and disclosure should be mentioned in this regard. This not only enhanced the
investor faith but also made the non financial information capable for decision making.
4. Equivalence: In the current time, many users believe and hold decision on the basis of
the course in the financial data. It is utmost essential and pivotal to draft the data
equivalent for the term, for the separate organisations in the same industry or among the
divisions. The composition and manner of the financial statements should be made in
such a way that it leads the user to do trend analysis, variance analysis and do analytics as
against the benchmark companies. It shows how the company is operating at present, and
a complete analysis of the companies performance can be done nicely. The utmost
essential result of this action is that it enables the users to make out if the company is in
fixed status or it is growth status (Bromwich & Scapens, 2016).
On the basis of the above discussion on the approximate attributes of the financial statements, it
can be said that the present IFRS business reporting exercise do not comply to the same. This is
actually due to the disclosure and reporting necessity under IFRS are actually fixed and not
elastic, most of which has no sense in the context of investor. Also, the reporting and habits of
accounting being complex and hard, it makes perception a far yeild thing and needs a technician
to percieve and understand the same accurately. In summary, the usual investor would not be
capable to make decisions on the basis of the same (Belton, 2017). Hence, Mr. Bowen can be
said to be suitable and proper at the time of reciting “Once you get into the notes you have to be
technically trained. If you’re not, lot of it could be misleading”. Hence, the ideas in case study
are not in parity with the ideas that the financial statements gratify the main motives of finance.
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ASSESSMENT PART B
The Public Interest Theory: The name of the theory itself shows that this is for the common
people benefit and prosperity of the public at large. Its main motive is to resolve entire shown
issues for the common people and let out manners in which the loopholes in the system can be
abolished. Public interest theory main purpose is to resolve the issues of the internal as well as
the external investors of the company. Internal stakeholders is inclusive of individuals like the
personnels of company, the vendors and the suppliers, the investors, etc (Alexander, 2016).
however the external stakeholders is inclusive of the banks and financial institutions, the tax
authorities and the government, etc. The theory is based on the assumption that the imperfect
markets are under the control of the government but in real sense this is not the case and
businesses are being lent the chance to undertake resolution that matches the common need and
the purpose of the company. Hence, it can be said that the public interest theory has not be
proved in the above case where the government did not laid different laws and rules. In case the
government authorities would have taken into account the disclosure of social and environmental
attributes to be serious and huge at the time of reporting, they would have come up with few set
standard in this regard.
Capture Theory: The theory is based on the connection among the government, the industry
and businesses and the regulatory agencies held for implying and making laws. Market
comprises of entire above regulators and all the resolutions are made taking them into concern.
According to the given theory, the regulators of the law are required to frame the laws and
regulations keeping in mind the requirements and motives of all the above stated target groups.
The theory is set by the plan that few alterations and modifications can be made to match the
need of all the parties impacted by it. The resolution of the government of not to make any rules
and regulations shows that even this theory has not been implied. Also, where the government
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has not formulated any rules and laws in this contect then the question of altering it or making
changes to it becomes meaningless (Visinescu, et al., 2017).
Economic interest theory and regulation: This theory is made by the thought that the laws and
regulations come into force by the connection of the demand and supply forces. Usually,
government and the regulatory agencies comprise the supply side, and the common people
comprise the demand side of it. With this model, the laws and the code of conduct are being
made by the industry and it is implied to the whole area and all the companies. In this situation,
the government offers chance to all the businesses to undertake the resolution and there is no
external intrusion engaged. Hence, incase the government has undertaken the resolution of not to
imply any different legislation for disclosure of social and enrionmental duties being carried by
the companies, it needs to apply that the same has been considered in the common people favour.
The firms and businesses that meets the desires of individual will surely succeed (Vieira, et al.,
2017).
ASSESSMENT PART C
When the dissimilarities in IFRS and the local GAAP is now held upon, now one of the big
challenges being analysed is the adjustement of revaluation of assets. The argument is never
ending on the topic provided the truth, that revaluation of assets in permitted under the IFRS
standards and not under the local GAAPs. The resolution of revaluation of the assets relies on
the basis that how the accuracy and clarity of the financial statements are being impacted by
considering it into account. Usually, all the shareholders and especially the investors have
interest in understanding the true and the fair view of the assets present in the balance sheet and
hence from management perspective, it is now mentioned in the financial statements to achieve
the needs of IFRS and the conceptual idea but what is made here is relevancy and accuracy of the
disclosures that are given (Dichev, 2017). This is due to the fact that it is nearly difficult to
achieve at the exact worth as a number of computations and assumptions are being known and it
relys on individual to individual. The realizable value is the approximate of the currenr value of
future estimated cash flows and keeps on fluctuating on the basis of the variables like estimated
useful life left, the efficiency of the asset and the level of uncertainity engaged. In consideration
to entire above issues and loopholes, IFRS targets to remove the plan of revaluation of the non
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current assets. Also, it leads the impairment charges to be held into consideration necessarily and
setoff the same in the worth of non cureent assets as the same can be computed with accuracy
and can be easily scaled. Hence, it can be mentioned that the currently given rules targets at
meeting the requirement and worthiness with regards to the financial statements (Das, 2017).
ASSESSMENT PART D
The revaluation of the assets in the financial statements is usually done base on the of size of
company and its assets quantity.
a. There have been many never ending argunmens on the basis of revaluation of the fixed
assets but there are few organisations that do it and few who do not. In real life case, if
the asset is being valued, it results in modification of accountancy and financial
statements as a whole. Revaluation of fixed assets has a direct affect on the tax liability,
the future depreciation and the saved incomes (Farmer, 2018). It also may have an
reverse affect on the share prices for short time. Also, it gathers along with it much
difficluties and the requirement to mention the ground of the same in notes to accounts.
At the time of making revaluation, the carrying amount is setoff in a way such that the
whole category of the assets is being reflected at fair values. Futher, as a non cash item, it
does not have any affect cash flow wise, however it engages a lot of tough ways like
joining and discussing of difficult data for which professional assiatance may be needed
for and that may reflect in outgoing in cash. The outcome is that the recomputed amount
might yet not match with the exact market value. In case, shortening of all the above
stated toughness and hard work, the management of the company usually ignores to
recompute the plant and equipment and property.
b. Financial statements are usually a segment of the annual report and it shows a sensible
surity to the investors as well as the many shareholders that the same is showing a true
and fair view in the accounts. This shows for that the profit and loss account and the
balance sheet shall reflect the true and accurate numericals that can be assisted via
computations and notes on accounts. Also, in situations where the assets are now
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reflected at historical cost less depreciation and not at the fair values, it may not show the
accurate and correct frame and the worth may be different from the present market price.
This helps in showing information in report erroneously, in the financial statements
(Heminway, 2017). Another important attribute of this is that the equity is consistently
being recorded at the fair value and in many cases the assets are not recorded at market
values and will give the fake information to the investors and will lead in incorrect
computation of the debt equity ratio.
c. The decision to revalue the assets or not depends on a number of internal as well as
external factors. Not revaluing the assets certainly gives the wrong picture of the financial
statements and account balances but surely its affect on the stakeholders money cannot be
computed. Neither it has any imcoming or outgoing flow of money nor it has any affect
on the earning capacity of the business (Goldmann, 2016). Also, it may at the end,
enhance the saved revenue when the balance of the revaluation account is enhanced or
lowered and may show an affect that the shareholders’ wealth is affected, but the market
does not responds on such fluctuations and therefore, there is no making or destroying of
worth engaged in this.
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Bibliography
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411-431.
Bae, S., 2017. The Association Between Corporate Tax Avoidance And Audit Efforts: Evidence From
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Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
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Bizfluent, 2017. Advantages & Disadvantages of Internal Control. [Online]
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Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management
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Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science
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Defond, M. & Lennox, C., 2017. Do PCAOB Inspections Improve the Quality of Internal Control Audits?.
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Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
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Farmer, Y., 2018. Ethical Decision Making and Reputation Management in Public Relations. Journal of
Media Ethics, pp. 1-12.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, Volume 4, pp. 103-112.
Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and
Organic Documents. SSRN, pp. 1-35.
Vieira, R., O’Dwyer, B. & Schneider, R., 2017. Aligning Strategy and Performance Management Systems.
SAGE Journals, 30(1).
Visinescu, L., Jones, M. & Sidorova, A., 2017. Improving Decision Quality: The Role of Business
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