Accounting and Society: Enhancing Financial Reporting and Organizational Legitimacy

Running head: ACCOUNTING AND SOCIETY
Accounting and Society
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1ACCOUNTING AND SOCIETY
Table of Contents
Section A:........................................................................................................................................2
Answer to Part (a):.......................................................................................................................2
Answer to Part (b):.......................................................................................................................3
Answer to Part (c):.......................................................................................................................4
Section B:.........................................................................................................................................5
Answer to Part (a):.......................................................................................................................5
Answer to Part (b):.......................................................................................................................6
Answer to Part (c):.......................................................................................................................7
Answer to Part (d):.......................................................................................................................9
References:....................................................................................................................................11

2ACCOUNTING AND SOCIETY
Section A:
Answer to Part (a):
After critical assessment of the article, it is inherent most of the global nations have
adopted “International Financial Reporting Standards (IFRS)” for their financial reporting
purposes. The primary aim of IFRS is to develop a common international language in relation to
business affairs along with assisting in readability and comparability of the company accounts
(Intheblack.com 2018). The IFRS standards have been a mechanism in facilitating the flow of
debt and equity capital within and throughout the international economies. In this regard, Warren
(2016) remarked that IFRS would result in rooms to manipulate accounting numbers, since IFRS
is a principle-based set of standards. In other words, IFRS increases the creativity of the
managers in using professional judgement, which would minimise comparability, flexibility,
reliability and relevance of financial information.
The article identifies that the role of professional judgement is significant in numerous
short-term estimates that comprise of bad debt provisions, deferred revenues along with
valuations of inventory and income tax. Similarly, professional judgement is needed for long-
term estimates like impairment of assets, costs and liabilities of retirement benefits and deferred
tax. Another dominant feature of IRS is fair value accounting, which is subjective in nature.
Hence, the formulation of reliable measures of fair value could be challenging in few emerging
nations, in which the necessary information might not be readily available. Hence, it could be
stated that IFRS is yet to deliver its promise of enhancing financial reporting.
There are some suggestions laid out in the article for developing an effective financial
reporting system, which are enumerated as follows:

3ACCOUNTING AND SOCIETY
 A capable and well-trained audit profession
 Segregation between corporate taxation and public financial reporting system
 Corporate governance and ownership structures promoting legitimate demand in relation
to trustful public information
 An independent legal system in order to identify and penalise fraud, failure and
manipulation to adhere to accounting and other disclosures
Answer to Part (b):
According to the provided article, it has been identified that two US academics have
stated that the usefulness of the financial information is fading for the investors. According to
their research, Tesla listed on NASDAQ stock exchange has not made any profit; however, in
2017, the investors purchased its battery visions and futuristic electric car have driven its market
capitalisation above General Motors. This is further supported on the part of Amazon, Tesla and
Google that information like balance sheets, cash flow statements and income statements have
fading benefits, since the investors could access information from other sources, which could
drive the share prices quickly (Intheblack.com 2018). Thus, traditional accounting fails to
capture the actual value of the organisation.
However, according to the research work of three Australian academics, shareholders’
equity and net income are still pertinent in order to undertake investment decisions, which would
remain constant with the passage of time. The net income and shareholders’ equity are included
into the share prices of the organisations and it has been argued that the value of an organisation
is within its strategic and value-enhancing sources (Pelger 2016). Considering the example of
Tesla, the US academics have argued that more emphasis is placed on the increased value of
intangible assets.