Audit Quality and Assurance Standards

This assignment delves into the critical concepts of audit quality and assurance in the context of financial reporting. It examines various issues related to audit quality, including the impact of estimation uncertainty on fair value measurements and the role of regulation in ensuring high audit standards. The discussion also encompasses the challenges posed by competition in the audit market and the importance of user perspectives on corporate social disclosures. Students are expected to analyze relevant research articles and online resources to develop a comprehensive understanding of these complex issues.

ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1) Evaluation of Net Realizable Value measurement model..................................................1
2) Evaluation of Fair Value measurement model...................................................................3
3) Discussing institutional that has impact on financial reporting in the context of Richtrend. .4
4) Discussing social culture that has impact on financial reporting in the context of Richtrend6
5) Recommendations after concerning implications of differences between IFRS and US
GAAP.....................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
In the recent times, accounting has gained high level of importance which in turn helps in
presenting as well as recording the transaction in an effectual way. Now, each and every business
unit prepares statements by following the rules of IFRS and UK GAAP. Both such accounting
standards are highly significant which in turn helps in presenting the fair and reliable view of
financial information. Besides this, IFRS and US GAAP assists in including the feature of
standardization and comparability in final accounts. The present report is based on Rich trend
Bhdis which is one of the leading well diversified multinational corporations of Malaysia. On the
basis of given case situation, such business unit has purchased two smoothies brand related to
orange and mango flavour. In this, report will provide deeper insight about the financial
reporting and accounting measurement issues which are facing by the firm. It will also shed light
on the institutional and social cultural factors that affect the aspect of financial reporting.
1) Evaluation of Net Realizable Value measurement model
There are several number the models and theories which are supportive for the individual
and company at the time of purchasing new firm and equipment. By adopting such kinds of the
models the management easily able to derive that in the market up to which extent particular
asset or firm has the value. In the present study Richtrend Bhd is going to purchasing two new
businesses which are like Mangoes and Orangees which are operating in the food industry. At
the time of taking decisions to buy such things it is highly necessary to determine value of the
provisions, assets and liabilities up to the greater level (Birkey and et.al., 2016). For this one of
the best measurement tool is net realizable value (NRV) through which tangible and intangible
both kinds of the assets can be valued properly. With the help of this particular model, company
can analyse value of current assets and liabilities due to having nature of cash convertible. Apart
from this, it is generally used by the individual for making valuation of the accounts receivables
as well as the stock available within workplace.
By adopting this particular model of value measurement, Richtrend Bhd can assess that
historical and current cost of such both the recognised companies is at the which level. After
making the valuation analysis the potential purchaser would be easily able to take final business
decisions in the fruitful manner. In generally, when historical value is lower in comparison to the
present then it can be said that its value increasing from the past year. Therefore, it can be
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assumed that, it will become more costly in the future by which it able to charge higher prices
and generate more profit at the end of year (Measurement Bases for Financial Accounting –
Measurement on Initial Recognition, 2015). In this model of measurement, the accounts
receivables amount is converted into the form of cash at the time paying outstanding invoices by
the consumers to the firm. Along with this, in order to analyse the NRV various allowances for
the accounts of doubtful are also taken into consideration.
In both the potential firms like Mangoes and Orangees, stock or inventory is available
which is a part of the current assets and easily convert into the liquid form. NRV is the best
method and tool for making analysis of the stock valuation which is supportive in terms of taking
purchasing decisions. In the country like Brazil also, this specific measurement model is adopted
and used for making analysis of the cash convertible assets and liabilities (Bowling, 2014).
Further, if values of the Mangoes and Orangees both the enterprises are high and profitable for
the future then buying decisions of these firms will be the most fruitful.
For making calculation of the NRV there are basically two concepts are considered by the
accounting framework which are such as inventories and accounts receivable. Moreover, the
expenses which are considered while deriving the NRV of stock are such as completion,
exchanging or transporting as well as the selling or disposing of the inventory (Wong and
Millington, 2014). The particular formula which is used in order to perform computation of the
NPV is such as follows:
Net Realizable Value = Stock market value – Expected cost of completion and sell of
goods and services
At the time of making valuation of assets and liabilities of both potential brands like
Mangoes and orangees, Richtrend will use net realizable value model. In this one issue arise
which is that, such both brands belong from different country due to which measurement
methods also differ. The Richtrend has to follow rules of both the countries and in order to
resolve this particular issue, he uses NRV method which is at the international level.
The NRV model of assets and liabilities measurement comes under the International
Accounting Standards which is part of International Financial Reporting Standard. By taking
help of this particular model, Richtrend able to resolve issue of measuring these both the
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financial aspects. Hence, after taking into consideration to the NRV model which is framed by
IFRS the company report issue of assets and liabilities measurement up to the greater extent.
2) Evaluation of Fair Value measurement model
Another model which is helpful in terms of making valuation of the potential both the
businesses is like Fair Value. According to the US GAAP theory (FAS 157), the price which is
received after making sell of particular asset and equipment or paying in exchange to the liability
is known as the fair value (What is fair value?, 2014). When the individual is going to sell an
asset and transfer or purchase the liability then uses this particular measurement model as it is
one of the best and highly effective. In addition to this, it is highly supportive for the future
scenario up to the greater extent and company able to earn profit as well. From this Fair Value
measurement model, the potential buyer of Mangoes and Orangees firms like Richtrend Bhd able
to know values of property, machinery, Plant as well as the equipments up to the higher level. As
per the IFRS rules and regulations, it is one of the best measurement tool for making valuation of
the assets as well as commodities. Both the potential entities have the kitchen equipments,
cooking machineries and plant as well which can be easily values with the help of Fair Value
model in appropriate manner (Chou, 2015).
The Richtrend Bhd has to use mainly two aspects at the time of making valuation of such
kinds of assets like equipments, property etc. which are such as cash price and carrying expenses.
As per the authority frameworks, when two parties going to exchange assets and businesses
between each other, then the amount of exchanging is known as the fair value. In addition to
make valuation of the firms and various fixed assets, Fair Value concept or model is used to
determine values of the commodities as well. Further, if the Mangoes and Orangees businesses
have shares or commodities and purchased from the stock market, then also Richtrend Bhd able
to determines their fair value appropriately (Pitt, 2014). There are different kinds of the formulas
used to make valuation of the assets and shares using Fair Value model. Moreover, the methods
and formulas are stated below:
Fair Value = Cash price + cost of carrying
Fair Value = Cash [1+r (x/360] – Dividends
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The first method is used at the time of making valuation analysis of the stock or shares in
which dividend amount is also taken into account. Further, the amount which is provided by the
company to its shareholders from the profit generated is called as the dividend.
The company should measure assets and liabilities of Orangees and Mangoes brands
using fair value model. As per the international accounting standards and IFRS, the Richtrend
needs to include two types of incomes which are like economic and accounting which earned at
the end of fiscal year. Along with this, at the time of applying this measurement model within
workplace the management should use other various financial elements. Further, aspects need to
consider are like goodwill, debt, provisions, reserve, intangible assets and working capital (Fair
Value Measurement, 2015). Sometimes, the firm needs to keep in mind taxation amount and its
policies as well because this will support to evaluate values in proper direction.
Moreover, the firm should measure business valuation using fair value model in both
context like cash and dividends. The reason is that, it will support to analyse internal and external
both business valuations in appropriate way.
3) Discussing institutional that has impact on financial reporting in the context of Richtrend
When the company is going to do financial reporting of various transactions and aspects
then several kinds of things affect up to the great extent. The present study reflects that, in which
ways institutional lead to create impact on the financial reporting system when Richtrend Bhd
going to purchase both new businesses like Organees and Mangoes. There are several numbers
of the institutes which create major impact on the respective concept up to the greater extent due
to using different methods. It can be said that, accounting institutes of different countries follow
various kinds of rules, GAAP theories and standards (García and et.al., 2014). Therefore,
reporting of the financial concepts as well as the transaction affected at the international level.
The reason is that IFRS has the same standards and rules for all the countries in order to make
adjustments and treatments in the financial statements. In the present study, firms of the two
countries included which are such as Shanghai and Malaysia.
Moreover, in these both the countries there are accounting institutions available which
follows different kinds of methods and formates in order to prepare the final accounts like profit
and loss, cash flow, balance sheet etc. Along with these all aspects, accounting standards,
principles, GAAP theories and treatments also differ in various institutions up to the higher level.
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In this study the Richtrend Bhd has to use two different formates to prepare financial statements
which are of the Shanghai and Malaysia (Glover and et.al., 2014). Moreover, the IFRS cannot
understand both the reporting systems in appropriate manner because this particular international
framework also use the another one method. Henceforth, it can be clearly said that the financial
reporting method affects from the different institutions.
Apart from this, adjustments under the statement of income or profit and loss are not
same and equal. For example: if accounting institute of the Shanghai country use going concern
principle in order to make treatment of the depreciation amount at the end of a fiscal year then it
needs to follow same method at every period. On the other hand side, in the accounting
frameworks of Malaysia it is necessary to adopt consistency principle then financial treatments
differ. Due to these all the things, financial reporting system of the international authority affects
up to the higher level. Therefore, the proper and adequate performance in terms of financials
cannot analysed and measured by the company (Kend, Houghton and Jubb, 2014). Due to this
particular accountable factor the management or Richtrend Bhd not able to make effectual
strategies. Along with this, proper and fruitful business decisions hamper up to the highly greater
level.
Further, due to differing accounting standards, treatments, adjustments as well the GAAP
theory, the financial statements cannot prepare in the same and appropriate manner. In addition
to this, language of different institutions is also one of the major factor and aspect which create
high influence on the existing financial reporting system. At the time of publishing at the
international level, the language and formate must be same but at the present project it differs.
The reason is that one company adopts rules and standards of the Shanghai and other follows
Malaysian accounting principles as well as theories. Henceforth, while reporting at the
international level modifications and changes have to made in the prepared financial statements
(Chambers, 2014). Further, it will take more time to convert in one method and formate which
lead to reduce efficiency as well as productivity of accounting workforce or manager. After
making analysis of such all the factors and aspects of the institutional, smooth system of the
financial reports affects up to the higher extent.
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4) Discussing social culture that has impact on financial reporting in the context of Richtrend
From assessment, it has been identified that institutional and cultural aspects have greater
influence on the reporting aspect of Malaysian firms including Rich trend. Moreover, Malaysia
may be presented as multi-ethnic society whose economy is dominated by Chinese and Malays
politics. Cultural development is visualised as significant factor in the development of
accounting and financial reporting such as in the preparation of financial statement and its
presentation. Company deals in two drink products that is orange and mango drink (Knechel,
2016). It is realise that accounting is affected by various Culture factors such as:
Individuality/collectivity: It shows the parameter to which people like to live work as individual.
Masculinity/femininity: It shows the range to which male or females are preferred.
Cultural differences within the country describes international difference in the
perception of accountant and in their profession. After second world war accounting
harmonisation came as a need of economic integration and enhance business across the coutry.
Various efforts were made and continue to be made in order to reduce differences in accounting
principles of a country.
For the purpose of having a standard financial reporting, International financial reporting
standard came in force in 2001. IFRS helps company to follow standard pattern for accounting so
people from any country can easily understand the financial position of a company (Lau, 2016).
It is noticed that when environment of accounting and financial reporting is considered then it is
essential to identify various factors: such as legal and tax system, corporate financing as
compared to cultural values. It includes social values and assumptions that drive institutional
practices. External factor also affects the way of financial reporting and accountancy profession
that a particular country follows.
5) Recommendations after concerning implications of differences between IFRS and US GAAP
In order to prepare financial statements of the company there are several kinds of the
theories and accounting standards, principles, treatments etc. available. Further, these are on the
basis of national and international level as well as differs with each other (Christensen and et.al.,
2012). In the present case, IFRS stands for the International Financial Reporting Standards
whereas GAAP stands for the Generally Accepted Accounting Principles. In the IFRS, the
inventories are valued with the help of LIFO method and as per the US GAAP firm can be use
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either LIFO or FIFO method. Due to this factor, the IFRS is the best method for making stock
valuation of Mangoes and Organees businesses for Richtrend Bhd.
Apart from this, under the consolidation, the IFRS adopts control model or approach
whereas US GAAP relies on the risks-and-rewards model. When talking about the income
statement then, IFRS not makes segregation of all the extraordinary aspects of the profit and loss.
On the other side, US GAAP reflects such items after the net income value (Forgeas, 2013). In
addition to this, costs of company's development are to be expressed with the capitalised whereas
in the IFRS and under the US GAAP these are treated as an expense. After making differences
among IFRS as well as US GAAP it can be said that, International Financial Reporting Standard
is the best and highly effective method for the Richtrend Bhd in comparison to the other stated
accounting theory. Henceforth, it can be recommended to the Richtrend Bhd that, it needs to
adopt the IFRS concept and ignore the US GAAP.
CONCLUSION
From the above report of accounting it can be summarised that, different kinds of
measurement models and approaches supportive for the individual or firm in order to make
valuation of initial recognition. In the present study Fair Value and Net Realizable Value (NRV)
are the best measurement model for analysing assets, liabilities., plant, property and equipments
valuation up the greater extent. Further, it has been concluded that by employing IFRS and US
GAAP Rich Trend can prepare suitable statements. Besides this, it can be inferred that company
needs to keep in mind social and institutional factors while preparing final accounts. The reason
is that, at the time of publishing and reporting financials as well as final accounts these both the
aspects create impact up to the higher level. In addition to this, it can be said that, IFRS is one of
the best tool for the Richtrend Bhd which helps to prepare effective and appropriate financial
statements. Henceforth, it can be suggested to the Richtrend Bhd that, it should adopt accounting
principles, standards and theories of IFRS rather than US GAAP.
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REFERENCES
Books and Journals
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reputation? An examination in the US context. In. Accounting Forum. 53(4). pp. 143-152.
Bowling, A., 2014. Research methods in health: investigating health and health services.
McGraw-Hill Education (UK).
Chambers, A., 2014. New guidance on internal audit–an analysis and appraisal of recent
developments. Managerial Auditing Journal. 29(2). pp. 196-218.
Chou, D. C., 2015. Cloud computing risk and audit issues. Computer Standards & Interfaces.
42(3). pp. 137-142.
Christensen, B. E. and et.al., 2012. Extreme estimation uncertainty in fair value estimates:
Implications for audit assurance. Auditing: A Journal of Practice & Theory. 31(1). pp.
127-146.
García, F. J. and et.al., 2014. Usalpharma: a cloud-based architecture to support quality
assurance training processes in health area using virtual worlds. The Scientific World
Journal. 56(5). pp. 876-904.
Glover, S. M. and et.al., 2014. Auditing & assurance services: a systematic approach. McGraw-
Hill Education.
Kend, M., Houghton, K. and Jubb, C., 2014. Competition issues in the market for audit and
assurance services: are the concerns justified?. Australian Accounting Review. 24(4). pp.
313-320.
Knechel, W. R., 2016. Audit quality and regulation. International Journal of Auditing. 20(3), pp.
215-223.
Lau, T. K., 2016. Commentary on Down syndrome screening in China. BJOG: An International
Journal of Obstetrics & Gynaecology. 123(3). pp. 30-30.
Pitt, S. A., 2014. Internal Audit Quality: Developing a Quality Assurance and Improvement
Program. John Wiley & Sons.
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Wong, R. and Millington, A., 2014. Corporate social disclosures: a user perspective on
assurance. Accounting, Auditing & Accountability Journal. 27(5). pp. 863-887.
Online
Fair Value Measurement, 2015. [Online]. Available through:
<https://assets.kpmg.com/content/dam/kpmg/pdf/2015/12/fair-value-qa-2015.pdf>
[Accessed on 8th August 2017].
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<http://www.ifrs.com/overview/general/differences.html> [Accessed on 26th July 2017].
Measurement Bases for Financial Accounting – Measurement on Initial Recognition, 2015.
[Online]. Available through:
<http://www.aasb.gov.au/admin/file/content105/c9/IASB_Canadian_MM_paper.pdf>
[Accessed on 26th July 2017].
What is fair value?, 2014. [Online]. Available through:
<http://www.accaglobal.com/in/en/member/discover/cpd-articles/corporate-reporting/fair-
valuesgp.html> [Accessed on 26th July 2017].
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