Accounting Theory and Current Issues

This assignment covers various parts of the need for global financial reporting standards, the introduction of the Corporation Act, valuation of tangible and intangible assets, and leasing structure. It also discusses relevant theories and implications for companies.

Running head: ACCOUNTING THEORY AND CURRENT ISSUES
Accounting Theory and Current Issues
Name of the Student:
Name of the University:
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1ACCOUNTING THEORY AND ISSUES
Executive Summary
The aim of the assignment is to cover various part of the assignment in which we will be
covering various part in relation to the need of the global financial reporting standards. The
implication of the Corporation Act in the legislation and regulatory system were some of the
key points that were taken into consideration for the analysis. The revaluation of the property,
plant and equipment and there reporting at the financial report of the company were also
assessed. The intangible assets of Seek Ltd were analysed and the relevant information in
terms of valuation and impairments of the same was analysed.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Part A.....................................................................................................................................3
Part B......................................................................................................................................5
Part C......................................................................................................................................7
Part D.....................................................................................................................................9
Part E....................................................................................................................................10
Conclusion................................................................................................................................12
Reference..................................................................................................................................13

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Introduction
The assignment deals with covering various parts like the influence and the financial
reporting system used by most of the organisation for the purpose of presenting financial data
and information’s (Evans et al. 2014). The second part of the assignment deals with the
introduction and how the companies respond to social and environmental responsibilities.
The topic was supported with the base of three relevant theory and the application of the
same in the context of organisation. The third part of the assignment covered the valuation of
the tangible assets of the company such as the plant and machinery and the reporting value
used by them for reporting the assets in the financial statement of the company. The fourth
part of the assignment deals with the reported intangible assets of the company and the
valuation method applied for reporting the same (Schwartz 2017). The impairment method
applied in the context of the intangible assets of the company and the recognition or the
revaluation method applied by the company for the same were assessed. The leasing structure
followed by the company and how did the same impact organisations and companies globally
when the financial reporting standards hanged with respect to reporting of leasing according
to the IFRS 16.
Discussion
Part A
The fundamental qualitative characteristics of financial reporting of companies enable
the financial users get a wider base of financial report according to the predefined standards.
The need for global financial reporting standard has been expressed globally by many
organisation and institution so that the same brings uniformity in the financial reporting
framework (Liu et al. 2014). It is important for the companies and organisations that the
financial information and data presented by the companies should adhere to the financial

4ACCOUNTING THEORY AND ISSUES
reporting standards and must have relevant data and information’s which might be helpful for
the investors for assessing the financial performance of the company (McEnroe and Sullivan
2014). Relevance, faithful representation, verifiability and timeliness are some of the key
financial reporting characteristics for the companies. The introduction of the IFRS in the
financial reporting framework requires detailed explanations and disclosures about the
various accounts and assets of the company in accordance with the IFRS policy. The
reporting and the disclosures required by the accounting framework at some times become
difficult and complex which hampers the qualitative characteristic of the financial reporting
like understanding and verifiability. It is important that the financial information’s presented
by the companies should be clear and concise so that the financial report users can apply the
same in the context of investment decision (Bohušová 2014). The reporting standards and
requirement by both of the reporting standards in the way of classification and reporting of
the value of accounts in the financial report. The US Generally Accepted Accounting
Principle is governed by the Financial Accounting Standard Board, which sets up the
principle in context of the policies. Both the framework has defined disclosures and
requirement in which the companies and institutions need to report their financial information
in the annual report such the same can be applied for the purpose of comparability among
other players in the industry (Abdul-Baki, Uthman and Sannia 2014).
The views represented above has its own both pros and cons as the financial reporting
standard should be on a uniform basis that is a common financial reporting standard and
framework. The financial reporting standard such as IFRS requires certain disclosures and
classification so that the various financial data and information presented by the company can
be mapped easily by the users. The purpose of having a uniform and a standardized financial
reporting standard is that the same must allow the accountability and provides comparability
feature (Tai and Chuang 2014).

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Part B
Market forces or the stakeholders of the company are some of the crucial role playing
factors in a company. The amendment of the Corporation Act in the Act for companies and
organisations and the implications they would be having on the operations of the company
were some of the key points taken into consideration. The introduction of the new legislation
or the Corporation Act and its implications on the overall market was taken into account for
discussing the potential changes in the market itself. The impact of the introduction of the
Corporation Act or New Legislation has been well taken into account with the help of the
three relevant theories like Public Interest Theory, Capture Theory and Economic Interest
Group theory and regulation (Cheng, Ioannou and Serafeim 2014).
A) Public Interest Theory
The public interest theory of regulation explains the general terms which aims at
protecting the society and the public at large. The theory aims at allocation of resources for
individuals and collective goods. The concept of modern economy focuses and emphasizes
on the fact that the scarce resources of the economy should be allocated properly so that the
utilisation of the same can be done efficiently for the betterment and welfare of the people.
The regulation focuses on improvising the allocation of resources of the company
(Rosenbloom 2016). The public interest theory can well be related to the above regulation or
the legislation act where the introduction of the Corporation Act will though benefit the
society and public. The introduction of the Corporation Act will benefit the stakeholders and
the society at large where the organisations and companies will need to follow specific
guidelines and regulation. However, it should also be understood that the companies and
organisation knows the key stakeholders and the economic benefit that should flow to them
so that they are not negative affected by the operations of the company (Grunig 2017). Thus,
it is important for the companies to analyse various factors and conditions under which the

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operations of the company is dependent and the effect of the same on the operations of the
company. The influence of the operations of the company and the benefits of the same
flowing to the society at large are some of the crucial part that the public interest theory deals
(Harker, Mahar and Wilkes 2016).
B) Capture Theory
The Capture theory shows the risk associated with a organisation or a company in
respect to some factor or point. The capture theory can well be explained when the regulatory
agency or the government institution fails to act or create regulation in the interest of the
public or society (Gans and Ryall 2017). The capture theory shows the dominance of the
political and commercial organisation, companies and institutions dominance on the industry
and the regulatory agency where the operations of the company is dependent. The capture
theory can well be related to the above introduction of the Corporation Act in which the
benefit flowing to the society is important but the same is not getting implemented due to the
decision made by the regulatory agencies in terms of the cost that will outweigh benefits to
the society according to the regulatory agency. The Capture theory shows the dominance risk
or the risk of the legislation in association with the society and the implication of the same.
Legislative and regulation act should be such that the same benefits the society at large. Thus,
it is crucial that the Corporation Act, which is thereby going to introduce should be such that
the same is beneficial to the society and the stakeholders of the company (Yildirim 2018).
c) Economic Interest Theory of Regulation
The economic regulation or the regulation in accordance with the law which is
implemented by the law and the independent administrative process could help remedying the
market failure, protecting and implementing various programmes in relation to the
environment (Hefeker 2018). The central planning is the key approach that is implemented

7ACCOUNTING THEORY AND ISSUES
and the key purpose is remedying the market failure and protecting the environment. The
economic interest theory can help access and develop a well connecting firm which benefits
the politicians. The economic interest theory of regulation can be well linked to the
Corporation Act which defines the need and the regulation of the operations and the role and
responsibility of the companies towards the stakeholders of the company.
Part C
The tangible assets of the company are reported at the cost value and the impairments
and revaluation of the asset at the same time needs to be done for assessing the economic
viability and fusibility of the same.
a) The revaluation of a property is usually done for checking the economic feasibility
and viability of the asset taken under consideration. The management of the company usually
do not revalue the tangible assets of the company and report the same under the cost value or
the book value in the accounts of the company. The tangible assets of the company are
usually taken into consideration for utilizing the asset over the due course of the business.
The assessment and the revaluation of the property are done when the value of the asset
fluctuates often and the economic cash flow flowing to the company slows down (Demerjian,
Donovan and Larson 2016). The reason behind not revaluing the key tangible assets of the
company is that the value of the assets of the company are usually stable in nature and the
classification of the assets re generally in the form of held till maturity. Assets held and
classified as available for sales and held for trading are generally taken into consideration for
the purpose of frequent revaluation and reporting the fair value of the assets. The assets are
generally used for the operations so that the same can be used by the companies for the
purpose of expanding the operations and business of the company (Chircop and Novotny-
Farkas 2016). Thus, this is the key reason and motivates the directors for not revaluation of
the property because of the value in use that is applied by the company.

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b) The financial statement of the company must reflect the true potential value of the
company that should be relevant and faithful so that the financial users of the company can
use the same for decision-making process. The assets of the company should reflect the true
potential value of the company and the same reflects material information has been reported
in the financial report of the company. The reporting of the historical or cost value of the
assets instead of fair value of the company will overestimate the value of the assets of the
company and will not reflect the correct information about the company. The assessment of
the fair value will be solely dependent on the costing and valuation approach followed by the
company. The financial statement of the company may not present material faithful
information about the company (Magnan, Menini and Parbonetti 2015). The assets of the
company should be classified according to the nature and classification of the asset such that
the same will be beneficial for the company implementation of the investor’s decision. The
aim of having a relevant and a faithful financial reporting should be such that the financial
report reflects all possible and current information about the company.
C) The decision for note revaluing the property, plant and equipment of the company may not
adversely affect the wealth of the shareholders as the shareholders of the company. The
financial information presented by the company represents the key financial data and the
details presented by the companies are evaluated and applied in the context of the marking
the financial performance. The assets of the company should be valued at the fair value as the
same is necessary so that the financial statement of the company is relevant and gives a
faithful representation of the shareholders of the company. If the assets of the company are
not reclassified the same may affect the wealth of the shareholders of the company where the
wealth of the shareholder’s may be overstated by the company (Xie 2016).

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Part D
i) The company selected for the assessment of the impairment of the assets of the company
was the Seek Ltd. The asset that the firm has tested for the impairment was the investment in
companies. The company impaired investment in Babajob Company, which is made in the
financial year 17-18.
ii) The impairment testing was conducted by the firm after assessing the economic benefits
and cash flowing to the company. The cash flowing to the company was discounted at the
discount rate, which is the risk premium rate that is taken by the company for the analysis of
the cash flows (André, Dionysiou and Tsalavoutas 2018).
iii) Seek Ltd reported an all total of 16.1 million as the impairment charges and the same was
assessed after taking into the fair value and the reported value of the investments that were
made by the company (Banker, Basu and Byzalov 2016).
iv) The key estimate that were applied by the company in conducting the impairment testing
was the fair value method. The asset is also reviewed annually for the impairment of the asset
by taking the fair value and cost value of the asset into account.
v) There were no subjectivity or bias found in the impairment testing process and the
company has followed all the accounting policies and procedures for the reporting of the
intangible assets (Linnenluecke et al. 2015).
Subjectivity in the accounting policies and framework can result a significant bias
report that are presented by the companies based on financial reporting for the company. The
company may not asses the fair value of the asset if the value of investment falls below the
book value of the assets.

10ACCOUNTING THEORY AND ISSUES
Part E
i) The Chairperson of the IASB did believe that the former accounting standard did not
reflect economic reality as the accounting of the operating leases in the financial report of the
company was not viable. The operating lease through which the company used to lease the
assets of the company were reported as off balance sheet financing of the company. The
operating lease had real liabilities, which the companies needs to pay and the same time the
assets of the company were found not be reported in the balance sheet. The company does the
off balance sheet financing that for the financing of the assets of the company understates the
liabilities of the company and overstates the operational efficiency of the company. The
revenue of the company and the operational efficiency of the company is overstated which
may lead to the wrong decision that may be taken by the investor for the purpose of the
financial performance of the companies. The flaws reported above like relevance and faithful
representation of data are some of the crucial issues that needs to be dealt which would help
the company in the financial reporting (Caster, Scheraga and Olynick 2018).
ii) The previous accounting policies that are used by the company for the reporting and
recording of the operating lease for the company were not properly recorded in the financial
statement. The off balance sheet financing which the company used to conduct for talking the
assets of the company on an operating basis were not recorded as asset side and the liability
of the same side were also recognized. In the case of operating lease, the ownership of assets
does not transfer where the company does not recognize the assets of the company. However,
the liability of the company in respect of the lease assets is to be beard by the company,
which create a charge and a increase in the liability of the company in the form of operating
lease that will be paid by the company. The operating lease will be paid by the company on
an unrecognized asset base and upon the assets, which the company actually does not own.
The increase in the debt of the company up to 66 times greater than the assets were when the

11ACCOUNTING THEORY AND ISSUES
operating lease of the company were recognized in the balance sheet of the company which
made the company lead recognize debt in the financial report of the company. Debt
recognized were quite larger than the overall assets of the company disrupting the financial
position of the company (Giner, Merello and Pardo 2018).
iii) The former operating lease that were used by the company did not create a level playing
field in the industry as there were many companies which did not recognized the leased assets
on the financials report of the company. There were many companies who were having a very
large amount of assets base that were used by the company in the form of operating lease.
The application of the same lead to a fall in the recognized assets of the company and at the
same time a significant amount of revenue in the company. The comparison feature was not
applicable in the case of financial reporting where some companies had there major assets on
a lease basis and some had on an ownership basis. The comparison of the financial
performance between these companies were not justified as the revenue earned by the
companies were not in comparison with other companies who were having a large base of
recognized assets in the financial statement of the company. The qualitative characteristics of
the financial reporting should be such that it provides the financial users with all the
information regarding investment.
iv) The new accounting standard will not be popular with everyone as the cost that will be
incurred by the company for changing the accounting reporting and lease reporting will
change where the company will be reporting the operating lease in the financial statement of
the company. The operating lease of the company will be recognized in the financial
statement, which may not be popular in the case of small industries and costs that would be
required for the same.

12ACCOUNTING THEORY AND ISSUES
v) The new visibility of the leases will be reporting the operating lease in the financial report
of the company and the same would result in the increase in the financial report of the
company. The accounting for operating lease in the financial statement of the company will
provide a comparison feature, which will help the investors in getting better financial data
and performance assessment for the company.
Conclusion
The Assignment has covered various topics where the analysis of the various accounts
were covered for the purpose of the analysing the same. The need for a global financial
reporting standard and the requirement desired by the same was discussed. The implication of
the new legislation and the impact of the same on the stakeholders of the company were
discussed. Revaluation of tangible and non-tangible assets of the company was also discussed
for the company. the implication of the operating lease and the reporting of the same in the
financial report of the company were some of the crucial part that were discussed in the
annual report of the company.

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15ACCOUNTING THEORY AND ISSUES
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