Financial Position and the Financial Performance

ACCOUNTING THEORY &
CONTEMPORARY ISSUES

Introduction
 Financial reporting is consisting of financial information disclosures to
various stakeholders about financial position and the financial
performance of organization over specified time-period.
 The stakeholders include creditors, investors, public, government
agencies, government and creditors.
 There is financial reporting frequency in case of the listed entities is
annual and quarterly. Usually, financial reporting is considered as the
end product of accounting.
 Reporting are vital and integral part of the organizational Accounting
and reporting system.
 However, considering various involved stakeholders and other
requirements of regulatory, financial reporting is vital and critical task of
the organization.

Relevance of “
Positive
Accounting Theory”
 PAT is described as prediction of actions as accounting policies
choices by the firms and the way firms responds to new proposed
accounting standards.
 The positive accounting theory came into practice for referring to
developed accounting theory and it was named by the Watt and
Zimmerman.
 It is concerned with explanation of accounting practices, the
designing of which is for explaining and predicting that entity will
not be using particular method (Sharma, Joshi and Kansal 2017)

Continued..
 There are two perspective of positive accounting theory.
 Efficiency Perspective: It has been argued from the efficiency
perspective of PAT that practices of accounting adopted by entity
are explained often based on the fact that such methods reflect
best underlying entity’s financial performance. The various
features of organizations are used for explaining that why entities
adopt methods of accounting such as goodwill. The entities adopt
particular method of accounting because it best reflects entity’s
underlying performance.

Continued..
 Opportunistic Perspective: This perspective of positive
accounting theory takes the consideration regarding firm’s
negotiated contractual arrangement and seeks for predicting and
explaining certain opportunistic behavior, which will occur
subsequently.

Implementation of IFRS
 IFRS has been adopted by Australia with effect from January 1, 2005.
 Further, in year 2015, AASB has commenced review of adoption for
assessing IFRS relevance to the Australia for profit as well as not for
profit reporting firms.
 The significant message identified as part of review includes that
process of transition has been smooth for almost most of the sectors.
 IFRS are suitable basis for developed standards of NFP by the AASB,
but there is requirement of further modifications relating to quality and
the cost-efficiency of the reporting.
 IFRS adoption across all sectors has enabled preparers and users for
moving between sectors and between the countries with the
transferable skills as well as knowledge.