Accounting Theory: Pioneer Credit and Accounting Standard Violation

This article discusses the issues of respective accounting standards about the financial activities of credit management companies by ASIC, focusing on Pioneer Credit. It also highlights the violation of accounting standards by Pioneer Credit and the identification of accounting theories related to accounting regulation and politics, standard setting process, and professionalism and ethics in accounting.

Accounting Theory
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Table of Contents
Question 1.............................................................................................................................................3
Pioneer Credit....................................................................................................................................3
Accounting Standard Violation......................................................................................................3
Identification of accounting theories.............................................................................................4
Summary.......................................................................................................................................5
Question 2.............................................................................................................................................5
ED 2018/2..........................................................................................................................................6
Feedback on questions..................................................................................................................7
Behaviour of Regulator..................................................................................................................8
Theory of Regulation.....................................................................................................................8
Bibliography.........................................................................................................................................10
Appendices: Comment Letters............................................................................................................12
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Question 1
Pioneer Credit
This discussion refers to the report: ASIC kept watch on Pioneer Credit for 12 months, by
James Frost, as published in the news paper, Australian Financial Review on 3rd April, 2019.
(Frost, 2019)This report emphasized on the issues of respective accounting standards about
the financial activities of credit management companies by ASIC. For this purpose, the
regulatory body was involved in discussions with Pioneer Credit from November, 2017. But
recently the company was not contacted for last year to let them know the respective
concerns, which is observed by Australian Financial Review. (Aubin, 2019)
A representative of ASIC had confirmed their meeting with the company in October 2018
after observing its statements revealed in 2017-18 annual report. That report had reiterated
that the company had not planned to change the practiced valuation method, which is
controversial in nature. Then the ASIC had taken the issue to the attention of ASX and the
auditor. (Soderlin, 2012)
ASIC had expressed their concern through the statement highlighting the raising of question
with the respective company as part of the regular and routine procedure of surveillance of
financial reports followed by waiting for reciprocation form the company on the subject.
As per the initiative of the Australian Financial Review, some documents were obtained and
those documents had revealed the fact that ASIC was well aware of these concerns about the
operational procedure of Pioneer Credit along with the ambiguous valuation method one year
before, when the ASIC had asked for whistle-blower to gather more information in
November 2017.
Accounting Standard Violation
To evaluate any assets or liabilities for business entities, fair value measurement is prescribed
by AASB 13 – Fair Value measurement. Fair value measurement is set with measurement
based on market and does not permit the application of measure which is set by specific
entity. The concept of fair value measurement is depending upon available data of identified
transactions in the market and respective information available in the market. The objective
of fair value measurement is to ensure the estimation of the price, which may justify
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respective transactions for any transaction of assets or liabilities by the participators of the
market on the date of measurement with prevailing market condition. (Standard, 2015)
Pioneer Credit followed the valuation method which is named by them as fair value
measurement. But this measurement is done by the company itself, without considering the
conditions of market situation and other pre-conditions prevailing in the market for acquiring
the debts from the banks and other financial institutions. The process of amortised cost
system endorsed by AASB 9 is more authentic in this aspect by considering impairment of
values of those debts procured from market. (AASB, Financial Isntruments AASB 9, 2010)
This procedure of valuation is also endorsed by Deegan in his book, Financial Accounting
Theory (2014); 4th edition. He emphasized on the valuation method through fair value
measurement is more authentic than historical cost method for the inflation factor. (Deegan,
Financial Accounting Theory, 2014)
Identification of accounting theories
Accounting regulation and politics
Politics play vital role in accounting regulation setting. There are three theories of regulation-
public interest theory, private interest theory and capture theory. In this literature, private
interest theory is dominating the situation by the company through dictating terms to
encourage their self interest. In this case, the stakeholders are ASIC (ASIC, 2013)and ASX as
the regulator, Pioneer Credit as the regulated party, PwC as the auditor. ASIC (Commission,
2019) being the regulator, has all right to ask the company about their accounting system.
ASX, another regulator has to ensure that the interest of the company stakeholders are to be
protected. PwC is the auditor and has to highlight the issues to the regulators.
Standard setting process
Accounting standard setting process is done through multi-layer activities- proposal,
comment letters from the stakeholders, fixation of standard, necessary amendment requested
with same procedure of comment letters and final approvals. In the context of this literature,
AASB 3 for fair value measurement is not followed by the company properly. The company
also ignored AASB 9 for amortised cost valuation method. AASB (AASB, About the AASB,
2019) is the standard setting board for Australian accounting practices. ASIC is the body to
ensure implementation of Standards of AASB by the business entities. Pioneer Credit is not
adhering to the standards set by AASB regarding the valuation method of the debts procured
from market. In case of non-compliance of accounting standard by the company, the
company will be penalised in monetary terms and the suspension from ASX.
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Professionalism and ethics in accounting
This literature had shown unethical approach from the company by not projecting the
standard financial reporting system with their own set-up system of valuation. ASIC
questioned Pioneer Credit to understand the process of valuation. This is required to prove
the ethical approach from the company to its stakeholders. PwC has issued a qualified
opinion of Pioneer Credit to justify their stand to honour professionalism in the accounting.
(APESB, 2010) The main motive of Pioneer Credit (Resources, 2018) to introduce unique
method of valuation is to ensure more profit with unethical approach on their part by
deceiving the stakeholders. The presentation of accounting reports by Pioneer Credit is not
adhering to the IFRS. (IFRS, IFRS 2019, 2019) They made valuation of the debts as per their
own convenient way to maximise their profit ignoring the accounting and financial reporting
standards as set by AASB and IFRS. The financial report of Pioneer Credit does not serve the
purpose of primary users as it does not project the financial presentation the way it should be.
Pioneer Credit has hired a tax consultant to justify their stand of valuation method, so that
they can fight with the certificate obtained from him when the situation demands. The
activities of Pioneer Credit does not endorse ethical attitude on their part, as their style of
business is not projecting prudence and transparency in their approach of accounting and
respective financial reporting. The example of potential conflict of interest is found when the
wife of the Managing Director was paid for some work of designing without proper proof of
such jobs. The governance of the company is depicted in the website, which ensures of
ethical approach towards its stakeholders. But the company has presented its financial report
which depicted that the company encourages scope of conflict of interest through the
payment made to Alana John Design. (Credit, 2019)
Summary
With the above discussion, it is evident that the article is time-worthy to project the real
picture of Pioneer Credit about their operation and the erroneous effort to hide the facts
related to their accounting statements. The valuation method adopted by Pioneer Credit
projects self-set standard for valuation, while acquisition of debts made from the financial
institutions. This is not featuring proper, ethical and standardised process of procurement
with deceiving the stakeholders in the form of banks and other financial institutions.
Question 2
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ED 2018/2
The International Standard Board has asked for the public comment about the proposed
amendments to IAS 37- Provisions, Contingent liabilities and Contingent Assets to earmark
costs, which are to be considered to assess the profitability of a contract. This proposed
amendment is originated from an appeal to the IFRS Interpretations Committee to clarify
identification of costs in the assessment.
A company identifies any contract as loss-making with the terminology used onerous for the
condition of unavoidable costs to be incurred to meet the contract, which are more than the
anticipated economic benefits it gets from the contract. These costs include any probable
penalty or compensation arising out of the contract for failure to execute the same. But IAS
37 had not specified the nomenclature of the costs to determine the fulfilment of contract.
The amendment proposal through the exposure draft was made as per the request letter
received by the IFRS Interpretations Committee to determine the costs to fulfil a contract.
This request was forwarded specifically for construction contracts. The exposure draft was
identified with the number: ED/2018/2- Onerous Contracts- Cost of Fulfilling a Contract
(proposed amendment to IAS 37). The same provisions were there earlier through IAS 11
Construction Contracts, which also included the required specification for onerous contract.
As the same was withdrawn, the entities require proper guideline to comply with the
guidelines fixed for the purpose of accounting report on or after 1st January, 2018. After
receiving the request by an entity to amend the said IAS 37 with specification of costs, the
Committee found that there was difference of opinion related to the costs to be considered for
application of IAS 37. These differences may cause hardship for convergence of application
of accounting standard IAS 37 by the stakeholders engaged in same type of contracts.
Immediately, the Committee had recommended seeking clarification of costs to be included
to determine the cost of contract fulfilment. IASB had also agreed to this recommendation of
the Committee. The board then sent the proposal to ensure amendment of IAS 37 to identify
the costs related to fulfilment of contract including the variable costs, like the costs of
materials along with the allocation of other allied costs, which are directly related to the
contract including the depreciation charges for the machineries and equipments used for
fulfilment of contract. (IFRS, Proposed amendments to IAS 37, 2018)
The Committee had asked for feedback through comment letter from different stakeholders
with three questions fixed for assessment:
 Question 1- The Board had proposed in the ED categorization of costs for completion
of contract related directly to the contract instead of considering the incremental costs
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of the contract. The Board had clarified the reason for such choice of identification of
costs related to fulfilment of contract in the paragraphs BC 16- BC 28. The Board had
asked for the feedback about consideration of those costs to be included through
amendment to be made in paragraph 68 of IAS 37. If the reaction is positive, it is fine;
if not, then the reason for that with probable suggestions for alternative.
Question 2- The Board also proposes to add paragraph 68A-68B to enlist the costs
contributing to the contract fulfilment and the costs not directly related to contract fulfilment.
The Board asks for feedback from respondent about the lists with further suggestions from
them through examples, so that they can be considered for addition in the list of costs.
 Question 3- The Board also asks about any other comments from the respondents
about the proposed amendments.
Deadline for acceptance of comment letters on this proposal is set as 15th April, 2019.
Feedback on questions
Rio Tinto (Thomas, 2019)
 1st question, they are not agreeing in full with recommending for two-step approach to
link the process of identification for potentially onerous contract of testing CGUs for
impairment in AIS 36.
 2nd question, no disagreement with request to consider the consequences of questions
1 and 3.
 3rd question, the company proposed for provision of assets through impairment cost in
financial reporting.
Vodafone (Stephenson, 2019)
 1st question, they are agreeing with the terminologies used in paragraph 68; with
different opinion for the terms ‘all costs’ and incremental vs. direct costs.
 2nd question, they have different opinion regarding the application of incremental
costs as they find it impractical for their business.
 3rd question, they have urged upon the treatment of incremental cost in logical way to
cover other infrastructural costs.
CA- Sri Lanka (Jayesinghe, 2019)
 1st Question, they are agreeing with the ED, with further suggestion to cover all
contracts including onerous contract in the Standard.
 2nd Question, they are agreeing with further suggestion to include all direct costs in the
concept to avoid limited application to this Standard.
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 Question 3, they have no other comments.
Canadian Accounting Standard Board (AcSB, 2019)
 1st Question, they are agreeing with further comments made on economic benefit and
probable undesirable outcome.
 2nd Question, they are agreeing with further suggestion to include abnormal wastage
and direct labour as costs.
 3rd Question, they are disagreeing with the proposed declination by the Board
regarding application of IAS 8.
Behaviour of Regulator
The basic economic justification for the intervention of government in different business
markets and industries is to safeguard the ‘public interest’ (Deegan, Public Interest Theory,
2014)to prevent from failure of business or market. The inception of regulation is introduced
by government legislations to secure interest of the consumers within this theoretical
framework. As per public interest theory of regulation, the regulators should act to protect the
interest of the public with necessary introduction of regulation; if it is proved that the allied
cost is less than the derived benefit. It is assumed that the interests should not be driven by
self interest of the regulators. (Deegan, the rationale for regualting financial accounting
practice, 2014)
Accounting standards are set in Australia under the authoritative power of AASB, a
government agency to develop and maintain accounting standard applicable for different type
of entities of the Australian Business society. AASB is also allied with IASB to converge the
global accounting standards setting. The activity of AASB is controlled by ASIC Act 2001.
As a part of global accounting standard setting process, AASB is converging with IASB by
following IFRS since 2005 for financial reporting. (Hoogervest & Prada, 2015) For all the
entities discussed here as AASB, IASB and IFRS; (IFRS, How we work in the public interest,
2019) the nature of power exercise is independent and they endorse the behaviour of
regulator by exercising ‘Public Interest Theory’ to confirm more clarity in the financial
reports of the entities to safeguard stakeholders’ interest. (Shleifer, 2005)
Theory of Regulation
The regulation theories are three types- public interest theory, private interest theory and
capture theory. (Deegan, Public Interest Theory, 2014) The comments can be discriminated
by application of regulation theories. For Vodafone and Rio Tinto, the comments are made on
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private interest theory to influence the amendment decision of the Board for organizational
interest. For CA Sri Lanka and Canadian Accounting Standard Board, the comments are
made on public interest theory to ensure prudence in financial reporting through this
application. (Mossa, 2015)
Bibliography
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AASB. (2019). About the AASB. Retrieved May 11, 2019, from AASB: https://www.aasb.gov.au/About-the-
AASB.aspx
AASB. (2010, December). Financial Isntruments AASB 9. Retrieved May 11, 2019, from AASB website:
https://www.aasb.gov.au/admin/file/content105/c9/AASB9_12-10.pdf
AcSB. (2019). Re: Onerous Contracts - Cost of Fulfilling a Contract (ED/2018/2). Canadian Accounting
Standard Board.
APESB. (2010, December). APES 110 Code of Ethics for Professional Accounting. Retrieved May 11, 2019,
from APESB website:
https://www.apesb.org.au/uploads/standards/apesb_standards/standardc1.pdf
ASIC. (2013). ASIC 2013. Retrieved may 11, 2019, from Australian Security and Invewstment Commission
website: https://asic.gov.au/regulatory-resources/markets/market-structure/equity-market-data/
2013/
Aubin, D. (2019, April 12). Pioneer Credit must face lawsuit over student loan collections-ruling. West Law
News .
Commission, A. S. (2019). ASICAnnual Forum 2019. Retrieved May 11, 2019, from ASIC:
https://asic.gov.au/about-asic/asic-events/asic-annual-forum-2019/
Credit, P. (2019). Leadership Principles. Retrieved May 11, 2019, from Pioneer:
http://corporate.pioneercredit.com.au/about-us/leadership-principles/
Deegan, C. (2014). Financial Accounting Theory (4th Edition ed.). McGraw Hill.
Deegan, C. (2014). Public Interest Theory. Mc Graw Hill.
Deegan, C. (2014). the rationale for regualting financial accounting practice. Mc Graw Hill.
Frost, J. (2019, April 3). ASIC kept watch on Pioneer Credit for 12 months. Australian Financial Review .
Hoogervest, & Prada. (2015). How we work on Public Interest. IFRS , 1-12.
IFRS. (2019). How we work in the public interest. Retrieved May 11, 2019, from IFRS:
https://www.ifrs.org/about-us/the-public-interest/
IFRS. (2019). IFRS 2019. Retrieved May 11, 2019, from IFRS: https://www.ifrs.org/
IFRS. (2018). Proposed amendments to IAS 37. International Financial Reproting Standard.
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Jayesinghe, M. (2019). Comments on ED/2018/2- Onerous Contracts - Cost of Fulfilling a Contract. The
Institute of Chartered Accountants of Sri Lanka.
Kline, A. (2017). In the wake of tax reform bill, Pioneer Credit Recovery workers will receive $1K bonuses.
Buffalo Busienss First.
Mossa, I. A. (2015). Definition and Theories of Regulation. Springler , 1-15.
Resources, P. (2018). Fianncial report 2018. Retrieved May 11, 2019, from pioneerresources:
http://www.pioneerresources.com.au/downloads/reports/annual/piofr2018.pdf
Sanglap, R. (2012). Pioneer Credit COO resigns. S & P Global.
Shleifer, A. (2005). Understanding Regulation. European Financial Management , 439-451.
Soderlin, B. (2012). IRS: Pioneer Credit official owes $1.3 million. Rapid City Journal.
Standard, A. (2015, August). Fair Value Managment- AASB 13. Retrieved May 11, 2019, from aasvb website:
https://www.aasb.gov.au/admin/file/content105/c9/AASB13_08-15.pdf
Stephenson, P. (2019). Export Draft- Onereous Contract -Cost of fulfilling an Contract- ED 2018/2. Vodafone .
Thomas, O. (2019). ED/2018/2 Onerous Contracts – Cost of Fulfilling a Contract. Rio Tinto.
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Appendices: Comment Letters
Rio Tinto
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Vodafone
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CA- Sri Lanka
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Canadian Accounting Standard Board
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