Analysis of Accounting Profession's Conflict on Financial Planning

This article discusses the conflict faced by the accounting profession on financial planning and the impact of conflicted payments on professionalism and ethics. It also explores the proposed amendment to IAS 16 and the views of different groups on it.

Accounting Theory 1
Accounting Theory
Name
Institution

Accounting Theory 2
Question one: Analysis of the chosen news article
The article, "Accounting profession faces another moment of truth on financial planning
conflicts," was published on Feb 18, 2019, by Andrew Robertson on Australian Broadcasting
Corporation. In the article, the author explains why the Accounting Professional and Ethical
Standards Board (APESB) is the conflicted pay offered to accountant financial planners. In 2012,
the board introduced standard remuneration payment plan, knowns as the APES 230, for
accountant financial planners a move that was opposed by the latter.
According to APESB, conflicted payments like soft dollar benefits, percentages of
management funds and commissions were the major contributors to financial scandals that have
diversely affected the financial market as the lives of Australia. The board maintained that such
benefits hinder the ability of Accountant financial planners to maintain the highest standard in
their operations. APESB wanted the conflicted payment to go because there were no mechanisms
at which the threats and risks associated with the payment on clients would be reduced to an
acceptable level. The finds backed the ideas by Kenneth Hayne in the report of the royal
commission. Hayne stated that experience has shown that the conflicts of interest between
accountant finance planners and needs of clients were not manageable (Higson, 2003, p. 83).
In simple terms the APESB wanted the conflicted payment gone as well as the accountant
financial planners to put the interest of customers first before theirs. Interestingly, three lobby
groups: - Chartered Accountants Australia & New Zealand, the Institute of Public Accountant,
and CPA Australia which financial APESB opposed the proposal and adopted the continuation of
conflicted payments (Kitson & Robert , 2009, p. 101). The reporter states that "The accounting
profession had passed up an opportunity to show that it truly is professional, that it understood

Accounting Theory 3
its fiduciary duty, that accountant financial planners really could be trusted to act in their
customers' best interest (Robertson, 2019)." In the future, it will be hard for account finance
planners to convince customers that they are acting to the best of their interests. Moreover, the
client cannot trust that accountant financial planners base their service of high standard and
professionalism. The lobby groups were supposed to put the interest of clients first by adopting
APESB's proposal but chose to reject it (Deegan, 2013, p. 35).
Link the major issues and ACC341 topics and theories:
a) The issue and ACC341 topics
The issue covered in the article relates to the ACC341 topic of Professionalism and ethics
in accounting that was covered in the second week. The topic outlines the need for accounting
professionals to observe ethical codes when executing their mandate. Abiding by ethical codes
and professionalism help accountants to demonstrate fairness and honesty, maintain trust and
promote their profession. New professionals are required to undertake ethics and professionalism
training that will help them to protect the profession’s reputation. Professional behaviour is a
fundamental principle of accounting ethics (Jones & Riah-Belkaoui, 2010, p. 97). Accountants

Accounting Theory 4
are required to adhere to the laws within a given jurisdiction. Professional behaviour prohibits the
accountant was engaging in actions that would negatively affect the profession’s reputation as
well as go against the expectation of business partners, the community and other stakeholders.
The link between the topic and the article arises from the impact of conflicted payments on the
Professionalism and reputation of accountant financial planners. APESB holds that continued
application of conflicted payments jeopardizes the expected high standard and professionalism
operations from accountant financial planners (Barth & Landsman, 2010).
b) Accounting theories explaining the issue
There two theories that can be used to describe the issue discussed in the article. The two
most appropriate theories that can be used to demonstrate the situation are the public interest
theory and the self-interest theory. Public interest theory is used to analyze the views of the
APESB on conflicted payments. On the other hand, the self-interest theory is used to demonstrate
the position of the accountant financial planners on conflicted payments.
i) Public interest theory
Public interest theory assumes that the market is inefficient and imperfect. The market
should be regulated to make it economically perfect and efficient. Generally, public interest
theory introduces regulations that benefit the rights of the public at large or protect the public
from exploitation. The theory supports the creation of a legislative instrument to overcome
imperfect competition, undesired market results, and unbalanced market operation. In the case of
conflicted payments, APESB was formed to develop a solution to the risks associated with the
payment system (Wolk, 2009, p. 72). The board holds that the payments system does not serve
the interest of the public. For example, conflicted payments have been associated with the global

Accounting Theory 5
financial crisis which has had a severe impact on the Australians. Therefore, the board came up
with the APES 230 regulation which sought to do away with the conflicted payments for
accountant financial planners. The regulation introduced a performance-based payment system
which would address the needs of all stakeholders. APESB wanted to restore high standards and
professional ethics in the performance in the accounting profession (Mathews & Perera, 1996, p.
104).
ii) Self-interest theory
Self-interest theory states that human beings are selfish. The selfish nature of human beings
forces human beings to go against established moral behaviours. The theory states that humans
put their self-interest first before public interest when it is material involved. The accountant
financial planners opposed the move to abolish conflicted payments because it limits their ability
to make extra money. Although Kenneth Hayne found out that the amounts contributed to the
failure of moral values and professional behaviours, the accounting lobby groups opposed the
move to safeguard earnings for accountants. In this case, the lobby groups chose to protect the
rights of the accountant over those of the clients as required by professional ethics (Wolk, Dodd ,
& Rozycki, 2017, p. 81).
In conclusion, accountants have been accused of using favourable accounting regulation to
create financial statements that serve their interest. In additional, accountants apply accounting
regulations to increase their earnings, especially under a performance-based payment system. In
the article, accountant financial planners use conflicted payments to increase their profits at the
expense of their clients and other stakeholders. This is an accounting issue which would lead to a
financial crisis if not addressed adequately.

Accounting Theory 6
Question Two: Exposure draft and public comments
a. The major issues covered in the exposure draft
The International Accounting Standards Board (IASB) public a draft proposal which sought
to amend the application of IAS 16. The proposed amendments were meant to redefine the
recognition of proceeds realized from Property, Plant, and Equipment (PPE) before their intended
use. The proposal proposed the recognition of sales and costs associated with PPEs in the profit
and Loss statement instead of deducting the sales from the cost of the associated PPE
(International Accounting Standards Board, 2019).
IASB believes in the due process; hence the proposed amendment was published to collect
public comments. All the comments were posted in IASB after seeking the consent of the
respondents. Approximately 50 comment letters were collected and published on the website.
b. Views of various groups on the proposed amendment
This section discusses four comment letters that were collected from accounting bodies,
corporate bodies, and companies who seek to express their views on the proposed amendment.
 Confederation of Swedish Enterprise
The Confederation of Swedish Enterprise submitted their comment to IASB on Sep 20,
2017. The Enterprise welcomed both the proposed changes to IAS 16 and the reasons listed by
the IASB to support the exposure draft.
 Japan Foreign Trade Council (JFTC)
Members of the JFTC comes from the Japanese trading companies and companies.
Therefore, the core mandate on the council is to respond to the proposed changes in the

Accounting Theory 7
accounting standard both locally and internationally on behalf of its members. The council stated
that IASB should consider the impact of the proposed amendment on operational management
and business performance. The council raised several concerns in reference on whether or not it
supported the proposal. First, the adoption of the project would rise company profit during the
testing period because deprecation is excluded from the cost. The profit would be lowered during
ordinary activity period when depreciation is included in the price. Therefore, income and profit
realized during the testing period would not present the real performance of a business
(Hendersen, Pierson, & Herbohn, 2014, p. 128). Second, the cost is likely to exceed revenue
when selling prices are reduced during the testing period. The difference should be included in
the cost of acquiring the asset to ensure normal operations. Generally, the council maintained that
the impact of the proposed amendment would differ based on the product, testing period,
business and industry. Therefore, IASB should conduct more research on the effects of the
proposed change on the performance and operations of companies (Godfrey, Hodgson, Tarca,
Hamiliton, & Holmes, 2010, p. 34).
 GAAP Advisors
GAAP Advisors chose to disagree with the exposure draft based on some reasons. First,
proposed focussed on a narrow focus of addressing sales proceeding during the testing period and
lacked the backing of a conceptual basis. Second, the proposal was not consistent with other
IFRS principles. Third, it is an irony of how an entity can use an item of PPE to generate revenue
yet such a thing has not been put into use. Lastly, the proposed amendment create would create
inconsistencies with the IAS standards and the IFRS framework.
 Ernst & Young (EY)

Accounting Theory 8
Ernst & Young disagreed with the proposed change. The company held that the proposal
failed to address the arising issues such as determination of when an item of PPE is ready for the
intended use and the difficulty in allocating costs of such assets.
Generally, the proposal was fully supported by the Confederation of Swedish Enterprise. The
other three respondents raised several issues that required to be addressed adequately.
c. The behaviour of IASB using public interest theory
Public interest theory assumes that there are imperfection and inefficiencies in the market
which can only be rectified by regulating the operations in the market. The theory states that
regulators have to control the market for the best interest of the public by protecting them from
exploitation. IASB stated that users rely on the financial statement to make decisions. The
proposal would lead to objectivity in treating the revenue collected from PPE assets during the
testing period. The proposal was meant to safeguard the public interest (Baker, 2005, p. 690).
d. Analyzing the comment letters using the theories of public interest, private interest, and
capture
As mentioned earlier, public interest theory states that regulations should be formed to
safeguard the rights and interests of the public at large. Likewise, Private interest theory human
beings are selfish and would take actions that promote their interest. Therefore, the different
groups would support the proposal if it would serve their interest. Lastly, capture theory tastes
that regulation agencies comprise of members who are the past or future employees of a given
industry. Therefore, regulators act in the interest of the sector instead of safeguarding the interest
of the public (Baker, 2005, p. 695).

Accounting Theory 9
Private interest theory can best explain the comments made by different entities on the
proposed amendment. Each group had its position on the treatment of sales proceeding realized
PPEs before their intended use. Each group when through the proposal to find out whether or not
it serves their interests. The decision to agree or disagree with the project was based on how best
it would serve the interest of the respondents who aired their views (Baldwin, Cave, & Lodge,
2012, p. 68).
e. Evaluating the underlying assumptions of the applied theories and perspectives of
regulation.
In conclusion, IASB had the best interest of the users of the financial statement when the
proposal was made. The project was intended to bring a uniform treatment of the revenue in
question to allow comparability of performance between different entities as well as reliability of
the same statements. On the other hand, each lobby group can only support the proposal if they
intend to promote their interests. Remember that human beings are selfish. Although each
respondent has cited the objectivity principle of financial reporting as the reason for accepting or
rejecting the proposal, it is evident that they are looking for an accounting policy that aligns with
their goals and objectives (Fryer, 2014, p. 51). The IASB comprises of past and future accounting
profession which can be captured by the influence of business entities to favour the interest of the
industry. The proposal might be adopted if the IASB still plan to safeguard the public interest
after reading the comments. Likewise, the project might be rejected if the interest of the industry
outweighs the public interest (Gaffikin, 2008, p. 80).

Accounting Theory 10
References
Baker, C. R. (2005). What is the meaning of ‘the public interest’ Examining the ideology of the
American accounting profession. Accounting, Auditing and Accountability Journal, 18,
690-703.
Baldwin, R., Cave, M., & Lodge, M. (2012). Understanding Regulation: Theory, Strategy, and
Practice (illustrated, revised ed.). Nairobi: OUP Oxford.
Barth, M. E., & Landsman, W. R. (2010). How did financial reporting contribute to the financial
crisis? European Accounting Review, 19(3), 399-423.
Deegan, C. (2013). Financial accounting theory (4th Edition ed.). North Ryde, N.S.W: McGraw-
Hill Education.
Fryer, M. (2014). Ethics Theory and Business Practice. London: SAGE Publications.
Gaffikin, M. (2008). Accounting Theory. Frenchs Forest: Pearson Edmundson.
Godfrey, J., Hodgson, A., Tarca, A., Hamiliton, J., & Holmes, S. (2010). Accounting Theory.
Brisbane: John Wiley & Sons.
Hendersen, S., Pierson, G., & Herbohn, K. (2014). Issues in Financial Accounting. Sydney:
Pearson.
Higson, A. (2003). Corporate Financial Reporting: Theory and Practice (1 ed.). New Jersey:
SAGE.
International Accounting Standards Board. (2019, May 9). Exposure Draft and comment letters—
Property, Plant and Equipment—Proceeds before Intended Use (Proposed amendments
to IAS 16) . Retrieved from IFRS: https://www.ifrs.org/projects/work-plan/property-plant-

Accounting Theory 11
and-equipment-proceeds-before-intended-use/comment-letters-projects/ed-property-plant-
and-equipment/#consultation
Jones, S., & Riah-Belkaoui, A. (2010). Accounting Theory. Australia: Nelson.
Kitson, A., & Robert , C. (2009). Ethical Issues in Accounting. London: Palgrave.
Mathews, M. R., & Perera, M. H. (1996). Accounting Theory and Development . Sydney: Nelson.
Robertson, A. (2019, Feb 18). Accounting profession faces another moment of truth on financial
planning conflicts. Retrieved from ABC News: https://www.abc.net.au/news/2019-02-
18/financial-planning-accountants-and-conflicted-remuneration/10820526
Wolk, H. I. (2009). Accounting Theory (1 ed.). London: SAGE Publications Lt.
Wolk, H. I., Dodd , J. L., & Rozycki, J. J. (2017). Accounting Theory: Conceptual Issues in a
Political and Economic Environment (1 ed.). London: SAGE Publications.