Advanced Financial Accounting: Qualitative Characteristics, Governmental Decisions, Asset Revaluation

This article discusses the qualitative characteristics of financial reporting, governmental decisions related to regulation theories, and asset revaluation in advanced financial accounting.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ADVANCED FINANCIAL ACCOUNTING
Table of Contents
Answer to Part A:.......................................................................................................................2
Answer to Part B:.......................................................................................................................4
Answer to Part C:.......................................................................................................................6
Answer to Part D:.......................................................................................................................8
Requirement (a):.....................................................................................................................8
Requirement (b):....................................................................................................................8
Requirement (c):.....................................................................................................................9
References:...............................................................................................................................10

2ADVANCED FINANCIAL ACCOUNTING
Answer to Part A:
It is necessary for all the business organisations to have all the qualitative features in
their financial statements so that the overall value of their financial information is increased.
The qualitative characteristics of financial reporting are mainly fundamental qualitative
characteristics and enhancing qualitative characteristics. Under fundamental qualitative
characteristics, the significant components include faithful representation and relevance. On
the other hand, enhancing qualitative characteristics constitute of verifiability, comparability,
understandability and timeliness1.The provided article clearly lays out the opinions of various
individuals regarding the implementation of “International Financial Reporting Standards
(IFRS)”. Each statement points that certain qualitative characteristics of financial reporting
are not present in accordance with the opinions of the individuals. They are enumerated as
follows:
According to the provided opinion, the head of finance of AXA, Geoff Roberts, stated
that the investors place heavy emphasis on the investor report and the details of the company
management in order to develop in-depth knowledge regarding the financial standing and
performance of the organisations in the operating markets. This specific aspect signifies a
particular qualitative feature of financial reporting, which is understandability2. This is a
significant enhancing qualitative characteristic through which the financial reporting quality
could be increased. Thus, with the help of this particular feature, the financial statement users
find it easy to categorise, characterise and indicate financial statements so that the users could
obtain detailed accounts of the financial conditions of the business organisations. It is
noteworthy to mention that the enforcement of the IFRS standard is increasing the
1 Barth, Mary E., "Financial Accounting Research, Practice, And Financial Accountability" (2015) 51(4) Abacus
2 Callen, Jeffrey L., "A Selective Critical Review Of Financial Accounting Research" (2015) 26 Critical
Perspectives on Accounting

3ADVANCED FINANCIAL ACCOUNTING
complexity of some of the significant financial aspects, since understandability is not
provided for the financial statements. Hence, as per the opinion of Mr. Roberts, the
enforcement of IFRS does not provide the investors with higher understandability regarding
the financial reporting of the business organisations via management overview and investor
report3.
According to the statement of the finance director of Wesfarmers, Terry Bowen, it
could be observed that there is greater chance for the financial analysts to misinterpret the
financial information of the business organisations, if they aim to explain the notes to the
financial statements of the organisation in accordance with the IFRS standards. This specific
statement denotes that the qualitative characteristics related to financial reporting are not
present, which are comparability and understandability4. With the help of comparability, it
becomes easy for the users to detect the differences and similarities present in the financial
items. In its absence, this would restrict the understanding of the users and they would not be
able to contrast the financial statements of the business organisations with the help of
financial notes due to lack of technical knowledge5. Thus, it mandates the need for the users
in acquiring suitable technical knowledge regarding the various financial aspects for
obtaining understanding of the financial statements adopted by IFRS.
According to the chief financial officer of Commonwealth Bank, David Craig,
adequate attention is not paid on the part of the investors to obtain in-depth knowledge of the
about the financial information laid down in IFRS. As a result, the actual financial conditions
3 Christensen, Theodore E, David M Cottrell and Cassy JH Budd, Advanced Financial Accounting (McGraw-
Hill Education, 2016)
4 Christensen, Theodore, Advanced Financial Accounting (Irwin Mcgraw-Hill, 2015)
5 Drachal, Krzysztof, "Is There A Feedback Mechanism In Accounting?" (2014) 2014(1) European Financial
and Accounting Journal

4ADVANCED FINANCIAL ACCOUNTING
of the organisations are not disclosed adequately6. This denotes that faithful representation is
not ensured adequately in the financial statements of the business organisations following
IFRS. This denotes the failure of IFRS to provide detailed account of all the essential
financial items in order to provide the users with pertinent financial information7. Moreover,
the financial statements adopted in accordance with IFRS do not provide numerical
explanation related to the economic phenomena of the business entities. Along with this, it
signifies that there is high possibility that distortions could be made in the financial
statements, as the IFRS framework has certain loopholes. Due to all these reasons, the
statement has been made.
In this regard, it needs to be stated that the financial reporting aims to deliver the users
with meaningful and accurate financial information that would help the users to form
judgements about the actual financial conditions of the business organisations. However,
since too many fundamental and enhancing qualitative characteristics are not present in IFRS
framework, the primary objective of financial reporting could not be met8. As a result,
adequate corrective actions could be undertaken so that the loopholes in the IFRS framework
could be minimised accordingly.
Answer to Part B:
The below discussion depicts the governmental decisions to include no particular
regulation in relation to three significant theories, which are public interest theory, capture
theory and economic interest group theory related to regulation.
6 Flesher, D.L., T.K. Flesher and G.J. Previts, "The Financial Accounting Standards Board: Profiles Of Seven
Leaders" [2018] Research in Accounting Regulation
7 García, Félix Madrid, "Developments And Challenges In Public Sector Accounting" (2014) 26(2) Journal of
Public Budgeting, Accounting & Financial Management
8 Hansen, Bowe, Advanced Financial Accounting (McGraw Hill Create, 2014)

5ADVANCED FINANCIAL ACCOUNTING
Public interest theory:
The principles of public interest theory state that the market regulators look for
market solutions all the time, which are efficient from the economic perspective. In
accordance with this theory, significant emphasis needs to be placed on regulations for
solving any problem9. Hence, it denotes that the goal of this theory is to ensure common good
for the public by enforcing different kinds of regulations. In relation to the theory, it could be
stated that the government needs to initiate regulations in the Corporations Act 2001 to
include environmental as well as social responsibilities. This represents that it is not possible
for the market forces to work all the time in order to enforce environmental and social
responsibilities. The particular regulations would place obligations on the consumers as well
as the organisations for meeting their environmental and social duties appropriately10. Certain
regulations are to be included in the Corporations Act 2001 for ensuring the success of this
aspect.
Capture theory:
Various types of regulations are enforced in order to ensure the common good for the
public and the overall community. However, the capture theory states that the regulators
often make distortions in the regulations for fulfilling their self-interest. This signifies that the
enforced regulations meet the interests of the regulators after specific period11. There are
certain motives for introducing regulations, which could be identified with the help of capture
theory. More specifically, this theory identifies those individuals having direct impact, if the
9 Hoyle, Joe Ben, Thomas F Schaefer and Timothy S Doupnik, Advanced Accounting (McGraw-Hill Education,
2017)
10 Jacobs, Kerry, "Theorising Interdisciplinary Public Sector Accounting Research" (2016) 32(4) Financial
Accountability & Management
11 Jones, Michael John, "Domesday Book: An Early Fiscal, Accounting Narrative?" (2018) 50(3) The British
Accounting Review

6ADVANCED FINANCIAL ACCOUNTING
regulations are implemented. In relation to the provided scenario, it could be stated that the
government has undertaken the right decision by not enforcing any regulation to promote
environmental and social duties12.
Economic interest group theory of regulation:
This theory does not bear any resemblance to the two above-stated theories. Various
groups of policies and the demand and supply forces are inherent in the regulations having
direct influence on them in accordance with the theory. In this specific theory, the
government is put on the supply side, while the demand side includes the interest group. The
regulations are formulated with the intent so that the industries could reap the maximum
benefits out of them. Hence, it could be cited that the industries form the regulations; thereby,
compelling the market to adopt the same (Richardson 2017). From the perspective of this
theory, the government needs to introduce particular regulations to ensure industrial welfare
and in turn, the consumer welfare. Most of the business organisations consider customers as
their main stakeholders. Hence, this mandates the need for the government to include the
customers while forming the regulations. This is because such process would result in
developing laws, which could be advantageous to the customers as well as the industry. Due
to this reason, the government needs to formulate a balance between the consumers and the
industries.
Answer to Part C:
Based on the given scenario, it could be viewed that no regulation is present to
revalue the non-current assets depending on fair value in compliance with “Financial
Accounting Standards Board (FASB)”. However, it is necessary for the organisations to take
12 Komarov, K, "The Model Of Management Accounting A Trading Company In Ukraine Using Accounting
Information System" (2014) 2014(12) The Advanced Science Journal

7ADVANCED FINANCIAL ACCOUNTING
into account impairment expense of non-current assets in accordance with “FASB Statement
Number 144 Accounting for Disposal or Impairment of Long-Lived Assets”13. However, it is
noteworthy to mention that positive implications are inherent in these changes in relation to
faithful representation and relevance of the financial statements of the US business
organisations. Thus, these changes are formulated with the goal of improving the financial
statements of the business organisations in US. Thus, these changes have lead to the
formation of a sole accounting model for the accounting treatment related to disposal or sale
of non-current assets.
The assets could be held in the past and they are used or they have been acquired
recently. Thus, when this standard is enforced, the representation of the non-continued
operations is widened for including additional disposal or sale-related transactions. Due to
these reasons, no variation could be identified in relation to the accounting transactions of
identical circumstances and events. In addition, this aspect is highly valuable to bring
improvements in the reporting process of financial information. Besides this, these aspects
have significant limitations as well.
The changes would be valuable for resolving various types of implementation issues,
which would lead to improvements in accordance with the needed accounting principles and
standards. Hence, these aspects would be immensely valuable to promote faithful
representation and comparability of financial information. Moreover, once these standards are
enforced, all the perceived inconsistencies would be eradicated from having two separate
models of accounting for accounting treatment of non-current assets, which are to be
disposed through the selling process. Moreover, it is to be mentioned that the accounting
information variation would help the financial statement users to identify the significant
variations and similarities between the two groups of economic events of the non-current
13 Summary Of Statement No. 144 (2018) Fasb.org <http://www.fasb.org/summary/stsum144.shtml>

8ADVANCED FINANCIAL ACCOUNTING
assets of the business organisations. Hence, with reference to the above evaluation, it could
be observed that the above-depicted FASB norms enables in improving the financial
statements of the organisations through enhancing the accounting treatment of non-current
assets.
Answer to Part D:
Requirement (a):
There are certain reasons, which motivate the directors in the asset revaluation
process, which are summarised as follows:
 The asset revaluation procedure enables in signifying the actual rate of return and
accordingly, the management of the organisation could formulate suitable financial
strategies.
 The asset revaluation procedure enables the directors of the organisations in gaining
knowledge about the fair value assets appreciated during purchase period.
 This process provides a platform for the directors of the organisation with the
opportunity to negotiate the fair asset price during merger and acquisition.
 The asset process revaluation provides an opportunity to the directors to know about
the total value of the organisational resources14.
Requirement (b):
When there is no asset revaluation procedure, there would not be any rise or decline in
the book values of those assets related to the business organisations. As a result of this, the
organisations could encounter abnormal profit or loss when the asset is disposed at the fair
market value. Besides thus, the absence of the asset revaluation strategy would result in
14 Kudryavtsev, Andrey, "Informational Content Of Open-To-Close Stock Returns" (2015) 2015(1) European
Financial and Accounting Journal

9ADVANCED FINANCIAL ACCOUNTING
decline in the incomes of the organisations. Most significantly, the total asset amounts of the
organisation would decline, which would have direct impact on the financial conditions of the
organisations15.
Requirement (c):
The revaluation decision would be driven by the efficiency of the capital market. If
the market is not considered as efficient, the share prices would signify the information,
which is provided in the financial statements. The lower assets and the lower net asset
backing per share might be impounded in share prices. However, some of the minimisation in
stock price might be offset due to the greater reported profit16.
The decision of not revaluing the assets has adverse impact on the wealth of the
shareholders of the organisations. When the assets are not re-valued, this would result in
significant decline in the profit of the organisation. With the fall in the profit of the
organisation, the percentage of return would be minimised for the share, as the price per share
of the organisation has declined. Hence, it would not be possible for the shareholders of the
organisation to obtain greater returns on their investments.
15 Miihkinen, Antti and Tuija Virtanen, "Development And Application Of Assessment Standards To Advanced
Written Assignments" (2017) 27(2) Accounting Education
16 Pekař, Jan, "Importance Of Managerial Accounting From High Growth Online Company Valuation
Perspective" (2017) 2017(3) European Financial and Accounting Journal

10ADVANCED FINANCIAL ACCOUNTING
References:
Barth, Mary E., "Financial Accounting Research, Practice, And Financial Accountability"
(2015) 51(4) Abacus
Callen, Jeffrey L., "A Selective Critical Review Of Financial Accounting Research" (2015)
26 Critical Perspectives on Accounting
Christensen, Theodore E, David M Cottrell and Cassy JH Budd, Advanced Financial
Accounting (McGraw-Hill Education, 2016)
Christensen, Theodore, Advanced Financial Accounting (Irwin Mcgraw-Hill, 2015)
Drachal, Krzysztof, "Is There A Feedback Mechanism In Accounting?" (2014)
2014(1) European Financial and Accounting Journal
Flesher, D.L., T.K. Flesher and G.J. Previts, "The Financial Accounting Standards Board:
Profiles Of Seven Leaders" [2018] Research in Accounting Regulation
García, Félix Madrid, "Developments And Challenges In Public Sector Accounting" (2014)
26(2) Journal of Public Budgeting, Accounting & Financial Management
Hansen, Bowe, Advanced Financial Accounting (McGraw Hill Create, 2014)
Hoyle, Joe Ben, Thomas F Schaefer and Timothy S Doupnik, Advanced
Accounting (McGraw-Hill Education, 2017)
Jacobs, Kerry, "Theorising Interdisciplinary Public Sector Accounting Research" (2016)
32(4) Financial Accountability & Management
Jones, Michael John, "Domesday Book: An Early Fiscal, Accounting Narrative?" (2018)
50(3) The British Accounting Review

11ADVANCED FINANCIAL ACCOUNTING
Komarov, K, "The Model Of Management Accounting A Trading Company In Ukraine
Using Accounting Information System" (2014) 2014(12) The Advanced Science Journal
Kudryavtsev, Andrey, "Informational Content Of Open-To-Close Stock Returns" (2015)
2015(1) European Financial and Accounting Journal
Miihkinen, Antti and Tuija Virtanen, "Development And Application Of Assessment
Standards To Advanced Written Assignments" (2017) 27(2) Accounting Education
Pekař, Jan, "Importance Of Managerial Accounting From High Growth Online Company
Valuation Perspective" (2017) 2017(3) European Financial and Accounting Journal
Summary Of Statement No. 144 (2018) Fasb.org
<http://www.fasb.org/summary/stsum144.shtml>