Advanced Financial Accounting: Doc

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

1ADVANCED FINANCIAL ACCOUNTING
Part A
The failure of International Financial Reporting Standard (IFRS) can be seen from the
provided situation to represent the correct financial standings of the companies in the presence of
the fact that the companies have spent millions of dollars for its adoption so that financial
reporting can be improved. Different famous business personalities have indicated in their
statement that the IFRS adopted financial statements are missing the required qualitative
characteristics of general purpose financial reporting that converts the financial statements more
acceptable for the major users of them. The conceptual framework of Australian Accounting
Standard Board (AASB) has mentioned that relevance and faithful representation are the
fundamental qualitative characteristics; and comparability, verifiability, timeliness and
understandability are the enhancing qualitative characteristics of financial statements (Warren
and Jones 2018). The following discussion sheds light about the missing qualitative
characteristics of financial reporting:
The fact is evident from the statement of Mr. Roberts, Former Head of Finance of AXA
that there have not been any single questions from the fund manager and the financial analysts
about the quality of financial information obtained from the financial statements developed in
accordance with the IFRS standards. This aspect helps them in comparing the financial
statements of the companies with another one; at the same time, they can gain understanding
about the different financial aspects of the companies to understand their financial performance
and financial standings. This scenario states that these financial statements have two of the most
important qualitative characteristics of financial reporting; and they are comparability and
understandability. The information of the financial statements becomes more purposeful in the

2ADVANCED FINANCIAL ACCOUNTING
presence of these two enhancing qualitative characteristics. However, the recent year’s shows
major decrease in the quality of financial information in the IFRS adopted financial statements.
Hence, it can be said that both comparability and understandability is lacking in the current
financial reporting of IFRS (Openshaw 2013).
The opinion of Terry Brown, Finance Director of Wesfarmers, shows that one cannot
eliminate the chance of misinterpreting the notes to the financial statements of the business
entities developed as per the regulation of IFRS in case the financial analysts try to analyze them
in the absence of effective technical knowledge. In the presence of the qualitative characteristic
‘verifiability’, the users of the financial information can apply their knowledge and observation
for gaining insight about the financial performance as well as financial standings of the entities
from analyzing both the financial statements and the note to the financial statements. From the
statement of Mr. Brown, one major concern is there that the users are not able to understand and
verify the financial notes and statements of the companies by applying the general knowledge as
the IFRS financial statements require high financial understanding. Thus, from this, the absence
of verifiability and understandability can be seen in the IFRS adopted financial reporting
framework (Waegenaere, Sansing and Wielhouwer 2015).
The statement of David Craig, Chief Financial Officer of Commonwealth Bank, shows
the ignoring behavior of the investors towards the financial information from the IFRS adopted
financial statements as these statements are providing misleading pictures about the financial
performance and standings of the companies. In case the financial statements of the business
organizations lack two major fundamental qualitative characteristics like relevance and faithful
representation, the investors will not be able to gain insight about the financial performance as
well as financial position of the business entities. Thus, the financial information must be

3ADVANCED FINANCIAL ACCOUNTING
relevant and faithfully represented in order to be useful for the users of the financial statements.
Thus, based on the above discussion, it can be said that the current financial reporting framework
pursuant to IFRS lacks both relevance and faithful representation (Trucco 2015).
Now, it needs to be mentioned that providing the correct financial information about the
companies through financial statements is the main objective of general purpose financial
reporting in order to provide the users with the correct picture about the financial performance as
well as financial standings of the companies (Amoako 2013). However, it is not possible to
fulfill this objective in the absence of these major qualitative characteristics.
Part B
In the year 2006, a major decision was taken from the side of the Australian government
related to the not amendment of the Corporations Act with the introduction of any regulation
relating to socials and environmental responsibilities. Moreover, the Australian government
decided to leave the matter on the market forces for handling. Three popular theories of
regulations can be used for the analysis and evaluation of this decision of the Australian
government and they are discussed below:
Public Interest Theory
The principles of the public theory support the fact that there is a major requirement for
the introduction of necessary regulations for fulfilling the demand of the public. This theory
provides great importance to the regulations by stating the fact that the regulations play an
integral part to promote the general welfare of the common people and does not serve for any
specific group of stakeholders for fulfilling their interests. This theory eliminates the fact that
market forces have role to play in satisfying the interest of the public. This theory states that the

4ADVANCED FINANCIAL ACCOUNTING
government of the countries must intervene into the market condition for addressing related to
the imperfection of market or market failure (Deegan and Ward 2013).
With the application of this theory in the situation of the Australian government, the
scenario can be analyzed and evaluated. According to the public interest theory, the Australian
government took one wrong decision by not intruding any regulation in the Corporations Act in
spite of the fact that the presence of regulations ensures the betterment of the public. In this
situation, there would be large promotion of the social and environmental responsibilities among
the public in case the Australian government intervenes into the matters by introducing
regulation. In this manner, addressing the market imperfections would be possible related to the
Corporations Act (Wang 2014).
Capture Theory
The capture theory of regulation can be placed at the opposite of the public interest
theory as this theory eliminates the role of the regulations for satisfying the demand of the
public. The principles of this theory put emphasis on the market forces for the satisfaction of the
needs of common people. Capture theory points towards an important aspect that the regulators
have the capability to manipulate the regulations for their own interest so that they can fit in the
requirements of the regulators. At the time, it is possible for the identification of the affected
parties by the introduction of regulations with the help of the principles of capture theory. This
theory indicates towards the intention of the regulators to include themselves in the regulation
development process for better satisfying their personal needs. Thus, it is better to rely on the
market force for getting the solution (Nilsson and Stockenstrand 2016).

5ADVANCED FINANCIAL ACCOUNTING
The principle of capture theory can be applied to the present situation. The principle of
this theory supports the decision of the Australian government not to introduce any regulation in
the Corporations Act for promoting social and environmental responsibilities. The absence of
regulations would eliminate the possibility of manipulation with the regulations by the regulator
for satisfying their personal interest. The market forces would play an integral part in the
promotion of the responsibilities (Hope, Thomas and Vyas 2013).
Economic Interest Group Theory of Regulation
The concept of this theory of regulation is different from the above-discussed theories.
The principles of this theory identifie the business industries as the developer of the introduced
regulations so that they can make the businesses beneficial with these introduced regulations.
With the application of the principles of these theories in case of the Australian government, it
can be said that it would be necessary for the government of Australia to introduce regulation as
a part of the Corporations Act so that the social as well as environmental responsibilities can be
promoted. With the introduction of the regulations, the business organizations of Australia would
be under the obligation to follow all the regulations related to the social as well as environmental
responsibilities (Chhabra and Pattanayak 2014).
Part C
The provided situation mentions about a specific regulations of US FASB that wants the
companies not to make the revaluation of their non-current asset, but to take into consideration
the impairment charges associated with these non-current assets. This particular regulation has
specific implications for the relevant and faithful representation of the financial statements of the
US companies and they are discussed below:

6ADVANCED FINANCIAL ACCOUNTING
o The users of the financial statements like the investors, creditors and others can become
able to make the identification of the major similarities and differences in the accounting
treatments related to the non-current assets in the presence of this specific regulation of
asset revaluation. This aspect helps in providing relevant information about the assets
(Chan 2015).
o The accountants of the companies use different accounting framework or model for the
correct accounting treatment of the non-current assets. This aspect creates accounting
complexities while complying with these accounting models for the revaluation of non-
current assets. However, by following the regulation of FASB for asset revaluation, the
accountants can reduce these complexities and inconsistencies around the revaluation of
the non-current assets (Ungureanu 2013).
o The accountants have to deal with some specific issues at the time of the accounting
treatment of the implementation of non-current assets and these issues create major
effects on the financial position of the companies related to the non-current assets.
However, the new regulation of FASB for asset revaluation puts an obligation on the
companies to must comply with the asset revaluation related standards. Thus, in the
presence of these factors, it has become easier for faithfully represented the financial
statements by complying with all the regulations (Florin-Constantin 2013).
o With the help of this regulation of asset revaluation, FASB has become able to establish a
single framework for completing the accounting treatments of non-current asset
revaluation. This has made the job easier for the accountants of the companies.

7ADVANCED FINANCIAL ACCOUNTING
Part D
Requirement [a]
The main motivations for the directors are discussed below:
o Adoption of the asset revaluation process puts the obligation on the directors of the
companies to carry on the revaluation process of property, plant and equipment on a
regular basis. Thus, the directors can obtain the fair value of the assets (Magnan, Menini
and Parbonetti 2015).
o In case the directors have the fair value of their property, plant and equipment, they
become able to do negotiation on the value of these assets at the time of merger and
acquisition. Thus, it is required for the directors to adopt the asset revaluation process for
getting the fair value of property, plant and equipment (Florin-Constantin 2013).
o In case the directors involve in the revaluation process of property, plant and equipment,
they become able in getting the true rate of return on capital employed.
Requirement [b]
Financial statements of the companies get affected by the decision not to revalue the
property, plant and equipment. The values of the property, plant and equipment will become
stagnant in the absence of asset revaluation process. Thus, the sales procedure of these assets
would generate abnormal amount of profit or loss that will eventually reduce the earnings of the
companies. In addition, the reduction in the earnings of the companies would end up in reduced
profitability for the businesses (Waegenaere, Sansing and Wielhouwer 2015).

8ADVANCED FINANCIAL ACCOUNTING
Requirement [c]
Apart from the earnings and profitability, the wealth of the shareholders gets affected
with the decision not to make the asset revaluation. The shareholders of the business
organizations considers the financial statements of the companies before making the investment
decisions so that they can obtain understanding about the financial performance as well as
financial standings of the business entities. Due to the decrease in the earnings as well as
profitability of the companies, the companies cannot provide the actual return on investment to
the shareholders. This aspect would lead to the reduction of the wealth of the companies
(Waegenaere, Sansing and Wielhouwer 2015).

9ADVANCED FINANCIAL ACCOUNTING
References
Amoako, G.K., 2013. Accounting practices of SMEs: A case study of Kumasi Metropolis in
Ghana. International Journal of Business and Management, 8(24), p.73.
Chan, J.L., 2015. New development: China promotes government financial accounting and
management accounting. Public Money & Management, 35(6), pp.451-454.
Chhabra, K.S. and Pattanayak, J.K., 2014. Financial accounting practices among small
enterprises: Issues and challenges. IUP Journal of Accounting Research & Audit
Practices, 13(3), p.37.
Deegan, C. and Ward, A.M., 2013. Financial accounting and reporting: an international
approach.
Florin-Constantin, D., 2013. The users of accounting information and their needs. Anale. Seria
Stiinte Economice. Timisoara, 19, p.200.
Hope, O.K., Thomas, W.B. and Vyas, D., 2013. Financial reporting quality of US private and
public firms. The Accounting Review, 88(5), pp.1715-1742.
Magnan, M., Menini, A. and Parbonetti, A., 2015. Fair value accounting: information or
confusion for financial markets?. Review of Accounting Studies, 20(1), pp.559-591.
Nilsson, F. and Stockenstrand, A.K., 2016. Financial Accounting and Management Control.
Springer International Publishing: Imprint: Springer,.
Openshaw, K., 2013. Cost and financial accounting in forestry: a practical manual. Elsevier.

10ADVANCED FINANCIAL ACCOUNTING
Trucco, S., 2015. Financial Accounting and Alignment to Management Accounting in the Italian
Context. In Financial Accounting (pp. 83-132). Springer, Cham.
Ungureanu, M., 2013. Financial Analysis from an Accounting Point of View. CES Working
Papers, 5, pp.138-148.
Waegenaere, A., Sansing, R. and Wielhouwer, J.L., 2015. Financial accounting effects of tax
aggressiveness: Contracting and measurement. Contemporary Accounting Research, 32(1),
pp.223-242.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.