Advanced Financial Accounting Assignment - (Doc)
Added on 2021-06-15
11 Pages2755 Words112 Views
FinanceMaterials Science and Engineering
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Running head: ADVANCED FINANCIAL ACCOUNTINGAdvanced Financial AccountingName of the StudentName of the UniversityAuthor’s Note
1ADVANCED FINANCIAL ACCOUNTINGTable of ContentsPart A...............................................................................................................................................2Part B...............................................................................................................................................4Public Interest Theory..................................................................................................................4Capture Theory............................................................................................................................5Economic Interest Group Theory of Regulation.........................................................................6Part C...............................................................................................................................................6Part D...............................................................................................................................................7Requirement [a]...........................................................................................................................7Requirement [b]...........................................................................................................................8Requirement [c]...........................................................................................................................8References........................................................................................................................................9
2ADVANCED FINANCIAL ACCOUNTINGPart AAccording to the accounting conceptual framework, financial reports should have twotypes of qualitative characteristics; they are fundamental qualitative characteristic and enhancingqualitative characteristic. The fundamental qualitative characteristics include reliability andfaithful representation; and the enhancing qualitative characteristics include comparability,verifiability, timeliness and understandability. In the presence of all these qualitativecharacteristic, financial reports become more useful for the users (Choudhary, Merkley andSchipper 2017). The main content of the provided article is the absence of some of thequalitative characteristics in the financial reports developed as per International FinancialReporting Standards (IFRS).According to the opinion of former AXA head of finance Geoff Roberts, investors reportand management brief are two of the major financial documents on which the investors andothers users rely to obtain required financial information about the entities so that they can knowthe financial position of them as well as can understand their financial performance (Muda et al.2017). It is the ‘understandability’ qualitative characteristic that makes it possible for the users.The major contribution of this qualitative characteristic can be seen in increasing the quality ofthe financial statements. Clear classification, characterization and presentation of the financialreports is possible in the presence of ‘understandability’ qualitative characteristic that is helpfulin the determination of the financial wellbeing of the entities. There has been major violation inthe simplicity of the financial statements with the introduction of the standards of IFRS and iteventually has led to the decreased understandability of the financial position of the companies.In this statement, it can be clearly understood that Geoff Roberts is against the adoption of IFRS
3ADVANCED FINANCIAL ACCOUNTINGdue to its inability to provide a precise and transparent picture of the financial health of thecompanies to the investors and other user (Muda et al. 2017).According to the opinion of Wesfarmers finance director Terry Bowen, there is thepresence of some major complex financial explanation in the financial notes made as per IFRSstandards and it leads to the misinterpretation of financial statements by the financial analysts.Thus, it can easily be observed the absence of understandability and comparability that are twoof the major enhancing qualitative characteristics of financial reports (Lawrence 2013). It isneeded for the investors and other users of financial statements to understand and compare themajor similarities as well as differences in the financial reports; and the presence of these twoqualitative characteristics makes this possible for them. From the provided opinion of TerryBowen, it can be understood that there is a requirement of effective technical knowledge infaineance and accounting for understanding the financial reports developed as per the regulationsof IFRS. Thus, the adoption of IFRS as the financial reporting tools must be followed by theprocess of effectively educating the users with poorer technical knowledge in finance (Lawrence2013).According to the opinion of Commonwealth Bank chief financial officer David Craig, thefinancial reports developed as per the standards of IFRS fails in expressing the actual financialhealth of the businesses and this aspect has reduced the popularity of IFRS as the investors aswell as the users are not paying much attention to the financial reports developed as per IFRS(Van Auken 2013). Thus, in this whole process, the absence of faithful representation offinancial statements can be seen that is a major fundamental qualitative characteristic. In theabsence of this qualitative characteristic that is faithful representation in the financial reports;lack of complete decryption about the financial resources of the entities can be seen. Hence, this
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