Advanced Financial Accounting: IFRS, Theories, FASB Statement, and Effects on Shareholders

This article covers Advanced Financial Accounting topics such as IFRS, Public Interest Theory, Capture Theory, Economic Interest Group Theory, FASB Statement, and Effects on Shareholders. It includes a discussion on the Conceptual Framework, qualitative characteristics, and the views expressed by CFOs. The article also explains the factors that do not motivate directors to carry out revaluation and the effects of not revaluating on financial statements.

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ADVANCED FINANCIAL ACCOUNTING
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Advanced Financial Accounting 2
ADVANCED FINANCIAL ACCOUNTING
PART A
The International Financial Reporting Standards (IFRS) are standards that have been set
by the Financial Accounting Standards Board (FASB) and the International Accounting
Standards Board (IASB) to ensure that industries in the global market can have one standard in
financial reporting. The Boards came up with the Conceptual Framework that is aimed at
ensuring the differences that exist in financial reporting can be eliminated or reduced (Carmona
& Trombetta, 2008).
This Conceptual framework has two qualitative characteristics that are aimed at ensuring
financial reporting can be efficient and effective. The qualitative characteristics are fundamental
characteristics and enhanced qualitative characteristics.
The fundamental characteristics entail of two main components these are relevance and
faithful representation. In relevance, the revised framework aims at ensuring that financial
reports only contain useful information that industries can use in making decisions. However the
CFO's believe that the information is useless. This means that it is not relevant and the CFO's
have no use for it. Faithful representation, on the other hand, aims at ensuring that the
information is complete, neutral and free from errors by it being reliable. The CFO's believe that
the information has gone to unmanageable levels. Therefore it is not reliable. They cannot
depend on the information if they are not able to manage it in the first place. Thus it is highly
unreliable. The information also at most times according to the CFO's is not reliable because it is
incomplete had has errors (Li & Sougiannis, 2017).
The enhancing qualitative characteristics entails of four main components. These are
comparability, verifiability, timeliness and understandability. The revised framework aims at

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comparability in that institutions can compare financial records. However the CFO's say that they
are useless meaning they cannot do any comparisons between their financial records because
they cannot use the disclosures.
The revised framework has also failed to achieve understandability. This is seen in the
article where the analysts cannot be able to read the IFRS accounts because they will
misinterpret them. Therefore the financial statements cannot be understood easily and
misinterpretation can also lead to errors when making financial decisions. The statements
according to the article can only be read by trained professionals (Haslam et al., 2016). This goes
against the characteristic of timeliness because a lot of time will be spent by the institution
outsourcing for professionals.
Lastly, the investors are unable to reach a main conclusion because the financial
statements cannot be interpreted and if they are, they are misinterpreted. This shows that the
statements are not verifiable.
The views expressed in the article are not consistent with those of corporate financial
reporting because of the following reasons. First the CFO's are unable to make comparisons
between financial statements because the information is useless. Therefore it is not consistent
with that of corporate financial reporting that achieves comparability.
Second the financial information is often misinterpreted by analysts meaning that they are
not easy to comprehend or understand. They can only be read by professionals that are trained.
Third the information is not manageable therefore cannot be relied on for making informed
decisions.
PART B
Public interest theory

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The public interest theory aims at ensuring that the needs of the public are put first rather
than those of the institution. In this theory regulations are set by an entity such as the government
to ensure that the industries act in a manner that will be of benefit to the public. The public in
most cases is the community at large or the customers. The government sets this regulations but
however it is not necessary because a company is always driven by the market force (Scott,
2015).
For instance, if an industry sells shirts that are way more expensive than they should be
then they will not get any market. They may decide to conduct a survey to determine why they
have no market and come to the realization that the customers feel that the prices are too high
and should be reduced. The company will have to conform to the customers' demands so that
they can create demand and thus supply. In this example we see that the company is driven by
the market and thus their choices will be based on them (Baboukardos & Rimmel, 2016).
Therefore it is not necessary for the government to set regulations because the industry is capable
of catering to the market force on its own.
Capture Theory
The Capture Theory Aims At Ensuring The Strategies And Objectives Of An Industry Are Met
In A Way That Will Benefit The Members Of The Company. At Most Times The Agency That
Sets The Regulations Is ‘Captured' By The Industry. In This Theory The Government At First,
Sets Regulations That Benefit The Public At Large But With Time, The Company Captures It
And Instead, Acts In The Benefit Of The Company. The Government Gives The Industry Players
Guidelines On What To Follow To Ensure Maximum Profits (Wild & Van Staden, 2015).
In This Case The Industry Does Not Need Guidelines From The Government On What To Do
Because They Are Capable Of Gauging The Market Force And Acting. The Industry Players Are

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Well Aware That Without The Market Then It Will Be Prone To Failure. Therefore They Need
Consider The Demands Of The Customer So That The Company Can Profit Which In Turn Will
Cause The Members To Benefit. Hence It Is Correct To Say That The Government Does Not
Need To Regulate A Company Because They Will Always Put The Demands Of The Public As
First Priority (Joskow, 2014).
Economic Interest Group Theory
The economic interest group theory aims at ensuring that a company will accomplish its
goals and objectives through the regulation set. In this theory, the industries are the ones that set
the regulations and the government is the supplier. These regulations are set on the basis of the
interest groups which are the customers. The government needs to approve the set regulations.
From this theory, we see that the industry is well capable on its own to set regulations and does
not need the help of the government (Myrdal, 2017).
An excellent example of this theory is as follows. A sporting club may set regulations
that ask the government to build them a stadium. The government may conform to this and agree
to build the stadium. However the public may refuse this because they believe the club has
enough money to build the stadium due to their high net worth. The club will have to agree to
this demand because without the fans no one will come to watch the games and this is equivalent
to loss of money (Johnston & Petacchi, 2017). Therefore in this instance we see that the club is
capable of acting on the demands of the market force without any help from the governmental
agency.
PART C

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The FASB Statement in No 144 provides guidance on the accounting for implementation
costs classified as non-current assets and that the assets are not revaluated to their fair value. The
statement was issued by the FASB board to help in accounting and financial reporting.
The statement made some changes to ensure that relevance and faithful representation are
achieved in the accounting process. The statement aims at expanding discontinued operations to
include more transactions. This achieves relevance because all the important and required
information will be included in the transactions thus allow one make informed financial
decisions (Beckman, 2016).
Also the statement focuses on use of one model instead of two. This eliminates any errors
that may result due to use of two models. This way they have achieved faithful representation
that aims to achieve financial information that is free from errors. Also by using one model, a lot
of time is saved in the accounting process. Therefore timeliness is achieved that is an aspect of
faithful representation.
This statement also ensures that the financial information is neutral. This is achieved
when they provide guidance on how to account for the implementation costs of non-current
assets. Therefore, any decisions that will be made will be free from bias because the results will
not be subjective and thus achieving faithful representation.
Lastly the statement allows for faithful information because it will provide complete
information necessary for accounting and reporting. This is evident when they allow for the
expansion if discontinued operations. This way they ensure that all the information that is
required will be included and therefore the disclosures will be complete. This helps in making
fully informed decisions. In conclusion, the FASB statement achieves relevance and faithful
representation that are both important in corporate financial reporting.

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PART D
A
The following are some of the factors that do not motivate directors to carry out
revaluation
It is a complex process. The process of revaluation in itself is not easy and many directors
do not do it because of its complexity especially in the valuation cycle.
It is still new and therefore many directors are unfamiliar with it. Most directors are not
aware of revaluation and thus are less motivated to using it.
Revaluation takes a lot of time and it is also costly. The valuation cycle takes a lot of time
and the process in itself is very costly. Therefore, directors are not motivated to use it because it
will waste a lot of time and also it will cost them a lot (Plummer & Patton 2015).
Directors are also not motivated to revalue their plant property and equipment because it
is subjective. It involves a valuer carrying out the estimates of an asset and directors feel that this
may cause biasness
In revaluation correct estimates of the fair value have to be given, therefore directors find
this challenging and are thus less motivated to use the model.
B
The effects of not revaluating will have the following effects on the financial statements
The statements will not be sufficient enough and thus one cannot use them to make
financial decisions
The statements will not include any information on the debt requirements therefore, the
company will be unable to know what debts needs to clear them and how to.

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The statements will not have any increase in assets which causes not making correct
adjustments to payments of interests.
The financial statements will have less profit and thus the company will not be able to
pay its investors enough dividends
C
If a company does not do revaluation on its plant, property and equipment, it will greatly
affect the shareholders. This is because the return in investments will be low thus the dividends
given to the shareholders will not be adequate. Also the company will not make any profits
which affect the shareholders investments and the money they make (Christensen & Lee, 2015).

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References
Baboukardos, D. and Rimmel, G., 2016. Positive Accounting Theory.
Beckman, J. K., 2016. FASB and IASB diverging perspectives on the new lessee accounting:
Implications for international managerial decision-making. International Journal of Managerial
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Carmona, S. and Trombetta, M., 2008. On the global acceptance of IAS/IFRS accounting
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Public Policy, 27(6), 455-461.
Christensen, H. B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What
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Haslam, C., Tsitsianis, N., Hoinaru, R., Andersson, T. and Katechos, G., 2016. Stress testing
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Johnston, R. and Petacchi, R., 2017. Regulatory oversight of financial reporting: Securities and
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Joskow, P. L., 2014. Incentive regulation in theory and practice: electricity distribution and
transmission networks. In Economic Regulation and Its Reform: What Have We Learned? (pp.
291-344). University of Chicago Press.
Li, S., Sougiannis, T. and Wang, I., 2017. Mandatory IFRS Adoption and the Usefulness of
Accounting Information in Predicting Future Earnings and Cash Flows.
Myrdal, G., 2017. The political element in the development of economic theory. Routledge.

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Plummer, E. and Patton, T. K., 2015. Using financial statements to provide evidence on the fiscal
sustainability of the states. Journal of Public Budgeting, Accounting & Financial
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Scott, W. R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Wild, S. and van Staden, C.,2015. The development of integrated reporting: A paradigm of
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