Advanced Financial Accounting | Sample Assignment

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

1ADVANCED FINANCIAL ACCOUNTING
Part A
From the provided situation, it can be observed that the financial statements of the
business organizations that have been developed as per the standards of IFRS have failed to
provide the users with the required information to analyze the financial performance as well as
financial standings of those entities; but the companies have spent more than millions of dollars
for the adoption of the standards of IFRS. Financial statements of the business entities fail to
provide the required information when they lack the qualitative characteristics of financial
information, as per the accounting conceptual framework. The following discussion sheds light
on the qualitative characteristics missing from the IFRS financial accounts.
Understandability and comparability are important qualitative characteristics of financial
statements. The first helps the users in gaining understanding about the financial statements and
noose to them and the later helps in comparing the financial information of one company to other
companies. Here, Geoff Roberts has mentioned the fact that the fund managers and analysts have
not raised questions about the financial adjustments of IFRS financial statements as the largely
depend on the management briefing and investor’s report to understand the financial
performance and position of the business entities that shows the presence of both undesirability
and comparability in the financial statements. Thus, the present financial reporting framework
under IFRS lacks these qualitative characteristics (Horton, Serafeim and Serafeim 2013).
Apart from the above, the importance of verifiability as a qualitative characteristic of
financial reporting cannot be ignored as this qualitative characteristic helps the users of the
financial statements to apply the knowledge and observation in order to gain understanding about
the financial performance and position of the entities. The statement of Terry Brown indicates

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towards the fact that the notes to the financial statements developed as per IFRS can mislead the
financial analysts in case they try to analyze them when they are not technically trained. From
this statement, it can be observed that there is a requirement of high technical knowledge for the
analysts for analyzing the financial notes developed as per IFRS standards as it will not be
possible to analyze them in the presence of limited technical knowledge. Hence, it can be
concluded that the presence financial reporting as per IFRS does not have verifiability qualitative
characteristic (Christensen et al. 2015).
Most importantly, relevance and faithful representation needs to be there in the financial
statements of the business entities as they are major qualitative characteristics. Relevance helps
the financial information to make a positive different in the investment decision-making process
of the investors where the later ensures that the users can obtain the correct information from the
financial statements of the business organizations. The statement of David Craig indicates
towards the fact that the financial statements developed as per the standards of IFRS fails to
provide the correct relevant information about the financial performance and financial standings
of the companies and thus, the investors ignore these reports. Hence, from this discussion, it is
clear that that the current financial reporting framework under IFRS lacks both relevance and
faithful representation (Horton, Serafeim and Serafeim 2013).
Part B
The government of Australia took the decision of not introducing any regulation under
the Corporations Act for social and environmental responsibilities. The following theories help
the analysis of this decision with the help of three major theories of regulations:

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Public Interest Theory
The public interest theory indicates towards the fact that the implementation of
regulations is required for the satisfaction of the needs and interest of the common people. For
this reason, there is a greater need for the introduction of regulation in the market as it ensures
the betterment of the common people as well as the companies (Asquer 2018). There is not any
function of market forces to satisfy the needs of the common people. It is required for the
government to intervene for eliminating market imperfection as well as market failure. Hence,
according to principles of this theory, the government of Australia would be required to
introduce the regulation in the Corporations Act for the promotion of Social as well as
environmental responsibilities for the public.
Capture Theory
The rules of capture theory of regulations indicates towards the fact that there is not any
need for the regulators to introduce any regulations as they can later manipulate those regulations
for satisfying their own interests. After certain point of time, regulations serve for the interest of
the regulators. For this reason, this theory put emphasis on the presence of market forces in order
to satisfy the needs of the common people (Hodges 2015). At the same time, application of this
theory helps in the identification of the affected parties with the implementation of any
regulation. Hence, with the application of this theory in the present situation states that the
government of Australia took the correct decision by not introducing any regulation in the
Corporations Act and let the matter be solved by the market forces. In the absence of regulation,
it would not be possible for the regulators to fulfill their own interest by manipulating the
regulations.

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Economic Interest Group Theory of Regulation
The principle of this theory indicates towards the fact that the business industries are the
developers of the regulations and the aim to develop the regulations is the welfare of both the
public and the business industries. According to the principles of this regulation, at the time of
the introduction of any specific regulation, the role of both demand and supply can be seen
(Asquer 2018). The present situation can be analyzed with the help of the rules of this regulation.
With the application of this regulation in the current situation, it can be concluded that it was
required for the government of Australia to introduce the regulation in the Corporations Act for
the promotion of social as well as environmental responsibilities. In this process, it would be
required for the government to include both the industries and the common people in the
regulation development process.
Part C
The accounting board of Australia has the regulation for the companies not to carry out
the non-current asset revaluation process but to consider the impairment associated on those non-
current assets. The implication of this regulation can be seen for the relevant and faithful
representation of the financial statements. They are discussed below:
 The introduction of this regulation has played a major part in the development of one
single framework for the business organizations in order to carry out the revaluation
process of the non-current assets. With the help of this, the users have become able to
gain the relevant information about the non-current assets (Nobes 2014).
 Business organizations had to face major difficulties as well as complexities at the time
of dealing with the non-current asset revaluation process. However, the introduction of

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this regulation puts the obligation on the companies to comply with all the required
standards for the process of non-current asset revaluation. For this reason, it has been
possible to faithfully represent the financial statements of the companies (Sharma and
Panigrahi 2013).
 Prior to the introduction of this regulation, it used to be difficult for the users of the
financial statements to make the identification of the major difference as well as
similarities in the accounting process related to the revaluation of the non-current asset.
However, with the introduction of this specific regulation, the users are required to only
track about the impairment aspects of the non-current asset and it has made the job easier
for the users (Hope, Thomas and Vyas 2013).
Part D
Requirement [a]
 The adoption of the revaluation process of the property, plant and equipment makes it
obligatory for the directors to continue the revaluation process on the frequent basis.
Thus, with the help of this process, it becomes possible for the directors to know about
the fair value of property, plant and equipment (Francis et al. 2015).
 At the time of merger and acquisition, the directors of the companies are required to
know the fair value of property, plant and equipment for effective price negotiation.
Thus, the adoption of asset revaluation process assists the directors by knowing the faie
value.
 In the presence of the knowledge about fair value of property, plant and equipment, the
directors can know the true rate of return on capital employed (Francis et al. 2015).

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Requirement [b]
In case the business organizations doe not adopt the strategy of revaluation of property,
plant and equipment, the value of these assets get freeze that lead to the generation of abnormal
amount of profit or loss at the time to sell them. This particular aspect will contribute to the
reduction of the return of the companies from these assets that will eventually decrease the
earnings of the company (Warren and Jones 2018).
Requirement [c]
In case, there is reduction in the earnings of the business organizations, there will be
reduction in the profitability for the companies. Hence, in the presence of reduced profitability, it
will not be possible for the business entities to provide their shareholders with the expected
return on their investments. As a result of this, there will be decrease in the wealth of the
shareholders (Henderson et al. 2015).

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References
Asquer, A., 2018. Theories of Regulation. In Regulation of Infrastructure and Utilities (pp. 19-
33). Palgrave Macmillan, Cham.
Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What
determines accounting quality changes around IFRS adoption?. European Accounting
Review, 24(1), pp.31-61.
Francis, B., Hasan, I., Park, J.C. and Wu, Q., 2015. Gender differences in financial reporting
decision making: Evidence from accounting conservatism. Contemporary Accounting
Research, 32(3), pp.1285-1318.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Hodges, C., 2015. Law and Corporate Behaviour: Integrating Theories of Regulation,
Enforcement, Compliance and Ethics. Bloomsbury Publishing.
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.
Horton, J., Serafeim, G. and Serafeim, I., 2013. Does mandatory IFRS adoption improve the
information environment?. Contemporary accounting research, 30(1), pp.388-423.
Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.
Sharma, A. and Panigrahi, P.K., 2013. A review of financial accounting fraud detection based on
data mining techniques. arXiv preprint arXiv:1309.3944.

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Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.