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
The given situation indicates towards the fact that the business organizations have spend
millions of dollars for the adoption of IFRS standards so that the financial reporting can be
improved, but these financial statements have majorly failed in providing the users with the
correct financial pictures of the business entities and the absence of the major qualitative
characteristics can be held responsible for this failure. The following discussion analyzes the
provided statements so that the missing qualitative characteristics can be identified:
The former Finance Head of AXA, Geoff Roberts has mentioned that there has not be
any questions from the financial analysts and the fund managers related to the quality of the
notes to the financial statements developed as per IFRS for analyzing the financial situations of
the business entities. This aspect indicates towards the fact that the fund managers as well as the
analysts can understand the financial performance and standing of the companies from the IFRS
financial reports and they become able to compare the results of the financial statements with the
other companies. Thus, both understandability and comparability characteristics are there in the
IFRS financial statements. However, the current financial reporting framework under IFRS is
majorly failing in providing both the understandability and comparability to the users (Brochet,
Jagolinzer and Riedl 2013).
The Finance Director of Wesfarmers, Terry Brown has mentioned in his statement that in
the absence of effective technical knowledge in accounting, the financial analyst can misinterpret
the financial conditions of the business entities from the analysis of the notes to the financial
statements of IFRS adopted financial reports. In case, there is the presence of verifiability
qualitative characteristic of financial reporting, the users become able in the application of their

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knowledge as well as observation for judging the financial performance and financial standings
of the companies. This aspect makes verifiability as major characteristic. However, from the
statement of Terry Brown, it can be observed that the present financial reporting framework
under IFRS is barring to obtain insight about the company’s financial position in the absence of
technical knowledge that indicates the absence of verifiability qualitative characteristic (Houqe,
Easton and Zijl 2014).
Chief Financial Officer of Commonwealth Bank, David Craig has mentioned one crucial
aspect that the financial statements developed as per the standards of IFRS are obscuring the
financial position to the investors of the companies and for this reason; investors are ignoring the
financial statements developed as per IFRS. This aspect indicates towards the missing of both
relevance and faithful representation qualitative characteristics as the financial statements fail to
provide the correct pictures of the financial performance and financial position of the companies
in the absence of these two characteristics. Hence, the present financial reporting framework
pursuant to IFRS lacks these two qualitative characteristics. In this context, it needs to be
mentioned that the lack of these qualitative characteristics is a major barrier in achieving the
central objectives of financial reporting (Ahmed, Neel and Wang 2013).
Part B
Different theories of regulation play major part on the evaluation of various regulations
and situations related to the implementation of the regulations. The detailed discussion is shown
below:

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Public Interest Theory
The rules of public interest theory helps in preventing the theoretical justification of any
implemented regulation. It states that the main aim of the regulations is the fulfillment of the
interests or the demands of the common people and hence, the regulations are provided with
major importance. As per this theory, the presence of regulation ensures that any specific group
of shareholder does not become beneficial from the implementation of any regulation (Asquer
2018). This particular theory of regulation does not put major importance on the market forces as
they do not have any capability to fulfill the demands of the common people. This theory
indicates that intervention of the government is required for diminishing the market imperfection
and market failure. Thus, as per the view of this theory, the decision of the Australian
government cannot be supported as market force does not have the power to promote the social
as well as environmental responsibilities among the common people and companies.
Capture Theory
The principles of capture theory presents another important aspect related to the
introduction of any regulation. The major emphasis on this regulation is on the market forces for
fulfilling the needs and interests of the customers as the regulations can be easily manipulated by
their developers for satisfying their own interests. This theory states that after certain period of
time, the introduced regulations serve for the interest of the regulators. This theory eliminates the
intervention of the government for repairing the market failure as well as market imperfections
as the market forces are there for doing so (Zimmerman 2013). Apart from this, the application
of this theory in certain situations provides assistance in the identification of the major
stakeholders which are the main reason behind the implementation of the regulations. According
to the regulations of this theory, one can support the decision of the Australian government of the

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non-introduction of regulations in Corporations Act for the promotion of the social and
environmental responsibilities. In the presence of market forces, it is possible to fulfill the
interest of the public without manipulating the regulations.
Economic Interest Group Theory of Regulation
The concept of this theory indicates towards the fact that the business industries are the
main developers of the regulations as their objective is to do the welfare for both the public and
the companies with the help of specific regulations. It implies that the introduction of regulations
does good for both the companies and the public (Job et al. 2015). Hence, as per the principles of
this regulation, it would be better for the Australian government if they introduced regulation in
the Corporations Act for the social as well as environmental responsibilities.
Part C
As per the given situation, the business entities of United States (US) are barred from
carrying on the revaluation process of non-current assets, but the accounting authority puts the
responsibility on them to carry on the impairment process on those non-current assets. It is
required for the companies of US to present their financial statements relevantly and faithfully.
For this reason, the above-mentioned regulation has some of the major implications and they are
as below:
o The financial statements of the business organizations should make the users of the
financial statements in understanding the major differences and similarities about the
specific financial items like the revaluation of the non-current assets. The above-
discussed regulations ensure that the financial statements of the companies include all

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the required information about the revaluation of non-current assets so that the users can
gain correct understating about them (Weil, Schipper and Francis 2013).
o The presence of different types of accounting regulations can be seen for the accounting
operations of the revaluations of the non-current assets and complexities as well as
difficulties can be noticed from the side of the accountants to comply with all of these
regulations. Thus, the previously mention revaluation regulations has developed as
common way to carry on the accounting operations of non-current revaluations that helps
in the reduction of complexities and difficulties for the accountants.
o Most impotently, it needs to be mentioned that the accounting authority of US has been
successful in the development of one single accounting model or framework for the
accounting operations of revaluation of assets. This progress has created major positive
influence on the relevance as well as faithful representation of the financial statements of
US (Weygandt, Kimmel and Kieso 2015).
o The accountants of the companies of US face different kind of issues at the time of
dealing with the implementation of the non-current assets of the business entities. Under
the operation of the above-discussed revaluation related regulation, business
organizations have to make compliance with all the required regulation of the revaluation
of non-current assets. This is a major positive aspect for the solution of the
implementation related issues of the non-current assets.

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Part D
Requirement [a]
The process of asset revaluation is considered as specific process that the directors of the
companies use in order to gain the fair value of the property, plant and equipment of their
business. The presence of certain factors can be seen that provides the directors with major
motivation for the revaluation of property, plant and equipment. They are mentioned below:
o The strategy of the revaluation of property, plant and equipment demands the
organizations to carry on the revaluation process on a frequent basis so that the directors
can obtain the fair value of property, plant and equipment. Frequent revaluation process
diminishes the chance to create difference between the fare value and historical value
(Beatty and Liao 2014).
o As per the above discussion, directors can gain knowledge about the fair value of
property, plant and equipment with the help of revaluation process. This aspect leads to
the effective price negotiation of these assets at the time of merger and acquisition that
eliminates the chance of business loss (Beatty and Liao 2014).
o In the presence of the asset revaluation strategy of property, plant and equipment in the
organizations, it becomes easy for the directors of the companies to gain understanding
about the return from capital employees that is a crucial aspect for the financial reporting.
Requirement [b]
Many of the business organizations take the decision of not revaluation of the property,
plant and equipment. Thus, in the absence of the revaluation process, the directors of the
business entities cannot obtain the fair value of these assets that affect the negotiation process at

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the time of merger and acquisition (Bevis 2013). Apart from this, the values of the property,
plant and equipment stop moving in the absence of asset revaluation strategy that leads to the
creation of abnormal loss or profit at the time of their selling. At the same time, the absence of
asset revaluation process leads to the reduction in both the profitability and earnings of the
entities that affect the financial statements of them.
Requirement [c]
The involvement of the wealth of the shareholders of the companies can be seen with the
asset revaluation process. Business organizations become unable to provide the shareholders
with their required return on investment in case there is reduction in profitability as well as
earnings of the company due to the absence of revaluation process of property, plant and
equipment. On the overall basis, the wealth of the shareholders decreases due to the not
revaluation of property, plant and equipment (Weil, Schipper and Francis 2013).

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References
Ahmed, A.S., Neel, M. and Wang, D., 2013. Does mandatory adoption of IFRS improve
accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), pp.1344-
1372.
Asquer, A., 2018. Theories of Regulation. In Regulation of Infrastructure and Utilities (pp. 19-
33). Palgrave Macmillan, Cham.
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Bevis, H.W., 2013. Corporate Financial Accounting in a Competitive Economy (RLE
Accounting). Routledge.
Brochet, F., Jagolinzer, A.D. and Riedl, E.J., 2013. Mandatory IFRS adoption and financial
statement comparability. Contemporary Accounting Research, 30(4), pp.1373-1400.
Houqe, M.N., Easton, S. and van Zijl, T., 2014. Does mandatory IFRS adoption improve
information quality in low investor protection countries?. Journal of International Accounting,
Auditing and Taxation, 23(2), pp.87-97.
Job, V., Walton, G.M., Bernecker, K. and Dweck, C.S., 2015. Implicit theories about willpower
predict self-regulation and grades in everyday life. Journal of Personality and Social
Psychology, 108(4), p.637.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.

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Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John
Wiley & Sons.
Zimmerman, B.J., 2013. Theories of self-regulated learning and academic achievement: An
overview and analysis. In Self-regulated learning and academic achievement (pp. 10-45).
Routledge.