Current Development in Accounting Thought

This article discusses the current development in accounting thought, specifically focusing on credit impairments. It highlights the main concerns related to credit impairments and the impact on a company's financial assets. The article also reviews an exposure draft on financial instruments credit losses and discusses the major issues and comments from professional institutions. Overall, it provides valuable insights into the evolving accounting landscape.

Running Head: CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
Name of the Student
Name of the University
Author Note

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Table of Contents
Question 1..................................................................................................................................2
Review of Article...................................................................................................................2
Question 2..................................................................................................................................5
Exposure Draft Major Issues..................................................................................................5
Comments Letter Views.........................................................................................................6
Comment Letter Assessments................................................................................................7
Comment Letter Actions Interpretation.................................................................................8
Reference..................................................................................................................................10

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Question 1
Review of Article
An article has been published on August 8, 2019, which has highlighted the main
concerns related to credit impairments. The financial assets of the company is termed as
credit impairment when the occurrences of the one or more than one events have detrimental
impact on estimated future cash flows of the financial assets. It generally occurs when the
creditworthiness of the company deteriorates. It is reflected by the assignment of the
reduction in credit rating to the organization. The impairment of the credit makes it difficult
for the company for borrowing more funds. The company might have the impaired credit if
their financial situations change in theway that of having greaterlikelihood of defaulting on
bond. In case of the business organization, creditworthiness would decline, if there is
deterioration of their financial position over time because of the weaker economy, poor
management as well as increasing competition. The impaired credit might requires for having
drastic changes to the procedures or the operations for alleviating the financial stress that
leads towards eventual improvements in the conditions of the balance sheet. The changes
includes reduction of the using of the cash flows for paying down the outstanding debt,
selling of the assets as well as reducing the expenses for bringing it to the manageable level.
The Article published in the news portal of Sydney Morning Herald has raised the
greatest example of credit loss of AMP. This is the financial services company in the country
of Australia as well as New Zealand. The company provides the product and services such as
banking advice and banking products that includes savings accounts and loans as well as
superannuation and the investment products. The issue of the company that has been
highlighted was involvement of the company for choosing to prioritize profit of short-term at
the expense of their best interest and the compliance with the regulatory. It has been found

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that there was the involvement of company’s senior executive in the misconduct. In this
situation, apart from raising concerns, the company’s employees chosen for not disclosing the
knowledge they were having regarding the actions of the company in breaching of license
duties (Amp.com.au. 2019).
The issue has been raised in the article regarding the fact that how troubled AMP
wealth manager has taken steps in launching massive raising of the capital to underpin new
looking structure for their business controversial sale of life insurance, which is just after
having loss of $2.3 billion, during first half of financial year (Banks, 2016). AMP has
revealed regarding massive business restructure advice that would be affecting slash number
of the financial planners. There was halt of company’s shares to raise $650 million in highly
discounted raising of the capital from the existing investors of institutions. Credit Suisse as
well as UBS have fully underwritten the capital raised. The extension was done of bids
window, which indicated certain price pressures (Brown & Moles, 2014).
During the loss of the AMP of the first half of financial year, there were impairments
of $2.35 billion on financial planning part of the company. The impairments have been
occurred, which includes writing-down of the amount of $1.5 billion on the goodwill of the
business wealth management. In was done in wake of banking royal commission of the
previous year, in which it has been accused of misconduct. There was decline of 22 percent
on the company’s operating profit because of the misconduct done by the company (Creal et
al. 2014) This has resulted into non-payment of interim dividend as there was reduction of
around $1.3 million of earnings of wealth management operations. AMP has suffered on the
part of large net outflows, which was recorded up to $3.1 billion. For re-cutting the deals to
sell the insurance to the group of the UK/Bermudan Resolution Life for the amount of
$3billion, which is less than that of the original resolution of offer of $3.3 billion for the
business, the wealth manager of AMP would be using cash. This new deal would result in

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receiving cash for the amount of $2.5 billion as well as $500 from equity interest of the
Resolution Life Australia. This particular deal would hold no interest in the matured business
that would be selling to Resolution life. The original planning was done to retain 40 percent
stake in matured business of the cash producing. Executive chairman of the Resolution life
Clive cowdery has welcomed this re-deal and has stated that it is delightful that resolution is
present in the country of Australia as well as New Zealand (Annappindi, 2014).
There was great impact of this on the company. Hence, it is now planning to reset and
draw new bright future of the company. AMP has stated that there are short-term impacts of
shocks and crisis but company is now taking steps for doing repositioning of their business to
gain clients trust. In this respect, the total amount of $778 million has been taken aside in
order to fund the costs to compensate their customers. AMP has also made provisions of $1.3
billion to fund any future reconstructions of wealth arm (Siriwardane, 2015).
This article has raised issue that relates to criticism received by AMP for the new deal
with Resolution. It is because of forceful act of re-cutting after the refusal by Reserve Bank
of New Zealand to approve deal over local policy holders concerns. The company has cope
up with the flaming from the investors over deal with resolution with shareholders
(Domnikov, Khomenko & Chebotareva, 2014). Several questions have been raised by the
company as the result of problem faced by company for the significance of re-cutting deals to
satisfy the concerns raised by Reserve Bank of New Zealand. It is because of this there has
been new appointment of chief financial officer after the resignation of John Patrick, who
was CFO of the company (Harris, Khan & Nissim, 2018).
Hence, from the review of the article, it can be concluded that impairments of credit
needs major amount of procedures changes in the business organization, in order to alleviate

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financial stress. These changes would lead towards improvements of the balance-sheet
conditions (Bahnsen et al. 2014).
Question 2
Exposure Draft Major Issues
On June 2, 2019, FASB has issued their exposure draft on “Financial Instruments
credit Losses. It was the proposed standards of the Accounting update on the Targeted
Transition relief for Topic 326. FASB has received various requests since long regarding
amendments in the transitions guidance for update of the 2016-13. Various professional
institutions have taken steps for submitting agenda letter that have stated that certain
preparers of financial statements are planning for electing the options of fair value in order to
purchase financial assets (Cohen & Edwards, 2017). However, those particular firms have
used for measuring financial assets on historically historical based cost of the amortization.
Further, those firms would be adopting the method of dual measurement techniques, if in case
no amendments would have been done by FASB. Hence, as a result of which, there won’t be
any kind of comparisons of the financial statements by users. Further, if this amendment is
done then it would help in providing relief of the transition that is targeted with the intention
to increase comparability of the information of the financial statements for the certain
business organization, which would otherwise helpful for the measurement of the same
financial instruments by other measurement methodologies. (Weber, Hoque & Ayub Islam,
2015). In addition, there would be reduction of the cost of preparers of the financial
statements. This would result in the enhancement of the users for taking decisions that are
based on useful information (Fasb.org. 2019). Hence, some of the major issues, which are
covered in FASB proposed update for which individuals and the professional institutions are
invited to providing their valuable comments:

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The option of irrevocable electing of the fair value is provided to the institutions in
subtopic of the eligible instruments. This is based on assumption that irrevocable
electing of fair value must be within area of subtopic 326-20. It is except debt
securities held for maturity.
The proposed amendments require the options of irrevocable electing the fair value,
which should be applied based on the instruments by instruments (Fasb.org. 2019).
The decisions of the board for providing firms with the option for continuing the
measurement of fair value of the financial assets is measuring raw materials with the
technique of fair value with net income. The application of guidance in the
measurement is given in subtopic 325-30 (Linnenluecke et al. 2015).
There is the requirement for additional disclosures in the proposed amendments that is
beyond to the disclosures requirements of topic 250, subtopics 825-10 and the
changes in the accounting as well as corrections of the error.
If any firms have already adopted the topic 326 the board of director needs effective
date and the transitions for amendments that is proposed.
Comments Letter Views
When the exposure draft has been prepared by the standard setting body FASB then it
is presented to all the parties interested and along with that invitation for the comments by the
different financial institutions, professional institutions as well as individuals is done so that
before making it as the standard, steps are taken to know the feedback. Following are certain
comments given by well known institutions.
Ernst & Young- The comment given by the multinational professional services firm,
Ernst & Young is in the support of the proposed exposure draft. This institution has
the view that this proposal would give relief in electing the option of fair value

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measurement. The board of the company would be helped in addressing issues and
that too in the timely manner (Ey.com. 2019).
Moody Analytics- The international rating agency, Moody Analytics has given their
comment in favor of proposed agenda. This institution has stated that the proposed
exposure draft would provide transition ease for standards of the credit losses by the
help of options for the measurement of the assets of the particular by fair value
method (Moodysanalytics.com. 2019).
Grant Thornton- The sixth largest US accounting and the advisory organization,
Grant Thornton have given the comment, which shows disagreement on exposure
draft framed by FASB. This organization has stated that this amendment would
require to adopt ASU 2016-13 in the fiscal year that means prior to the beginning of
December 15, 2021, which is applicable to all reporting firm except that of the public
firm. Moreover, during the fiscal year after December 15, 2021, there won’t be any
impact of ASU 2018-19 of requirement of effective date for public firm. Further, from
scope of the ASC 326-20, receivables of operating leases are being excluded.
However, this has to be instead accounts for the impairments of the receivables that
result from operating lease, under ASC 842 guidance (Grantthornton.com. 2019).
KPMG- The comment given by the well known accounting firm, KPMG has
supported FASB for the amendments proposed by them. They stated that the proposal
by KPMG would increase measurement of fair value of loan amount. The method
proposed by the FASB would be helpful in respect of allocation of the fair value of
the gains and the losses of the financial statements in the presentations of the separate
interest income. For the investors of the financial institutions, this measurement
approach would be considered as important (Frv.kpmg.us. 2019).

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Comment Letter Assessments
The theory of public interest is defined as that theory of regulator, under which
benefits are being provided by the concerned body in order to protect the public at large. This
theory aims for allocating resources in the best possible ways for individual as well as
collective purposes. The regulation made in public interest employs legal instruments with
the aim of implementing policies of socio-economies (Majid, 2015).
The behaviors that are being displayed by the financial institutions of the amendments
that are presented in the exposure draft by FASB have justified the theory of public interest.
The major reason for this behavior is the fact that this amendment would address major
stakeholders concerns with the help of giving options for electing irrecoverably fair value for
some financial assets that is measured earlier on amortization costs (Fasb.org. 2019). The
targeted transition relief would increase information comparability of methodologies of
measurement for the same financial assets. Moreover, targeted relief transition would reduce
certain organizational costs to comply with amendments done in update 2016-13. This
amendment would be promoting public welfare because this would provide assistance for
providing useful information of the financial statements. This would be enhancing user’s
decision making (Darrough, Guler & Wang, 2014).
Comment Letter Actions Interpretation
Public interest theory promotes general public welfare rather than well-organized
stakeholders. Moreover, the regulation acknowledges the individual and group form for
pursuing self-interest. This theory in general, helps in dominating the regulatory processes.
The regulations in the private interest theory are more concerned regarding power
competition rather than public interests. In general, the private groups are more engaged with
lobbying activities. In case, when the markets of the regulation are based on the supply and
the demand then in that case, there is more chance of lobbying (Fernandes et al. 2016). At

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last, capture theory aims for manipulating the regulations for getting fit in requirements of the
concerned organizations or the individuals that are affected by theory. It helps in serving
interests of the concerned industry over particular period. This holds assumptions that
regulations are being supplied in the response of demands of groups that is interests in it and
those who are trying for maximizing income or members interest (Fasb.org. 2019).
Ernst & Young, stated that the amendments proposed in exposure draft would help to
serve interests of all organizations and the general investors. Moreover, Moody Analytics
statement also justifies the theory of public interest. As per them, this amendment can be
applied in the every reporting firm within the scope. Further, Grant Thornton stated that this
particular amendment would aims for meeting the needs of private organization rather than
public organizations (Fasb.org. 2019). KPMG, stated that the amendments proposed in the
exposure draft serve investors need in measurements of the fair value in the financial
statement. This statement by Ernst & Young gives justification of the public interest theory.
Hence, statement given by these institutions would help in serving public interest theory
(Calem, Lambie-Hanson & Nakamura, 2015).
Hence, it can be concluded after looking at the view points and comments of the
professional institutions that public interest theory is being served by the exposure draft. The
proposed amendments would be beneficial for the public as a whole.

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Reference
Amp.com.au. 2019. loans, H., retirement, S., & hub, F.. AMP Personal Banking - Accounts,
Super, Home Loans & Insurance | AMP. Retrieved 4 September 2019, from
https://www.amp.com.au/
Annappindi, S. K. (2014). U.S. Patent No. 8,799,150. Washington, DC: U.S. Patent and
Trademark Office.
Bahnsen, A. C., Stojanovic, A., Aouada, D., &Ottersten, B. (2014, April). Improving credit
card fraud detection with calibrated probabilities. In Proceedings of the 2014 SIAM
international conference on data mining (pp. 677-685). Society for Industrial and
Applied Mathematics.
Banks, E. (2016). The credit risk of complex derivatives. Springer.
Brown, K., & Moles, P. (2014). Credit risk management. K. Brown & P. Moles, Credit Risk
Management, 16.
Calem, P. S., Lambie-Hanson, L., & Nakamura, L. I. (2015). Information losses in home
purchase appraisals.
Cohen, B. H., & Edwards, G. (2017). The new era of expected credit loss provisioning. BIS
Quarterly Review, March.
Creal, D., Schwaab, B., Koopman, S. J., & Lucas, A. (2014). Observation-driven mixed-
measurement dynamic factor models with an application to credit risk. Review of
Economics and Statistics, 96(5), 898-915.
Darrough, M. N., Guler, L., & Wang, P. (2014). Goodwill impairment losses and CEO
compensation. Journal of Accounting, Auditing & Finance, 29(4), 435-463.

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Domnikov, A., Khomenko, P., &Chebotareva, G. (2014). A risk-oriented approach to capital
management at a power generation company in Russia. WIT Trans. Ecol. Environ, 1,
13-24.
Ey.com. 2019. Retrieved 4 September 2019, from
https://www.ey.com/publication/vwluassetsdld/commentletter_06005-191us_fvo-
ed_7march2019/$file/commentletter_06005-191us_fvo-ed_7march2019.pdf?
OpenElement
Fasb.org. (2019). Proposed Accounting Standards Update—Targeted Transition Relief for
Topic 326, Financial Instruments—Credit Losses. Retrieved 4 September 2019, from
https://www.fasb.org/cs/Satellite?
c=Document_C&cid=1176172031887&pagename=FASB%2FDocument_C
%2FDocumentPage
Fernandes, J. S., Gonçalves, C., Guerreiro, C., & Pereira, L. (2016). Impairment losses:
causes and impacts. RBGN-RevistaBrasileira de Gestão De Negócios, 18(60), 305-
318.
Frv.kpmg.us. 2019. Retrieved 4 September 2019, from
https://frv.kpmg.us/content/dam/frv/en/pdfs/2019/kpmg_comment_letter_credit_loss_
standard.pdf
Grantthornton.com. 2019. On The Horizon: FASB amends credit losses guidance. Retrieved
4 September 2019, from
https://www.grantthornton.com/library/newsletters/audit/2018/on-the-horizon/
november/FASB-amends-credit-losses-guidance.aspx
Harris, T. S., Khan, U., &Nissim, D. (2018). The Expected Rate of Credit Losses on Banks'
Loan Portfolios. The Accounting Review, 93(5), 245-271.

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Linnenluecke, M. K., Birt, J., Lyon, J., & Sidhu, B. K. (2015). Planetary boundaries:
implications for asset impairment. Accounting & Finance, 55(4), 911-929.
Majid, J. A. (2015). Reporting incentives, ownership concentration by the largest outside
shareholder, and reported goodwill impairment losses. Journal of contemporary
accounting & economics, 11(3), 199-214.
Moodysanalytics.com. 2019. FASB Proposes Targeted Transition Relief for Credit Losses
Standard. Retrieved 4 September 2019, from
https://www.moodysanalytics.com/regulatory-news/feb-07-19-fasb-proposes-
targeted-transition-relief-for-credit-losses-standard
Siriwardane, E. N. (2015). Concentrated capital losses and the pricing of corporate credit
risk. Harvard Business School working paper series# 16-007.
Weber, O., Hoque, A., &Ayub Islam, M. (2015). Incorporating environmental criteria into
credit risk management in Bangladeshi banks. Journal of Sustainable Finance &
Investment, 5(1-2), 1-15.

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Newspaper Link
 https://www.smh.com.au/business/banking-and-finance/amp-to-raise-capital-after-2-
3-billion-loss-20190808-p52ezo.html
Comments Letter Link
 https://www.grantthornton.com/library/newsletters/audit/2018/on-the-horizon/
november/FASB-amends-credit-losses-guidance.aspx
 https://www.moodysanalytics.com/regulatory-news/feb-07-19-fasb-proposes-
targeted-transition-relief-for-credit-losses-standard
 https://frv.kpmg.us/content/dam/frv/en/pdfs/2019/
kpmg_comment_letter_credit_loss_standard.pdf
 https://www.ey.com/publication/vwluassetsdld/commentletter_06005-191us_fvo-
ed_7march2019/$file/commentletter_06005-191us_fvo-ed_7march2019.pdf?
OpenElement

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Appendix

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