Comments on Fair Value Measurement Accounting Standard Update

This report discusses the upcoming accounting standard update on fair value measurement and the comments provided by different stakeholders such as Deloitte, RSM, KPMG, and IAS Plus. The report explains the changes in the accounting policy and their impact on financial statements. The report also highlights the modifications made in the standard and the disclosure requirements for nonpublic entities. The report concludes with the effective date of the amendment and the valuation approach to be applied.

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Running Head: ACCOUNTING
Accounting Paper

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................4
Relation to ACC518........................................................................................................................5
Conclusion.......................................................................................................................................7
Introduction......................................................................................................................................9
Upcoming accounting standard.......................................................................................................9
Comments of different Stakeholders on the Proposed Standards..................................................12
Conclusion.....................................................................................................................................16
References......................................................................................................................................17

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Question 1
Introduction
This part of the report is developed with an aim to analyze a news article which addresses a
recent accounting issue in context of Australia. The issues discussed in the article are described
and discussed in the report. Further, the identified issues are linked to the theories and topics of
ACC518. The article discussed in the report is on the role of four big accounting firms of
Australia which could threaten the world economy. A screenshot of the article is also affixed in
the report for the referencing purpose.
Figure 1: How the ‘big four accounting firms could threaten the global economy

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Discussion
Even though the accounting seems to be boring but it is an important aspect of every business.
Almost every economy of the world relies on accountants for their auditing work for verifying
the financial records of the company. Auditing is crucial in determining the accuracy of the
report provided to the different stakeholders of the company and safeguards the economy on a
large scale (Abeysekara, 2013). But recent financial crises and scandals depicted that any failure
in the accounting may lead to losing jobs in thousands of numbers and billions of dollars as well.
The major issue identified in the newspaper article is related to the auditing practices of the big
accounting firms such as Deloitte, KPMG, Ernst and Young, and PwC. These companies are
well known for auditing the big multinational corporation according to their market shares. The
concern addressed in the article is about the losing insight of these companies in exercising their
core business which is auditing. Rather, these companies are giving more importance on
providing the consultancy services. Their reducing revenue from the work of auditing and
increasing revenue from the sale of consultancy services is evident to this fact. These top
accounting firms are no longer seems to be working for accounting profession. Earlier, the
auditing was in majority of their profession and in the current phase it has reduced to one third
and has turned into just one of a line of their business. Due to insufficiency in the auditing
practices provided by these four big accounting firms to the multinational corporation, their
businesses are getting affected in an adverse manner. All the decisions of the company are
dependent on their financial statements and auditing them is the only tool by which the accuracy
of financial statements can be tested (Ball, Jayaraman, and Shivkumar, 2012). But since the big
organizations have routed their interest to constancy service many of the multinational

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corporations are facing with the accuracy of their financial statements. The incorrectly recorded
transactions are not being checked for accuracy and due to which the proper evaluation of the
company’s financial performance could not be done. The four accounting firms are selling
consultancy services to the politicians and bureaucrats to whom there were providing auditing
services before. This shows that the firms are becoming a consigliere to the government as the
politicians and bureaucrats are taking advantages of their services and are able to hide their real
financial positions. Apart from this, the investment related to major infrastructure, nuclear
policy, and transport policy are driven by the advice from these major accounting firms (Brown
and Zhou, 2013). It was also analyzed from the report that these major accounting firms are also
planning to split themselves into consulting and auditing arms of the firms. In this way they will
be changed from big four to big eight. In order to remove the profit motive form the accounting
services, auditing can be done from public funding. This will be a significant move in
differentiating the image if the auditing firms as an outsider.
Relation to ACC518
There are several theories and concepts of ACC518 which are in relatable in context to the above
information analyzed form the news article related to the issue of decreasing importance of
auditing and providing the consulting to the same clients by four big Australian companies. The
concepts of ACC518 identified for the news article is related to the accounting policies and
principles, procedures and rules which can be implemented in the preparation of financial
statement so that their accuracy can be assured. The detailed information is mentioned below:
Organizations use accounting policies in order to avoid the potential mistakes in developing
financial statements and making them more stable, fair and true in the eyes of different
stakeholders (Scherer, Palazz0, and Seidl, 2013). The use of accounting policies in simply not

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enough to see whether the information mentioned in them is totally correct or not. Often when
the financial statements such as balance sheet, income statements, and cash flow statements are
prepared by the accounting personnel of the company there are chances of error and omission of
figures and numbers. Due to these reasons the financial information becomes incorrect and an
incorrect picture of the financial performance of the company is formed. The company makes
decision on the basis of information contained in the financial statement but due incorrect
information all the decisions and strategies based on them becomes vague (Drnevich and Croson,
2013). Therefore, there is strong need for the organizations to undergo auditing to increase the
credibility and reliability of their financial statements.
Accounting standard
IFRS is developed by the IASB to develop global standards which will be used while preparing
the financial statement. While auditing the financial reports of the companies the four big firms
has to check whether their reports are in accordance with the IFRS. Since the four big accounting
firms have mould their interest to the consultancy business, the organizations which are required
to perform audit are also not focusing of conducting the audit in accordance with the IFRS.
Complex activities and corporate governance are included in the IFRS due to which the cost of
preparing the financial statement increases (Albu and Albu, 2012). Small firms invest money in
the preparation of financial statements and the big accounting firms have limited their auditing
services to multinational brands only. Due to this reason, the small forms are unable to check
whether their financial statements are materially correct or not. This negatively impacts the
operations of the small organization due to which many people have to lose their jobs. If more
companies will shutdown then the unemployment level will be increased and GDP of the
economy will decreased. This will lead to a global economic downturn if continued.

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Assumption behind the public interest
It is assumed that IFRS is required by 120 nations in the reporting jurisdiction in the listed and
domestic companies so that the financial statements can be prepared in a better manner. IFRS is
helpful for the organizations to comply with all the accounting system regulation so that they can
keep the interest of public at large. IFRS includes many elements which are at high level of
public interest. These elements include financial sustainability, continuous public enhancement,
transactions related to accounts in the preparation of financial statements and portrait of
economic reality (Nobes, 2014). All these aspects can be assured only if regular auditing is done
for the financial statements prepared under the consideration of IFRS. Therefore, the financial
statements shall be audited to that the firms can maintain the public interest at large.
Private concern
Since the prime focus of big four accounting firms have moved from auditing practices to
consultancy services the private companies can freely adopt the IFRS which could help them in
complying with the accounting standard and reduce the chances of errors while making the
financial statements. This will also enable them to build the confidence of the investors in the
financial reporting. When the financial statement will be materially correct then the interest of
the public as well as investors will be increased and people will not lose jobs (Levine, 2012).
This could also reduce the rate of unemployment and the save the world from economic
downturn.
Conclusion
It can be concluded from the above report that the accounting standards and auditing plays a vital
role in the creation of financial statements. Accounting standards are useful in making the
financial statements while auditing is useful in assuring that the financial statements are

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materially correct. Together the accounting standards and auditing can aid any organization in
increasing the credibility of their financial statements and increase the confidence of investors as
well as public. The private companies can easily opt for the IFRS to make their financial
statements reliable and shall not rely on the big firms for the executing the auditing practices.

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Question 2
Introduction
This report is prepared for developing the understanding about comments provided by different
business organizations on an upcoming accounting standard in Australia. The upcoming
accounting standard that has been taken in this report for analysis is accounting standards update
no. 2018-13, fair value measurement (TOPIC 820): disclosure framework—changes to the
disclosure requirements for fair value measurement. At the same time, four comments have also
been included in this report for analysis purpose. The names of companies the comment letter of
which are included in this discussion are RSM, KPMG, IAS Plus and Deloitte.
Upcoming accounting standard
The proposed accounting standard Update: “Fair Value Measurement (Topic 820)”
Comments: August 28, 2018
Source: https://asc.fasb.org/imageRoot/81/118196181.pdf and
https://www.fasb.org/cs/ContentServer?
c=FASBContent_C&cid=1176171179766&d=&pagename=FASB%2FFASBContent_C
%2FCompletedProjectPage
Financial accounting standards board generally launches draft for the proposal to develop
exposure before implementation of the new accounting standards in Australia. The main purpose
of the organization is to search for the comments from the experts in the industry and for the
public to provide the views so that the shortcomings can be identified and the IFRS can be
improved for better accounting and disclosures. FASB draft report is associated to the Fair Value
Measurement (Topic 820).

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The major focus of the updating in the accounting policy is due to the need to improve
effectiveness of the disclosures while preparing the financial statements and providing notes to
the financial statements. It facilitates clear communication of the information needed as per the
generally accepted accounting principles. It includes a developmental framework to promote
consistent decisions towards requirement of the disclosures as required by board. The second
thing is the appropriate exercise of carefulness by reporting entities (FASB, 2018).
The part of the disclosure framework project and the amendments will lead to various changes in
the accounting standard. These changes have lead to affect the entities that are covered under
GAAP and have to follow disclosures towards recurring and non-recurring fair value
measurements. There are some changes that are not needed to be implemented and followed by
nonpublic entities (FASB, 2018). The main provisions are consideration of the costs and benefits
due to which there are several removals of the disclosure requirements takes place.
The amount of and the reasons for the transfers among stage 1 and stage 2 of the fair value chain
of command was removed. The next removed requirement is policy towards the transfer between
levels, valuation processes under level 3 while carrying fair value measurement. At last the
requirements that are removed for nonpublic entities includes the changes in the unrealized
losses and gains for the time included in the income for the recurring stage 3 fair value
measurements remained at the end of the period.
the modifications that were made under this amendment are in case of lieu of a roll forward at
stage 3 FVM it is needed that a nonpublic entity disclose transfer towards and outwards under
level 3 of the fair value chain. In addition to this the purchases or issues of assets and liabilities
are also needed to be treated same. Similarly, in case of the investments in certain entities, the
net asset value is needed to disclose at the time of liquidation for the assets of the investees as on

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the date when restriction from salvation might drop in case the investee communicate the
timing/announce publicly (Deloitte, 2018). The last modification in this standard is the
measurement of uncertainty disclosure to communicate the information regarding the uncertainty
in measurable form as of the reporting date.
There is an addition in the disclosure requirements which are not needed to be followed by
nonpublic entities. There are changes in the unrealized gains and losses that are include in
comprehensible income at level 3. The range and weighted average for the unobservable inputs
are also needed to be disclosed up to a certain extent (FASB, 2018). The amendment will be
effective for all the entities at the starting of the financial 2020. The valuation approach will be
applied under three categories such as market approach was valuation will be made as per the
quoted price in active market. The other approach will be income approach that will value the
future amounts such as cash flows and income streams to present value on the date measurement.
Under the last approach which is cost approach the valuation will be done on the amount that
will be needed to replace the service capacity of the asset (FASB, 2018). The main concept
behind the approach is an investor will not pay more for an asset then the cost to buy substitute
or construct.

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Comments of different Stakeholders on the Proposed Standards
Source of Comments for Deliotte:
https://www2.deloitte.com/us/en/pages/audit/articles/hu-fasb-issues-standard-to-amend-required-
fair-value-measurement-disclosures.html
Screen Shot:
Source of Comments for RSM:
https://rsmus.com/our-insights/newsletters/financial-reporting-insights/changes-to-fair-value-
measurement-disclosure-requirements.html
Screen Shot:

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Source of Comments for KPMG:
https://home.kpmg.com/content/dam/kpmg/xx/pdf/2017/12/fair-value-qa-2017.pdf
Screen Shot:
Source of Comments for IAS Plus:
https://www.iasplus.com/en-us/publications/us/heads-up/2018/issue-14?id=en-
us:email:HU083118

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Screen Shot:
Analysis and Interpretation of Comments Provided by Different Stakeholders:
As per the comments provided by IAS Plus, the ASC 820 accounting standards will lead to
alterations in disclosure requirements in the faire value measurement. For this standard, the
board has taken into account concept statements for enhancing the quality under ASC 820
disclosure requirements. The standards will be applicable with the business year that will start
after 15 December 2019. According to the new disclosure requirements, the business
organizations will need to clearly depict or disclose the value of net capital gain or loss that may
entitle to change in the fair value of total liabilities or total assets of companies. The non-public
business firms are not bound by such type of disclosure needs (IAS Plus, 2018). According to
this accounting standard, the business firms also need to provide disclosure of quantitative value
of different inputs that are not observable in nature. This is part of fair value measurement under
level 3. There is incremental disclosure needs like disclosure of use of weighted average and
range if used in the context of unobservable assets and liabilities in company, the process or way,
in which weighted values have been calculated. But with such type of disclosure, the business
firms do not need to present specific causes or reason behind omitting the weighted average.

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In contrast to this, KPMG provides that in reality the ASCT Topic 820 of FASB was originally
issued in September 2006. At that time, this topic was termed as FASB statement number 157.
At the same time, equivalent to this, IFRS 13 provision or accounting standard was launched in
May 2011. But different amendments have been planned and launched in the accounting
standards for achievement of common fair value measurement methods. Finally, both IFRS 13
and ASC 820 standards are effective to provide fair value measurement approaches in
accordance to inputs that have been taken into account by the companies for estimation of fair
value and making the disclosure of measurement approach mandatory (KPMG, 2018). Initially,
there were lot of differences between the accounting standards of IFRS and GAAP. But due to
the new accounting standards, the differences have started to get diminished.
As per the comment letter of RSM, it is true that original date of application of accounting
standard of ASC 820 is after December 15 2019. But the early adoption of this accounting
standard is also permitted by regulators. According to the new disclosure requirements added by
ASC 820, the non-public business firms need to provide details of transfers of out of and in to
hierarchy of fair value level 3 and liabilities/ assets purchase issues in level 3. It is also
mandatory for the companies to provide the details of liquidation timing of the assets of investee
in the instances, when they are going to make investment in different entities (RSM, 2018). In
the situation, when investee has provided timing of same, it is also duty of company to announce
date of same publically. In simple words, the amendments made through new accounting
standard of ASC 820 are effective to clarify that the events of uncertainty disclosures should
always be communicated the relevant information publically.
As per the report provided by Deloitte, the new accounting standard of ASC 820 is quite
effective to improve the disclosure of key financial/ accounting reports of companies. In other

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words, it would provide highly accurate fair value of different components of financial
statements of the companies to the users (Deloitte, 2018). This way, it can serve the interest and
expectations of potential users of key financial reports of companies in effective or productive
manner.
Conclusion
It can be concluded that the updates in the standard will assure that the financial statements are
having accuracy. It will also help to assure materiality in the accounts, notes to accounts and
disclosures which will intend to promote and eliminate the errors of reporting and disclose
material information’s. Some of the industry specific disclosure depicts it a costly and show
disinterest towards these disclosures. The reports of the Deloitte and KPMG were positive
towards the amendments assuring the changes as positive sign for accounting.

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References
ABC (2018). News. Retrieved from: http://www.abc.net.au/news/2018-07-12/richard-brooks-
accountants-who-broke-capitalism/9971084.
Abeysekera, I. (2013). A template for integrated reporting. Journal of Intellectual Capital, 14(2),
227-245.
Albu, N. and Albu, C.N. (2012) International Financial Reporting Standards in an emerging
economy: lessons from Romania. Australian Accounting Review, 22(4), 341-352.
Ball, R., Jayaraman, S. and Shivakumar, L. (2012) Audited financial reporting and voluntary
disclosure as complements: A test of the confirmation hypothesis. Journal of Accounting
and Economics, 53(1-2), 136-166.
Brown, M.A. and Zhou, S. (2013). Smart‐grid policies: an international review. Wiley
Interdisciplinary Reviews: Energy and Environment, 2(2), 121-139.
Deloitte (2018). FASB issues standard to amend required fair value measurement disclosures.
Retrieved from: https://www2.deloitte.com/us/en/pages/audit/articles/hu-fasb-issues-
standard-to-amend-required-fair-value-measurement-disclosures.html
Drnevich, P.L. and Croson, D.C. (2013). Information technology and business-level strategy:
Toward an integrated theoretical perspective. Mis Quarterly, 37(2).
FASB, (2018). DISCLOSURE FRAMEWORK—DISCLOSURE REVIEW: FAIR VALUE
MEASUREMENT. Retrieved from: https://www.fasb.org/cs/ContentServer?
c=FASBContent_C&cid=1176171179766&d=&pagename=FASB%2FFASBContent_C
%2FCompletedProjectPage
FASB, (2018). Fair Value Measurement (Topic 820). Retrieved from:
https://asc.fasb.org/imageRoot/81/118196181.pdf

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IAS Plus (2018). ASC 820. Retrieved from:https://www.iasplus.com/en-us/publications/us/heads-
up/2018/issue-14?id=en-us:email:HU083118
KPMG (2018). Fair Value Measurement: Questions and Answers to GAAP and IFRS (ASC 820).
Retrieved from: https://home.kpmg.com/content/dam/kpmg/xx/pdf/2017/12/fair-value-
qa-2017.pdf
Levine, R. (2012). The governance of financial regulation: reform lessons from the recent
crisis. International Review of Finance, 12(1), 39-56.
Nobes, C. (2014). Accounting: A very short introduction. UK: OUP Oxford.
RSM (2018). Changes to fair value measurement disclosure requirements: FINANCIAL
REPORTING INSIGHTS. Retrieved from:
https://rsmus.com/our-insights/newsletters/financial-reporting-insights/changes-to-fair-
value-measurement-disclosure-requirements.html
Scherer, A.G., Palazzo, G. and Seidl, D. (2013). Managing legitimacy in complex and
heterogeneous environments: Sustainable development in a globalized world. Journal of
Management Studies, 50(2), 259-284.