Challenges of achieving comparability in global financial reporting

Running head: ADVANCED FINANCIAL ACCOUNTING 1
Advanced Financial Accounting
Name
Institution

ADVANCED FINANCIAL ACCOUNTING 2
ADVANCED FINANCIAL ACCOUNTING
PART A
In today's world, a lot of businesses and organizations are branching into the global
market to expand their businesses by reaching more markets. However, there have been
challenges that the investors and business owners have had to face due to this problem. One of
the major ones is the difference in the financial reports. This problem is evident because each
country has their way of reporting financial statements. This results in the inability to compare
the financial reports because they are not alike (IFRS, 2010).
The Financial Accounting Standards Board (FASB) joined hands with the International
Accounting Standards Board and came up with a Conceptual Framework that was aimed at
solving this problem. The aim of the boards was so that companies in the global market can
achieve comparability by eliminating the differences as much as possible. The Conceptual
Framework contains some qualitative characteristics that are aimed at achieving similar financial
reporting in the global market (Cheng, 2014).
However, some of these qualitative characteristics do not meet the set objectives as
shown below:
The qualitative characteristics are divided into two broad categories. We have the
fundamental characteristics and the enhancing qualitative characteristics. The fundamental
characteristics consist of two groups which are relevance and faithful representation. In
relevance, the framework aimed to ensure that the process of financial reporting should be useful
to its users. Most of the CFO's said that the financial information given for financial reporting
was useless (Adams, 2015). This shows that it was unnecessary information that was not relevant
and did not help them incomparability between reports.

ADVANCED FINANCIAL ACCOUNTING 3
Faithful representation, on the other hand, aims at ensuring that the financial information
can be relied on for financial reporting. Also, the CFO's that the disclosures were too much and
could not be managed therefore they were not able to build on them for financial reporting.
Investors found that the disclosures could not be relied on because the information contained had
too many errors and was not complete at times (Macve, 2015). This went against the
characteristic for faithful representation that states that for the information to be reliable it had to
be complete, free from error and free from bias (neutral).
The enhancing characteristics consist of four categories which are timeliness,
comparability, verifiability, and understandability. The CFO's attest that the disclosures are
useless meaning they can still not compare financial records between branches of their
companies. This is not in line with the aim of the IFRS that want to eliminate the differences in
financial reporting so that they can achieve comparability. Thus the characteristic of
comparability is not met.
In the article, business managers are saying that their analysts are unable to interpret the
financial statements with IFRS accounts. This does not achieve understandability because they
are not able to read and understand the statements to compare them with those in other branches.
The Conceptual Framework, therefore, is not able to provide comprehension of financial
statements. The article further states that only qualified personnel can understand the disclosures.
This again does not achieve the characteristic of understandability because not everyone will be
able to compare financial statements unless they know them.
Analysts not being able to understand the financial records can cause waste of time. This
is because the company will have to outsource to professionals, which are the time that would
have been saved if the statements could be interpreted by anyone in the organization. Thus the

ADVANCED FINANCIAL ACCOUNTING 4
revised Framework does not achieve timeliness. Lastly, the framework is not verifiable because
the shareholders cannot reach an agreement on what actions to take since they cannot
comprehend the statement.
According to the views presented they believe that the revised framework does not meet
the needs for financial reporting thus is not consistent with it. They think that the revised
framework has not helped in reducing or eliminating the differences that exist between financial
statements.
PART B
Public Interest Theory
In this theory, a company or organization will set regulations in a manner that the public
is the one that benefits. The regulations are set so that they are in favor of the public rather than
the organization. The public interest theory is of interest to the customers of accompany and the
community surrounding it. It has the notion that for a company to succeed it has to put its
customers or its surrounding environment as its number one priority (Deegan, 2013).
The regulations, in this case, are set by the government to ensure that the society's
interests are met. However, the government does not need to set these regulations because the
industry is capable enough of putting the interest of the public first. This is because if a company
does not have any customers or clients, then it cannot make any profits and can cause it to fail.
For instance, if a company is producing toxic water as waste to the environment, then the
community in that environment will complain to the company to rectify this. If they do not, the
members of the community ought not to buy the products or services of the company because it
is affecting their health and also spread the word to other customers. This will cause a bad
reputation of the company and in the end lose business (Levi-Faur, 2017).