Accounting Disclosure Practices and Quality

This assignment delves into the realm of accounting disclosure practices. It examines various research articles discussing topics such as the influence of incentives and standards on accounting quality around IFRS adoption, mandatory IFRS reporting, and the role of materiality disclosure in Integrated Reporting. Additionally, it explores the evolution of financial reporting for life insurers, the use of subsequent events in disclosures, and financial statements as monitoring mechanisms. The assignment also references online resources like Budget 2017's accounting tweaks and the International Accounting Standards Board (IASB)'s initiatives on disclosure principles, materiality, and discussion papers.

Presentation and Disclosure
of Financial Statements

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1: IAS 1 Presentation of Financial Statements and IASB's Disclosure Initiative......3
Question 2: Application of materiality in the financial statements in an open draft exposure by
IFRS.............................................................................................................................................6
CONCLUSION..............................................................................................................................10
REFRENCES.................................................................................................................................11

INTRODUCTION
The International Accounting Standards Board (IASB) is an independent, personal body
which is responsible for developing and approving International Financial Reporting Standards
( IFRSs) and to promote such standards in the industries. In this we will provide information
relating to IAS 1 Presentation of Financial Statements which consist of Balance Sheet, Profit and
loss statement, Cash flow statements and explanatory notes attached to it. Question has asked us
to provide in-depth knowledge related to the presentation of financial statements and initiative
started by the IASB In the form of discussion paper. This requires them to include all the facts,
figures, recommendations and principles.
MAIN BODY
Question 1: IAS 1 Presentation of Financial Statements and IASB's Disclosure Initiative.
International Accounting Standard 1 known as IAS 1 refers to Presentation of Financial
Statements which presents out the overall guidelines for financial statements, their structure and
essential requirement for such content.
The IAS 1 requires a complete set of financial statements comprising of
a) a statement which describes financial position of the company at the end of financial year.
b) a statement of profit and loss and encompassing earning in the financial year.
c) a statement which provides if there is any change in the equity of the company in that financial
year.
d) a statement comprising cash flows for the financial year.
e) Notes which summarises all the accounting policies used by the company and other
explanatory information.
f) a statement which provides financial position of the company at the beginning.
The international Accounting Board plans and focus on better projects which will enhance
usage of International Accounting standards among the industries worldwide for that they offers
open communication for if there is any requirement for changing presentation of financial
statements (Principles of Disclosure , 2017.)

A Normative theory provides different approach and guidance which is not based on
observations but on logics and values. It will provide more consistency, accountability,
transparency to accounting standards. They can be easy comparable internationally and secondly
it will increase open communication between Boards and its member. This will also enhance
development of accounting standards more economically as well as it will avoid development of
standards in ad hoc manner (Garanina, Garanina and et.al., 2017).
International Financial Reporting standards ( IFRS) are issued by IASB for better
transparency and comparison of financial statements among industries as well as reduces down
the cost of companies from penalties, fines.
There are 6 stages for setting process for processing standards.
1. Set the agenda : The IASB seeks to address that the information provided is in nature of
high quality so that it can be useful to the users of financial statements. They ask users to
evaluate the standards and in case if they are not updated as per present scenario they can
send their valuable comments and recommendation to the board.
2. Project planning : In this they decide whether they should perform this project
individually or collectively with any other board.
3. To develop and publish discussion paper
4. It's mandatory to develop and publish the exposure draft.
5. To reconvert the standards as per the development and publications.
6. After IFRS has been issued it involves consultation and evaluation of standards.
Public interest is base for any accounting reform as all the accounting revolves around
them so it is a responsibility of accountant profession to always act in the public interest. But
there is always a dilemma in what is in public interest as one thing will be in profit for one
person can be disadvantage for another. So accounting professional has to use their experience
and expertise to find out the best opportunity for the people as a whole lot.
Private interest refers to the private interest of accountant in the accounting theory.
They are more motivated towards concept of self interest. They think about their own motive and
interest for them. They like keeping themselves on the top.

The proper disclosures in financial statements will evaluate as an important tool as it
will describe the company's policy, their action for the stakeholders, process of performing work
and mainly the company is performing in public interest.
The economic exposure and political nature of consequences always lies in the formation
of accounting standard setting. This is the important issue in the era of globalisation as account
reform is part of globalisation and requires some changes to meet the recommendations for
economic reform. As concern is accounting standards have different effect on economic
consequences. Secondly the government regulates political process so that it can regulate
between public interest and self interested groups. The standard makers choose political choice
to regulate accounting standards as they can bring benefits to both public as well as government.
The capture theory in accounting regulation refers to manipulation of accounting theories
to fit the involvement of people who are strickened by the changes. The capture theory starts
with in the regulation on public interest theory and moves towards politicians and private interest
of the people as they are only the regulators as they are only the person who will have problems
with the changes. This is the game of demand and supply where government plays the role of
supplier as they benefit those who are on demanding position and the person who have private
interest plays the role of demanding customers(Minnis and Sutherland 2017)
Disclosure initiatives taken by IASB that he has published a Discussion Paper in which
suggestions are given for the principle for making Financial Statements more impressive. This
initiative wants to seek users of financial statements and public as large to provide their
feedbacks, suggestion and comments on IAS 1: Presentation of Financial Statements.
The initiative describes that it can bring amendment in the IAS 1 which will be fully
updated as per the current scenario and will bring reform in the industries. It will sure enhance
the transparency, accountability, credibility in the financial statements.
Previously even shareholders and investors have stated that the financial statements
do not provide depth information about the company;s financial position. Whatever mentioned is
sometimes irrelevant or sometimes it feels like that they have been manipulated to provide
positive financial statements. The IASB board believes that amendment will bring down the
clean principles governing what, where and how much such information should be presented and

disclosed in the statement of affairs and will provide guidance about material information
judgement while preparing financial statements.
Materiality Practice Statement governs preparers, auditors and regulators to use their
opinion while applying the concept of materiality.
The disclosure initiative behind the discussion paper is to formulate and implementation
of standards with the feedback, suggestions and comments. So that they can identify problems
and introduce amended conceptual principles in the IFRS standards.
The disclosure initiative opens a better communication between the people and the
board and he will easily get to know what public at large is facing because of preparation of
financial statements in traditional method and the compliances and other information which are
required to be included while preparing financial statements so that it can be help stakeholders.
This feedback will help them to know different prospectives of public and what reforms are also
required in other standards.
So we can summarise that disclosure initiative started by the IASB is to know the
disclosure issues faced by the investors, to have open communication and finally to know the
roles of various elements to meet the objective of the financial statements. It can also standardise
the financial statement reporting so it can be easy comparable with other boards standards.

With reference to The Weekend Australia article published on 6 May 2017 referring to
reforms dressed in the form of accounting twist. This article stated that continuing federal
deficits are not the outcome of investment in big projects in future but to show that they are the
outcomes of boom in the country. Australia is a country which has high expenses in comparison
to lower taxation rates policy as taxes do not generate enough revenues to meet the cost of
expenses (Budget 2017: Accounting tweaks dressed up as reform, 2017). Australian Government
can change policies whenever they want but to keep impression in the mind of people with
reference to vision and planning they are not changing the policies Australian Accounting
Standards Board (AASB) meets the standards of IASB and follows standard setting
responsibility in his country and aims to increase investor's confidence in the economy. Further
the reopen of GST will decrease state taxes and provide more significance to the accounting
policies (Michels 2017).
Illustration 1: Accounting tweaks dressed up as a reform

Question 2: Application of materiality in the financial statements in an open draft exposure by
IFRS.
At present the IFRS has opened a exposure draft relating to what material information
is required to applied in financial statements.
In a financial statements material information is required to be a part of presentation
of financial statements and even IAS 1 requires particular disclosure in the financial statements
but you cannot modify or alter material information just to provide a good view of financial
statements. It demands management to detect and prevent material control weaknesses in a
timely manner. If there any misstatement is recorded then it refers to inconsistent financial
statements (Materiality Practice Statement , 2017. )
The accountant is requires to consider that he includes all material information items
and they are relevant for understanding an company's profile and statement of affairs. It also
requires reporting of financial performance disclosure in the financial statements.
The main reason behind conceptual framework for exposure draft of materiality concept
is measuring the scope and objectivity of standard, to know the financial position of industry,
how disclosure and presentation of materiality is stated in the financial statements and how much
reporting entity recognises the importance of materiality in his financial statements. The
materiality misstatements can also be categorised into inconsequential, consequentiality and
materiality (Fasan and Mio 2017).
Comments ranging from authors, professionals, companies and other corporate bodies who
reviewed the importance of draft exposure of materiality and its impact on financial statements
users ranging from investors, members, creditors, accountant, shareholders, employees and
Government.
Former FASB chairman Robert Herz states that materiality word is confusing as people are in
dilemma as no one can define materiality as it keep changing on the basis of industrial activity
and countries.

What might be material may not be material for another. But when a legal definition was
stated the members of the board thought it had cleared all the confusion but truth is it created
chaos in the mind of investors as well as company.
The definition by the U.S. Supreme court states that if any information which has material
substance and has been generated from the company's resource then it required to be stated as
material information in the financial statements and omission or wilful neglect of such
information will lead to misstatement financial statements. So he thinks it should be in form of
clarification rather than major policy change.
Companies and accountant professional believes that the proposal will make financial
statements extended but less expensive and heavy material things to compile in the statements.
Its time consuming but still reasonable for the investors as they can consider before investing
into any investment decision in company's project(Jacob, El-Gazzar and McGregor
2017).
Deloitte's IFRS Global Office also submitted a letter of comment on the importance of
materiality in financial statements reporting. The letter stated that major number of people who is
related to the field of auditing, taxation and accountants have in-depth knowledge of materiality
and know its importance as well as use it in their reports while preparing financial statements.
As it is a matter of experience, expertise and their judgement to decide material
information. There are many circumstances which provides which provide different conclusions
for the same information so it all depends upon auditors judgement.
We in Deloitte do not believe that it can match to a deficiency of consistency in the
material information application. He also highlighted that representation and expansion should
not be done by non global standard setters as they do not have quality of understanding what
happens in the era of globalisation.
Its better if changes, expansion and representation is done by the global setters as they
have full information what is happening in global countries as well are more qualitative in
representing standard at a higher level. As a global representative we think if issues are issued by
the internationally accepted independent standard setters then it will be globally accepted by
other countries too and will have wide impact in comparison to what national and regional
boundaries cannot do(Garanina, Garanina and et.al., 2017).

The European Financial Reporting Advisory Group (EFRAG) has issued a draft exposure
comment letter on Application of Materiality in Financial Statements. They stated that if
proposed guidance are included in the standard then it could provide a systematic approach in
reference to disclosure of material information in the financial statements.
With reference to same common ground available to the users, now it will depend upon
them to decide or to take decision which information is material and immaterial. They now need
to use their experience, expertise and common sense to judge the information. It also believes
that if such guidance becomes a regular habit in form of practice statement then financial
statements can be brief and in approachable way(Minnis and Sutherland 2017).
They also believes that if draft format of practice statement is drafted in way which
provides a lot of information in a comprehensive manner then it will be more fruitful and will be
used by lot of users in day to day practice. As judgement of auditors depends upon the
circumstances and it keeps changing as per industry norms and countries for they work. At
present the norms of testing materiality is different among professional too so it requires people a
standard set to enhance the overall audit strategy.
Auditors while performing same work for same industries also produces different material
information as there is no standardisation for the auditor's work.
KPMG IFRG Limited also submitted his comment on Application of Materiality in Financial
Statements. They stated after full and open conversation among their KPMG network before
submitting any comment.
KPMG refers that they are in support for the efforts made by the IASB for developing
guidance on the application of materiality in the financial statements. But however they feel that
practice statements can assist professionals in applying the concept of materiality are in nature of
operation and still requires lot of improvements so that the judgement made by the auditors and
accountants are same if they are preparing in accordance with IFRS as practical statement
should decrease the confusion in the mind of professionals if they need it to be comparative and
in systematic approach(Discussion and papers, 2017)
According them it requires lot of changes as compared to suggested by many people as
they require to change the outlook of professional prospective by changing the literature of

standard what it has been in past (Christensen, Hail and Leuz, 2013). It requires that standard
should provide full guidance in respect to disclosure, recognition, measurement and
misstatements if they want to ensure systematic approach of financial statements as a whole.
As increasing errors and frauds in the financial statements if need to be cut down then we
require more relevant financial statements which can be possible only when disclosures,
presentation requirements are updated as per present scenario. But at present it is the most
difficult task to perform as there are different outlooks, complexity and different nature of
professionals to work .
But as soon as key principles are identified by the professionals then they should focus on
preparation and presentation of financial statements. Evaluation of financial statements can also
help in disclosing how misstatements in the financial statements can also be discussed
(Christensen and et.al., 2015). Eventually they also helps in analysing the information whether it
is material or immaterial and requires to be stated in the financial statements or not.
They also supports that statement should be in non mandatory form and while drafting
practice statement they should ensure that the information required by them in detailed form,
appropriate to the context and comprehensive in nature. It also suggest that the statement should
be in form which provides relevant information in acknowledging the correct formation and
description. (Michels 2017).
CONCLUSION
The IASB is an independent board which develops IFRSs and promotes such standards in
the industries. The main motive behind the IASB is to promote accounting standards worldwide
which will bring accountability, transparency and quality in financial statements. It has also
published a discussion paper to have a open communication with the users and provider of
financial statements. IASB also emphasised on the materiality in the financial statements as
different users had different opinion based on their judgement , experience and expertise. People
ranging from auditors, chairman of FASB, EFRAG and other had different opinions about
materiality information. It will help them to enable the idea of identifying and developing a set of
principles who will perform as a base to company's while preparing financial statements. It also
ensures that the accounting standards reformed are updated and as per current scenario. The
disclosure initiative also helped them to generate a open communication among the people,

groups and communities. The exposure draftlead them to understand the requirement of
materiality in the financial statements.

REFRENCES
Books and Journals
Christensen, H. B. and et.al., 2015. Incentives or standards: What determines accounting quality
changes around IFRS adoption?. European Accounting Review. 24(1). 31-61.
Christensen, H. B., Hail, L. and Leuz, C. 2013. Mandatory IFRS reporting and changes in
enforcement. Journal of Accounting and Economics. 56(2). 147-177.
Fasan, M. and Mio, C., 2017. Fostering stakeholder engagement: The role of materiality
disclosure in Integrated Reporting. Business Strategy and the Environment.26(3).pp.288-305.
Garanina, T., Garanina, T.,and et.al., 2017. Forward-looking intellectual capital disclosure in
IPOs: implications for intellectual capital and integrated reporting. Journal of Intellectual
Capital.18(1).pp.128-148.
Jacob, R.A., El-Gazzar, S. and McGregor, S., 2017. Evolution of financial reporting of life
insurers: the predominance of unregulated embedded value disclosure. Journal of Financial
Regulation and Compliance.25(1).
Michels, J., 2017. Disclosure versus recognition: Inferences from subsequent events. Journal of
Accounting Research.55(1).pp.3-34.
Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence
from small commercial loans. Journal of Accounting Research.55(1). pp.197-233.
Online
Budget 2017: Accounting tweaks dressed up as reform. 2017. Online. Available through
<http://www.theaustralian.com.au/business/opinion/adam-creighton/budget-2017-accounting-
tweaks-dressed-up-as-reform/news-story/1fddb4343c407e2579fdd4429d66e84d>. [ Accessed on
11 May 2017].
Principles of Disclosure. 2017. Online Available through
<http://www.ifrs.org/Current-Projects/IASB-Projects/Disclosure-Initiative/Principles-of-
Disclosure/Pages/Home.aspx> [ Accessed on 11 May 2017].

Discussion and papers. 2017. Online. Available through
<http://www.ifrs.org/Current-Projects/IASB-Projects/Disclosure-Initiative/Principles-of-
Disclosure/Pages/Discussion-and-papers-stage-2.aspx>[ Accessed on 11 May 2017].
Materiality Practice Statement . 2017. Online. Available through <http://www.ifrs.org/Current-
Projects/IASB-Projects/Disclosure-Initiative/Materiality/Pages/Home.aspx> [ Accessed on 11
May 2017].