Criticism of Current Reporting Practices and Theories of Corporate Activities

This report discusses the criticism of current reporting practices like IFRS and theories of corporate activities. It also highlights the effects of not revaluing the assets on financial statements and wealth of shareholders.

Running head: ADAVANCE FINANCIAL ACCOUNTING
Advance Financial Accounting
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2ADAVANCE FINANCIAL ACCOUNTING
Question 1
The given report deals with the criticism of current reporting practices like IFRS. The qualitative
characteristics of conceptual framework are
 relevance,
 faithful representation,
 timeliness
 understandability
However, it has been found that the current financial reporting standards or IFRS has failed to
abide by the norms of qualitative statistics of conceptual framework. Faithful representation
reflects the different types of disclosures in the annual report. This further increases the
complexities of financial statements and the investors are unable to analyze information from it.
Relevance has resulted higher chances of misstatements in financial reports of the companies.
This further resulted in decline of quality of financial reports. The characteristic of
understandability has increased the chances of long disclosures, which further increased the
length of the report. In addition to this, timeliness also resulted various complexities within the
report (Francis et al. 2015).
Due to this reason, from the views of the article, it can be inferred that the financial report
framework like IFRS fails to meet the qualitative characteristics of conceptual framework and it
is not meeting the requirements of the investors when it comes to making investment among
various companies (Tan 2015).

3ADAVANCE FINANCIAL ACCOUNTING
Question 2
It has been highlighted the Corporation Act needs to be amended in accordance social and
environmental responsibilities. However, it is also reflected that the activities of the
organizations are market driven which can be evaluated from the below three theories.
Public Interest Theory
The Public Interest Theory emphasizes more on the people than on the society. This
theory has been implemented for the benefit of public at large. This theory reflects that
operations need to be carried out for the benefit of the common people. It is the sole
responsibility of the organizations to manage the interests of the people and work for the benefits
of the public. In addition to this, if the public interest theory is implemented then, it will result in
different regulations of CSR activities carried out by the organizations (Tschopp and Huefner
2015). A regulatory body upholds the society’s interest more than the individual person’s interest
and the regulatory body should not safeguard the regulators by passing laws in their favor (Berry
2015).
Capture Theory
The Capture Theory states that the industry workers dictate the agencies of the
Government and these workers are driven by the motive of safeguarding the interests of the
industry. There exists a nexus between the government agencies and the industries and the
industrial workers go to the extreme to even jeopardize the equal distribution of resources in the
society by manipulating the distribution in such a manner that the societal needs are not fulfilled.
This theory infers that organizations within the same industry follow the same set of rules and

4ADAVANCE FINANCIAL ACCOUNTING
regulations. If all the organizations within the same industry follow the set of corporate social
responsibilities, then the social responsibilities can be structured in an effective manner. From
this, it can be also inferred that capture theory is also regulated and drive with the help of market
forces and it also meets the requirements of the current market structure (Francis et al. 2015).
Economic Interest Theory of Group Regulation
This theory reveals that the modern business organizations need to carry out their business
activities for the welfare of the society in which the business is operating. The economic groups
of people are those who are somehow affected by the operational activities which the business
organizations carries out. Therefore, the organizations need to implement their CSR activities
based upon the needs and requirements of the economic groups of people. With the help of this,
the organizations can carry out their CSR activities effectively. Due to this reason, it infers that
the operations of any business organization is driven by market forces (Davidson, Dey and Smith
2015).
From the above analysis, it can be inferred that corporate activities are driven by market behavior
and this is evident from the above three theories.
Answer to Question 3
From the given question, it can be inferred that “FASB Statement No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets, the organizations are not allowed to
revalue their assets, however they take into account the impairment costs with the non-current
assets” This is applicable for all the US corporate financial statements of the respective
companies. However, it can be reflected that the given impairment costs will cause a decline in

5ADAVANCE FINANCIAL ACCOUNTING
net profits of the organization, however, it would not have any impact upon the net cash balance
of the firm. It can be also inferred that historical cost accounting is completely ignored in the
given case On the contrary, the changes in depreciation on fixed assets have an impact upon the
current value of the assets (Tan 2015). Therefore, it can be concluded that US Financial
Accounting Standards Board have severe impact upon the faithful and relevance of the given
financial statements of the respective organizations.
Answer to Question 4
1. Not revaluing the assets
There are several reasons for the directors for not revaluating the assets while preparing the
financial statements. If the assets are not revalued, then, the liquidity of the asset value will
remain stable. On the other hand, if the assets are revalued, then the assets of the particular firm
will be highly liquid and it will further lead the organization to misleading profits and losses for
the given year. In addition to this, if the assets are not revalued then, then, the historical value of
the assets will remain intact and net profits of the firm will not be reduced. This further reflects
that the investors of the organization will be intact. For the above factors, the directors do not
want to revalue plant, property, and equipment (Davidson, Dey and Smith 2015).
2. Effects in financial statements
There are several effects of not revaluing the assets for a particular organization. These effects
can be in the form of excessive dividends, higher profit margins, fluctuations in the rate of
capital employed and debt equity ratio of the firm. In addition to this, it can be inferred that the

6ADAVANCE FINANCIAL ACCOUNTING
financial statements of the firm will not show a true and fair value to its respective stakeholders.
Therefore, it can be concluded that revaluation of assets have several effects upon the financial
statements of the organizations (Deegan 2013).
3. Wealth of the shareholders are effected or not
It can be inferred that not revaluating the assets have minimal or no impact upon the wealth of
the shareholders of the organization. This is mainly because of the fact net asset backing per
share may have an impact on the share prices however, this will be nullified as the net profit of
the firm will be overvalued and thus it will have an minimal impact on return on investment.
Therefore, it can be deduced that revaluation of assets will have no impact or minimal impact on
share prices or wealth of the shareholders of the respective organizations (Tan 2015).

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References
Berry, J.M., 2015. Lobbying for the people: The political behavior of public interest groups.
Princeton University Press.
Davidson, R., Dey, A. and Smith, A., 2015. Executives'“off-the-job” behavior, corporate culture,
and financial reporting risk. Journal of Financial Economics, 117(1), pp.5-28.
Francis, B., Hasan, I., Park, J.C. and Wu, Q., 2015. Gender differences in financial reporting
decision making: Evidence from accounting conservatism. Contemporary Accounting Research,
32(3), pp.1285-1318.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Tan, P., 2015. Fair Value Hierarchy Measures: Post-Implementation Evidence on IFRS 7. GSTF
Business Review (GBR), 4(1), p.105.
Tschopp, D. and Huefner, R.J., 2015. Comparing the Evolution of CSR Reporting to that of
Financial Reporting. Journal of Business Ethics, 127(3), pp.565-577.