Accounting Theory: Issues, Consensus, and Regulatory Capture Analysis

This report delves into the intricacies of accounting theory, examining the major issues arising from new accounting standards, the extent of consensus and disagreement among commenting parties, and the implications of regulatory capture theories. The report highlights key issues such as disclosure requirements, presentation, classification of expenses, and the recognition of taxation. It analyzes the differing viewpoints of stakeholders regarding the proposed transition in new standards, specifically IFRS 16 and its impact on lease accounting. The report also explores the assumptions behind public and private interests, as well as regulatory capture, which can prioritize industry benefits over the general public's interest. The conclusion summarizes the key findings and emphasizes the need for modifications in accounting standards to address the identified issues and ensure fair financial reporting. The report references several academic sources and online documents to support its analysis.

Development in Accounts Theory

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION.....................................................................................................................................3
a. Introducing the major issues which take place in new standards............................................3
b. Explaining consensus and disagreement takes place between the commenting parties..........4
c. Analyzing assumptions behind public and private interest as well as capture theories...........5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Accounting rules and regulations are developed by higher authorities with the motive to
ensure greater transparency in the accounts. Now, concerned accounting personnel and bodies
have introduced several changes to present the fair view of financial statements. However, some
of the changes create difficulty in front of accounting personnel of specific sector or bodies.
Hence, the present report will describe the issues which are prevailed in the new standards.
Besides this, it will also shed light on the extent parties of specific sector agree and disagrees
with the changes take place in accounting standards.
QUESTION
a. Introducing the major issues which take place in new standards
From assessment, it has been identified that there are several issues that take place in new
standards which in turn closely influences the significance of accounting aspect. List of issues
include several aspects such disclosure requirements, presentation, classification of expenses,
recognition of taxation etc. All such are the major issues which have created difficulty in front of
accountants in relation to presenting the accounting information (Carmona & Trombetta, 2008).
From assessment, it has been identified that accountants are required to prepare financial
statements on going concern basis whether they have information about material uncertainties.
Along with this, methods in relation to depreciation and amortization have limited scope. On 1st
January 2017, IASB issued IFRS 15 Revenue from contract with customers. IASB and FASB
has formed joint transition resource group for the recognition of revenue which in turn closely
supports the implementation of board (Chalmers, Clinch & Godfrey, 2011). On such
amendments several comments have been received from the stakeholders that support the
deferral of the effective dates of IFRS 15. Stakeholders who provided their judgements show that
one year deferral will improve the quality of deferral to a great extent. Hence, all such are the
main issues that are associated with International Accounting Standard.

b. Explaining consensus and disagreement takes place between the commenting parties
Parties from different sectors were commented on the proposed transition in new standard
such as IFRS 16. Director of economic and financial affairs presented that under transition
provision, accounting personnel have choice to employ one method out of two such full and
modified retrospective approach. Full retrospective approach is highly in line with IAS 8 and it
will closely affect the financial statements of several entities. In the comment form, concerned
party clearly entails that separate pro-forma approach of presenting information is less accessible
and useful. Hence, in IAS 16 business entities have only choice to employ full retrospective
approach which is highly costly. Moreover, in this, accounting personnel require to assess the
volume of contract and historical data (Christensen, Hail & Leuz, 2013).. Authority who made
comment presented that modified approach is better than full retrospective because it facilitates
comparison to a great extent. Hence, director of economic and financial affairs requested in
relation to making amendments in IAS 16 to ensure better comparison of accounts.
In meeting, Capital Markets Advisory Committee presented the concept of lean
accounting. Under comment letter related authority has mentioned that proposal which has been
presented by IASB and FASB in relation to lessee accounting is highly effective solution. In
their views, they presented that lessee accounting is better solution as compared to disclosure-
only alternative. In this regard, consensus from people has been generated regarding operating
leases. This in turn may result into rise in the assets and to a great extent. Along with this,
European financial reporting advisory group (EFRAG) has presented their views in relation to
lease. Comment letter sent by such group clearly presented that rules regarding the new lease
will closely influence the accounting policies for lessees (European Financial Reporting
Advisory group, 2017). Further, group depicted that all the entities come under IFRS will be
affected significantly and the impact of same would be material. Hence, EFRAG entailed that
rules regarding lease are effectual but IASB needs to ensure that constituents have understood
the requirements to the significant level.
In addition to this, Woolworths Ltd presented in their comment report that not high level
of benefits were attained by business unit from existing IAS 17 model. Moreover, they said that
all the entities are highly aware from leasehold obligations. In this regard, related authorities said
that new standard will lead high level of complexity, cost and administrative burden. Further,

cost of the execution of such proposal will exceed the benefits of the users of financial
statements (Christensen & et.al., 2015). Besides this, Woolworths have mentioned in their report
that dual model is necessary to exhibit the different economic substance of real estate leases.
However, such lease highly varies in against to motor vehicle, office equipment and plant. The
rationale behind this, real estate is an appreciating asset because its value increases over the
years. Such kind of assets mainly includes land and buildings (Woolworths Ltd, 2017).
According to the opinions provided by Woolworth straight line expense consumes insignificant
proportion of economic benefits due to having high risk of transfer. Further, they stated that
decision of IASB differs to the significant level from revised ED. Hence, by keeping in mind
overall evaluation it can be said that views of Capital Markets Advisory Committee and EFRAG
are highly near to each other in relation to IAS 16. On the other side, Woolworth has given
negative comment regarding the accounting rules of lease.
c. Analyzing assumptions behind public and private interest as well as capture theories
Regulatory capture may be served as a theory which is highly associated with economists
such as George Stigler. Hence, it may be defined as a process in which industries who has power
in relation to regulation dominates regulatory agencies. Hence, regulatory theory happens when
authorized agency takes decision in relation to offering benefits to industry (Jaruga & et.al.,
2007). IN this way, it lays emphasis on offering benefits to the industry as compared to general
public. Further, regulatory capture presents government failure and in this new agency is formed
to protect the public interest. In other words, it can be stated that in the case of regulatory capture
more importance is given to the firms and political authorities rather than general public
(Marton, 2017). Hence, it clearly presents the loss of public interest due to decisions which are
undertaken in accordance with regulatory capture. Hence, government agencies which suffer loss
under regulatory capture is known as captured agencies.
CONCLUSION
From the above report, it has been concluded that some issues are take place in
accounting standards related to disclosure, presentation etc. Hence, IASB needs to make
modifications in the relation to disclosure and requirement in relation to dealing with some
recording transactions such as lease etc. It can be revealed from the report that out of 4, 2

authorities have given their consensus regarding IAS 16 related to lease. Hence, 2 authorities
such as Woolworth and economic financial advisor showed their disagreement level. Further, it
can be seen in the report that regulatory capture theory closely influences the interest level of
general public significantly.

REFERENCES
Books and Journals
Carmona, S., & Trombetta, M. (2008). On the global acceptance of IAS/IFRS accounting
standards: The logic and implications of the principles-based system. Journal of Accounting
and Public Policy. 27(6). 455-461.
Chalmers, K., Clinch, G., & Godfrey, J. M. (2011). Changes in value relevance of accounting
information upon IFRS adoption: Evidence from Australia. Australian Journal of
Management. 36(2). 151-173.
Christensen, H. B., Hail, L., & Leuz, C. (2013). Mandatory IFRS reporting and changes in
enforcement. Journal of Accounting and Economics. 56(2). 147-177.
Christensen, H. B. & et.al., (2015). Incentives or standards: What determines accounting quality
changes around IFRS adoption?. European Accounting Review. 24(1). 31-61.
Jaruga, A. & et.al., (2007). The impact of IAS/IFRS on Polish accounting regulations and their
practical implementation in Poland. Accounting in Europe. 4(1). 67-78.
Marton, J. (2017). The Role and Current Status of IFRS in the Completion of National
Accounting Rules–Evidence from Sweden. Accounting in Europe. 1-10.
Online
European Financial Reporting Advisory group. 2017. pdf. Available through: <
http://www.ifrs.org/Current-Projects/IASB-Projects/Leases/Exposure-Draft-May-2013/
Documents/4_EFRAG_Letter-15-June-2015.pdf>. [Accessed on 9th May 2017].
Woolworths Ltd. 2017. pdf. Available through: < http://www.ifrs.org/Current-Projects/IASB-
Projects/Leases/Exposure-Draft-May-2013/Documents/Woolworths-Limited-Leases-Project-
Sept-2014.pdf>. [Accessed on 9th May 2017].