TACC401 - Accounting Principles: Political Factors & Depreciation

This case study assignment delves into the principles of accounting, focusing on two key areas: the development of accounting standards in Australia and the role of political factors, and the analysis of depreciation methods for machinery. It explores the influence of political lobbying and governme...Read More

Running head: PRINCIPLES OF ACCOUNTING
Principles of accounting
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1PRINCIPLES OF ACCOUNTING
Table of Contents
Development of accounting standards in Australia and role of political factors.......................2
Government’s involvement in the process of accounting standard setting................................4
Depreciation on machinery........................................................................................................6
Reference....................................................................................................................................8

2PRINCIPLES OF ACCOUNTING
Development of accounting standards in Australia and role of political factors
Accounting standards are the technical pronouncements those are set out required
disclosures and measurements associated with accounting for specific kinds of material
events and transactions. Accounting requirements have impact on the presentation and
preparation of the financial statement of any entity. With regard to the financial statements,
the accounting standards have force of law on the commonwealth entities as per section 42(2)
(a) of PGPA Act. Further force of company law is applicable for the entities those prepare the
financial reports as per the law. On the other hand, with regard to budgeting, section 12(3)(a)
of Charter of Budget Honesty Act requires that the budget shall be prepared on the basis of
accounting standards (Firth & Gounopoulos, 2017).
Procedures for establishments of regulatory arrangements with regard to setting of the
accounting standards in Australia has been exposed frequently towards the conflict among
professional accounting bodies, private sector bodies and government bodies as each of them
try to dominate the procedure for gaining the favoured outcomes. Hence, for any proposed
changes in the accounting standards are supported by those who will gain more influence
from that and will be opposed but those who will not get any favour (Stamford, 2015).
Political influence on accounting standards setting is considered as purposeful
intervention in the process of standard setting by the economic entity with the objective of
impacting the outcome of the procedure for enhancing the economic value and wealth of the
entity or achieving the self-interested purposes that is not consistent with the mission of
AASB (Aasb.gov.au, 2019). Political nature with regard to setting of accounting standards is
reviewed with – (i) 2 fold characteristics of the political intervention that is desire and the
power equivalency for the political consensus and (ii) focussing on the lobbying researches.
Most common political impact on standard setting is political lobbying that takes place only

3PRINCIPLES OF ACCOUNTING
after the AASB decides to implement any project. Distribution of power among the lobby
groups differs with the function of specific accounting issues (Fasb.org, 2019). It is required
to judge the impact of accounting issue on the power distribution for making the law for
accounting as the impact decides preference of lobbying for the competing groups and
responsiveness of accounting policy makers with the constituent pressures.
Political influence takes place while the objective is shifting the position of standards
setters away from the the right answer that is achieving of the objectives. For instance,
AASB’s mission is – (i) shifting the accounting to the place that is consistent with the
conventionally accepted definition for financial statement on the basis of economies (ii)
improving the transparency and (iii) removing the accounting alternatives that delivers the
management with the additional flexibility in reporting (Aasb.gov.au, 2019). Apart from
these, direct lobbying by the entities, managers and other parties those are motivated through
self interests are also involved in political influence. Another political influence is the
influence of SEC (Securities and Exchange Commission) and its influence is seen in the form
of lobbying. However, the SEC generally works with the objectives of AASB (Ifrs.org,
2019). Being the government regulatory agency, SEC generally faces the political pressure
that forces to take the position that is not consistent with the AASB.
Political forces play 2 different roles in setting the standards, 1st one is the political
forces represents the modification in underlying legal, institutional and economic
environment which in turn helps to move the accounting standards towards market
equilibrium. 2nd one is that the political forces can be determined by the special interest
groups those seek to impact the accounting rules for the self – interested purposes, pushing
set of the rules away from economically efficient equilibrium. 2nd one is more fitted with the
definitions of the term political lobbying (Ifrs.org, 2019).

4PRINCIPLES OF ACCOUNTING
An association is there among the outcome of the political intervention and regulatory
structure for financial reporting. It is evidential from wide number of political interventions
taken place in Australia. Further, the regulatory structure of Australia indicates the impact of
the political intervention. Higher level of magnitude for the perceived wealth and the great
level of expectation of the impact on final decision are 2 conditions for the enhancing
propensity for lobbying. Focussing on 2 lobbying conditions, the forms and timing of
lobbying have been intricate (Fasb.org, 2019).
Accounting approaches conceptualizes capita, expresses it in terms of numbers,
prepares budgets and monitor it for determining income. The groups and individuals in the
society utilize the accounting technique fir altering and improving the economic conditions.
Hence, accounting activities that works on the income and capital generates economic
consequences that have impact on the society and its member’s welfare (Aasb.gov.au, 2019).
These rules of accounting become the politico-economic rules in case there is political
involvement in the process of formulation. However, single accounting rules or group of
accounting rules is not termed as the politico-economic as economic condition for most of the
people in the society does not improve or change with any individual accounting approach
(Ifrs.org, 2019). Only the entirety of the accounting rules can lead to political dimensions in
broad sense of the accounting constitution.
Government’s involvement in the process of accounting standard setting
Impacts of the accounting standards on the stakeholders are considerable and are
considered as the part of regulatory burden that is imposed on businesses by the governments.
Accordingly, office of regulation review that is a part of industry commission is interested
regarding these issues. To help the stakeholders in taking decisions, the flow of information
shall be improved in the economy (Ifrs.org, 2019). However, the government shall regulate

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the flows only if the costs to provide additional information exceed the likely benefits.
Approaches available to the governments for influencing dissemination and creation of
information includes –
 Implementation of requirements for financial reporting to mandate the information
disclosures
 Promoting the enhanced strategies for information to help the stakeholders in taking
more informed decision regarding the performance of the firm (Newberry, 2015).
 Negative licensing approach where the firms are free to disclose any kind of
information they want, however if the disclosure is misleading or false they may
surrender the right with regard to engagement in specific activity. Alternatively, they
are required to be complied with the minimum standards for license while engaging in
any such activity.
 Certification scheme or listing requires the firms to inform the central authority like
ASC (Australian securities commission) or ASX ( Australian stock exchange)
regarding matters including address, names, profit and board of directors that may
influence the decision making by the investors (Loyeung et al., 2016).
Though the formulation of accounting standards does not have direct involvement of
the government, it still has different generis characteristics of the self regulation. Further, the
obligations implied by the government requires the organisations to provide details regarding
their position, performance and other associated compliance with regard to government
regulations (Camfferman & Zeff, 2015). Hence, it can be stated that possibility is there that
the preparation of the accounting standards have large involvements of the government in
Australia.

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Depreciation on machinery
(a) Straight – line method
(b) Diminishing balance method
(d) Units of production method

7PRINCIPLES OF ACCOUNTING
Assumption – it is assumed that the company does not claim input tax credit and hence GST
is included in the cost of acquisition of the machinery.

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Reference
Aasb.gov.au. (2019). Australian Accounting Standards Board (AASB) - Home . Retrieved 14
February 2019, from https://www.aasb.gov.au/
Camfferman, K. and Zeff, S.A., (2015). Aiming for global accounting standards: the
International Accounting Standards Board, 2001-2011. Oxford University Press,
USA.
Fasb.org. (2019). FASB Home. (2019). Fasb.org. Retrieved 14 February 2019, from
https://www.fasb.org/home
Firth, M., & Gounopoulos, D. (2017). IFRS adoption and management earnings forecasts of
Australian IPOs.
Ifrs.org. (2019). IFRS . Retrieved 14 February 2019, from https://www.ifrs.org/
Loyeung, A., Matolcsy, Z., Weber, J. & Wells, P., (2016). The cost of implementing new
accounting standards: The case of IFRS adoption in Australia. Australian Journal of
Management, 41(4), pp.611-632.
Newberry, S. (2015). Public sector accounting: shifting concepts of accountability. Public
Money & Management, 35(5), 371-376.
Stamford, L. (2015). Accounting: New standard, new opportunities. Company
Director, 31(4), 48.