Current Developments in Accounting Thought: Analysis Report

This report delves into current developments in accounting thought, examining the Financial Accounting Standards Board (FASB) and its exposure drafts related to employee share-based payments and stock compensation. It analyzes comment letters from various entities, including Heiskell and MacGillivray and Associates, Raytheon Company, and the American Bankers Association. The report outlines major issues covered in the exposure draft, assesses the behavior of regulators through the lens of public interest theory, and compares agreements and disagreements among the parties submitting comment letters. It further evaluates the arguments for and against regulation used by the authors of the comment letters and applies theories of regulation (Public interest, Capture theory, and Private interest) to the issues. The report also critically evaluates the underlying assumptions of these regulatory theories in the context of the exposure draft and comment letters. Furthermore, the report uses a case study of the KPMG audit of Rolls Royce, investigating bribery allegations, to illustrate the application of accounting regulations and theories.

Running head: CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
Current developments in accounting thought
Name of the Student:
Name of the University:
Author Note:

2
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
Table of Contents
Question 1........................................................................................................................................4
Question 2........................................................................................................................................7
Executive Summary.........................................................................................................................7
Introduction......................................................................................................................................7
Part A...............................................................................................................................................9
Copy of Four selected Comment Letters.........................................................................................9
 Heiskell and MacGillivray and Associates..............................................................................9
 Raytheon Company................................................................................................................10
 American Bankers Association..............................................................................................12
Part B.............................................................................................................................................12
Outlining the major issues covered in the Exposure Draft............................................................12
Part C.............................................................................................................................................13
Providing an in-depth assessment whether the behavior of regulator in introducing the Exposure
Draft can be explained by public interest theory...........................................................................13
Part D.............................................................................................................................................14
Describing in depth where there is agreement or disagreement between the parties who have
submitted Comment Letters...........................................................................................................14
Part E.............................................................................................................................................15

3
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
Assessing whether the authors of the Comment Letters are utilizing the arguments for or against
regulation.......................................................................................................................................15
Part F..............................................................................................................................................15
Applying each of the theories of regulation (Public interest, Capture theory and Private interest)
to the various issues in the four selected comment letter and justifying which theory of regulation
best explains the comment on the issues.......................................................................................15
Part G.............................................................................................................................................17
Critically evaluate the underlying assumptions and assumptions of the theories of regulation with
regard to their application to the issues identified in the Exposure Draft and Comment Letters..17
Heiskell and MacGillivray and Associates................................................................................17
Raytheon Company...................................................................................................................17
Visa Inc......................................................................................................................................18
American Bankers Association..................................................................................................18
References and Bibliography.........................................................................................................20
Appendix........................................................................................................................................22

4
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
Question 1
For this particular question, article is selected from “The Guardian” and the title is
“Accounting watchdog to investigate KPMG over Rolls-Royce audit”. The article is published
recently on 4th of May 2017. It is well understood that other articles are available that highlights
theoretical issues that leads to prohibited practices of some audit business that have an
undesirable effect on linked stakeholders of the specified business. The current article clearly
explains how accounting watchdog had investigated audit firms (KPMG) while auditing for
Rolls Royce (Zhang et al., 2016).
It is important to understand the fact that mainstream of business functioning in the
global market that have intention to increase the levels of profits. It requires implementation of
various company strategies that wins the confidence and trust of different stakeholders (Zeff,
2016). It is essential to win confidence and trust over the stakeholders that lead to enhancement
of business operations in the international business enterprise. This will lead to increasing the
growth rates as well as future cash flows at the same time. In this article, there was clear mention
about the process of Financial Reporting Council for reviewing the deal of Rolls Royce with
Serious Fraud Office that incurs £ 671 million for settling the allegations that leads to corruptive
activities. The issue had reached the public where FRC (Accounting watchdog of UK) had
properly takes initiatives for investigating into the KPMG audit with Rolls Royce (Ball, Grubnic
& Birchall, 2014). It was needed for investigating the case as there is involvement of engineering
group that sets for a bribery case with Serious Fraud Office for the year 2017.
On analysis, it is noted that Rolls Royce had made an agreement to incur £ 671 million
for settling long-term allegations of corruptions that is well-defined at the time of deferred

5
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
examination (Miller & Power, 2013). Due to Brexit effect, there was high cost of settlement as
well as depreciation of pound value and this issues leads to yearly loss of more than 4.6 billion.
The loss incurred was the highest one for this business organization. FRC had taken initiation to
evaluate the KPMG audit in association with the financial statements for the company (Rolls
Royce) for the year 2010 and 2013. It was stated by the owner of KPMG that regulators have to
evaluate the issues that relates with public interest (Ball, Grubnic & Birchall, 2014). After
looking at the demand of KPMG, it can be stated that the audit work of Rolls Royce need to
carry out effectively with full care as well as due diligence that assures overall audit quality. It is
important to understand the fact that an apology had been made by Rolls Royce where they had
bribed the middlepersons for securing the orders in countries such as India, Indonesia, Nigeria as
well as China and Thailand. For instance, the company had paid £28 million to the
middlepersons in Thailand for getting access to few contracts (Meyer et al., 2013).
On evaluating the case, it is noted that Rolls Royce had bribed the SFO for settling the
fraud charges (Dillard, 2014). This action leads to contravention of public interest where SFO
concentrate mainly on defensive the events of business enterprise. Furthermore, the
middlepersons of the various nations had undertaken bribes in order to secure contracts of the
organization. Rolls Royce wanted that their competitors should not enter in the market and this
was treated as unscrupulous measures. There is direct intervention of FRC who was responsible
for investigating the market due to allegations and applied stringest regulations on the audit
business for evaluating as well as disclosing the financial statements in an effective way
(Klinglmair, Sala & Brandão, 2014).
The reputational theory explains the fact where the investors prefer in dealing with such
business enterprise that has strong reputation in the market and aligns with the efficient growth

6
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
financials. In addition, the cost-benefit analysis over long-term shows dishonest actions that does
not take place that aligns with the organizational interests (Ball, Grubnic & Birchall, 2014).
Some long-term actions take place where dishonest behavior is likely to occur for obtaining
short-term benefits. As far as Rolls Royce is concerned, the business has made a corrupt practice
with SFO for resolving its bribery compulsion. Furthermore, the main purpose was to maintain
the faith levels with the shareholder for accumulating greater funds especially at the time of
funding capital projects. From the annual report of Rolls Royce for the year 2010 to 2013, it is
noted that the figures are misstated that enables the company for gathering sufficient funds from
the investors to undertake new contracts (Deegan, 2016).
It is recommended to the company to carry out their operational progress in the short-run.
It was due to this reason why the company incurs loss as there was loss in the confidence of the
investors. Furthermore, the allegations imposes the company to be identical with reputational as
well as public interest theories that explains the requirements for applying stringest regulations
for given audit business enterprise (Deegan, 2013).

7
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
Question 2
Executive Summary
The main aim of the assignment is to assess the development application about Financial
Accounting Standards Board that relates directly with employee payment share-based accounting
as well as stock of compensation. In addition, there are main four respondents who are
responsible for providing comments on the exposure draft. Furthermore, the study of this section
highlights that the excess tax benefits and realizes the shortage as mentioned in the income
statement that are not undertaken. Therefore, the balanced fairness approach introduces facts that
minimize the volatility expenses that are mentioned in the income statement. The main objective
of the assignment is to reduce cost as well as complexity for bringing improvements in the
accounting for share-based payments that are issued to employees mainly for the public as well
as private companies. FASB affirms with the proposed changes that aligns with the accounting
for share-based payments as issued to employees in areas such as accounting for income taxes
that gets along with vesting or resolution of awards, presenting excess tax benefits as shown in
the cash flow statement, accounting for forfeitures, presenting employee taxes paid as shown in
the cash flow statement when an employer withholds shares for meeting minimum legislative
necessities as well as minimum statutory requirements.
Introduction
This section deals with introducing FASB and recommending different accounting
standards that allows exposure drafts and comments that are published by industries and
corporate business enterprises (Ball, Grubnic & Birchall, 2014). This particular proposal takes

8
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
into account accounting standards for updating the stock-based compensation and it has the topic
number of 718. The mentioned standard title is Improvements of Non-employee share-based
payment accounting (Klinglmair, Sala & Brandão, 2014). It is important to bring improvements
in the non-staff share payment that assures proper reduction of cost. Furthermore, there are
different complexities present that maintain accurate information of financial users that are
mentioned in the financial statements of business enterprise. Therefore, the section mainly
concentrates upon different agreed and non-agreed comments for initiating such standard for
bringing improvements in the procedure of accounting in the most appropriate way. This section
mainly emphasizes upon facts after recommending various important accounting standards as it
updates stock based compensation for improving the procedure of accounting for ascertaining its
idealness (Christ & Burritt, 2015).

9
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
Part A
Copy of Four selected Comment Letters
Heiskell and MacGillivray and Associates
Figure: Comment Letters (Financial Accounting Standards Board) of Heiskell and
MacGillivray and Associates

10
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
Raytheon Company
Figure: Exposure Draft- Stock Compensation Topic 718- Improvements to Employee
Share-Based Payment Accounting

11
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
 Visa Inc
Figure: Request for comments on Exposure Draft of Proposed Accounting Standards
Update on Compensation – Stock Compensation (Topic 718), or “the proposed update”

12
CURRENT DEVELOPMENTS IN ACCOUNTING THOUGHT
American Bankers Association
Figure: IASB Exposure Draft 2015/3 - Conceptual Framework for Financial Reporting
Association
Part B
Outlining the major issues covered in the Exposure Draft
From the IASB and Conceptual Framework, it properly explains about measurement
bases in the Chapter 6. It discuss about various measurement bases and information that it
provided with relevant benefits and limitations. The section even determines the factors that need
to be considered at the time of selecting based on measurement. In the Exposure Draft, there is