Advanced Financial Accounting: IFRS and Asset Revaluation Report

This report provides a detailed analysis of advanced financial accounting topics. It begins by examining the qualitative features of financial statements and how they are perceived by different stakeholders in the context of International Financial Reporting Standards (IFRS). The report then delves into the Australian government's decision regarding environmental and social responsibilities, analyzing it through the lens of public interest, capture, and economic interest group theories. Furthermore, it explores the implications of the US Financial Accounting Standards Board (FASB) regulation on asset revaluation, specifically its impact on faithful representation and relevance. Finally, the report discusses the motivations behind directors' decisions to revalue property, plant, and equipment, the consequences of not revaluing these assets, and the influence of capital market efficiency on revaluation decisions. The report offers valuable insights into the complexities of financial accounting and its practical implications.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Answer to Part A:.......................................................................................................................2
Answer to Part B:.......................................................................................................................4
Answer to Part C:.......................................................................................................................6
Answer to Part D:.......................................................................................................................7
Requirement (a):.....................................................................................................................7
Requirement (b):....................................................................................................................8
Requirement (c):.....................................................................................................................8
References:...............................................................................................................................10

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Answer to Part A:
Qualitative features are needed to be present in the financial statements of the
organisations in order to enhance the usefulness of overall financial information. These
characteristics primarily constitute of fundamental qualitative features and enhancing
qualitative features. The major components listed under fundamental qualitative features
comprise of relevance and faithful representation. Similarly, certain components are inherent
in enhancing qualitative features and they are comparability, verifiability, timeliness and
understandability (Arnold and Kyle 2017). The given article sheds light on the opinions of
the different individuals about enforcing the “International Financial Reporting Standards
(IFRS)”. All the statements lay stress on the fact that certain components of the qualitative
characteristics laid out in financial reporting are not inherent, as per the individual
judgements. They are summarised as follows:
Geoff Roberts, the former chief of AXA Finance, has opined that no questions are
received from the financial analysts and the fund managers for adjusting the financial
statements in order to have accurate financial picture of the organisations, which are
conducted depending on the IFRS norms. Due to this, they have not encountered any issues
while contrasting the financial statements of different organisations along with obtaining
knowledge regarding their financial standing in the market. Hence, essential evidences are
provided through these aspects, which imply that financial statements prepared in accordance
with IFRS have understandability and comparability. Thus, these two qualitative features
enable to enhance the value of financial information of the business organisations. However,
it has been observed currently that the IFRS-developed financial statements do not provide
detailed understanding and scope of comparison in them. Due to this, deficiency could be
observed in IFRS in terms of comparability and understandability (Beatty and Liao 2014).

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According to the opinion of Terry Brown, the finance director of Wesfarmers
Limited, the financial statement notes of the organisations might be misinterpreted, if the
financial analysts aim to explain them when they have no technical knowledge regarding the
IFRS standard. Verifiability is another significant qualitative feature of financial reporting,
which increases the financial reporting quality by providing scope to the users in applying
their financial observations and knowledge to obtain overview about the financial positions of
the organisations. The assessment of the footnotes to the financial statements is a vital aspect
in the context of the users to understand the financial performances of the business
organisations. This denotes the ability of the users to evaluate the content described in the
notes through application of their observation and knowledge, as the financial statements
prepared under IFRS needs greater technical knowledge. Based on the above assessment,
verifiability and understandability aspects of the qualitative features are not present in the
IFRS reporting framework (Cascino et al. 2017).
In accordance with the viewpoint of David Craig, the CFO of Commonwealth Bank,
the investors do not pay adequate attention to IFRS-developed financial statements, as they
are of the notion that such statements might provide falsified information regarding the
financial performances and financial positions of the corporate entities. It is necessary to
ensure relevancy and faithful representation of the financial information disclosed in the
annual reports of the organisations in order to create positive effects, so that the investment
decisions could be undertaken appropriately. If these features are not present, no
understanding regarding the financial conditions of the organisations could be obtained. At
present, it has been identified that the organisations representing the financial information by
preparing the financial statements in accordance with IFRS standards seem to lack in
relevancy and faithful representation. Due to this reason, the investors do not consider the
information represented in the financial statements (Ghanbari and Sarfia 2016).

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Finally, it is noteworthy to mention that financial reporting intends to deliver the users
of the financial statements with accurate financial information that would be valuable in
signifying the financial conditions of the business organisations along with undertaking
suitable investment decisions. The discussion above signifies the absence of some significant
qualitative features, which limits the objective of financial reporting.
Answer to Part B:
The Australian government undertook an important decision in 2006 associated with
amendments in the Corporations Act 2001, in which any introduction of regulation to
promote the environmental or social responsibilities is absent. Instead of the initiation of
regulations, the government of Australia has allowed the market forces to serve in this
purpose. By assisting three popular regulation theories, the Australian government decision
could be analysed. The detailed discussion is represented as follows:
Public interest theory:
This theory supports the initiation of regulations for meeting the overall public
demand. In accordance with the principle of the theory, the initiated norms have a significant
role to assure the welfare of the public. At the same time, the enforcement of regulations
assures that they do not benefit only one group of stakeholders. In accordance with this
theory, adequate importance is not provided sufficient significance, since their role is not
important in meeting the needs of the public (Ghani and Muhammad 2016).
This theory could be applied in the provided situation of the decision related to the
Australian government. Since this theory provides support to the initiation of regulations, the
Australian government could have enforced particular regulations in the Corporations Act to
ensure environmental and social responsibilities. This is because when such regulations are

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present, the common good of the public could be ensured. Besides, if the Australian
government intervenes in the market, no market imperfection or failure could be ensured.
Thus, the Australian government could enhance environmental and social responsibilities
among the public.
Capture theory:
Capture theory is just the reverse of the public interest theory because according to
this principle, no regulations are needed for ensuring the welfare of the common individuals.
Instead of introducing regulations, this theory lays emphasis on the functioning of the market
forces in order to satisfy the overall interests of the customers. Moreover, the principles of
this theory suggest that the regulators could manipulate with the regulations for assuring their
self-interest; hence, regulations would not be appropriate. Besides, with the help of this
theory, those parties could be identified on which the enforcement of the regulations would
have direct influence. Due to all these reasons, adequate reliance needs to be placed on the
market forces so that the requirements of the common individuals are met (Gomes 2017).
When the concept of this theory is applied in the provided situation, the right step is
taken on the part of the Australian government by not enforcing regulations for promoting
environmental and social responsibilities in the Corporations Act. Since regulations are not
there, there is no chance for the regulators to manipulate the same for meeting their self-
interests.
Economic interest group theory:
One of the fundamental principles of this theory is that industries are the creators of
regulations and the motive for which such regulations are formulated is to enhance the
growth of both the business enterprises and the common individuals (Hoyle, Schaefer and

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Doupnik 2015). Hence, from the perspective of this theory, it is evident that the government
of Australia could have initiated regulations in the Corporations Act in order to promote
environmental and social responsibilities. The reason is that when responsibilities are
transferred to the business organisations and the common individuals, they are obliged to
adhere to the norms laid down in environmental as well as social responsibilities.
Answer to Part C:
After careful assessment of the provided scenario, there is a certain regulation present
in the US “Financial Accounting Standards Board (FASB)”. According to this regulation,
there is no need for the business organisations in US to perform the procedure of asset
revaluation. Instead, they are needed to take into account those impairment charges
associated with their non-current assets. In this respect, it is noteworthy to mention that some
significant implications are inherent on faithful representation and relevance of the financial
reports due to the asset revaluation regulation, which are elucidated briefly as follows:
The FASB regulation for non-current asset revaluation has assisted immensely in the
formulation of a single framework in relation to the accounting functions of the
revaluation of non-current assets. Such aspect assures in maintain relevance of the
financial reports (Huang 2014).
When the accounting functions are associated with the enforcement of the revaluation
of non-current assets, the accountants of the business organisations encounter few
particular issues and such issues have resulted in inappropriate representation of the
financial reports of the organisations. However, in the presence of FASB regulation,
the business enterprises are obliged to adhere to all the needed regulations and norms
related to revaluation of fixed assets. As a result, it helps in making contributions

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towards the faithful representation of the values of fixed assets in the financial
statements (Kahng 2015).
There are diverse models of accounting, which could be associated with the
revaluation of fixed assets leading to complexities and difficulties for the business
enterprises in order to account for revaluation of fixed assets. However, the existing
FASB regulation has fetched a single framework in order to revalue the fixed assets,
which is immensely valuable in minimising the accounting issues (Martin and
Roychowdhury 2015).
All the financial statement users like stockholders, creditors, suppliers, customers and
others are required to have some understanding of the accounting treatments. One
such aspect is to find out the significant similarities and differences in the accounting
treatments needed for revaluing the fixed assets, which could be ensured with the help
of the new FASB regulation (Maynard 2017).
Answer to Part D:
Requirement (a):
There are a number of reasons for which the motivation of the directors of the
organisations increases in order to revalue property, plant and equipment and they are
represented as follows:
During the revaluation procedure of this fixed asset, it is necessary for the directors to
revalue this asset frequently. Such revaluation would enable the directors to have
proper knowledge of all the fair values of the assets (Robertson 2015).
Adequate knowledge about the fair value of property, plant and equipment helps the
directors to negotiate prices of such assets during merger and acquisition. This is

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because such knowledge is of immense importance for the directors, as the process of
merger and acquisition is smoothened.
Finally, the procedure of asset revaluation would enable the directors to gain an
insight regarding the actual return on capital employed, which would help them in
undertaking funding decisions (Scott 2015).
Requirement (b):
If the business organisations are not involved in undertaking the decision of revaluing
their property, plant and equipment, the impact would be drastic on their financial statements.
When the procedure of revaluation is not present, property, plant and equipment are expected
to increase or decline and hence, they might not be valued accurately. Due to this reason,
there would be realisation of abnormal gain or loss when the assets would be sold at a later
point of time in future (Weygandt, Kimmel and Kieso 2015). Moreover, the business
organisations could expect to experience decline in their overall earnings. With the fall in the
level of earnings, impact would be on profit level as well and thus, the financial performance
of the organisations might not be desirable or favourable.
Requirement (c):
The capital market efficiency assists in driving the decision related to revaluation. In
case, there is lack of efficiency in the market, the stock prices would denote the information,
which is disclosed in the annual reports of the business organisations. The reduced asset per
share could be held in the prices of the stocks. However, the higher reported income might
help in offsetting the minimised share price (Randolph 2016). The decision of abstaining
from asset revaluation has negative repercussions on the shareholders’ wealth of the business
organisations. At the time there is non-revaluation of these assets, profit level of the
organisations are expected to decline massively. As the organisations start to experience fall
in their profits, the share return would be reduced due to the decline in price per stock of the

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organisation. Hence, it would limit the overall rate of return on investments for the
shareholders of the business organisations ultimately leading to decrease in the wealth of the
shareholders (Richardson 2017).

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References:
Arnold, G. and Kyle, S., 2017. Intermediate Financial Accounting Volume 2. Lyryx.
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Cascino, S., Clatworthy, M., Garcia Osma, B., Gassen, J. and Imam, S., 2017. The
Usefulness of Financial Accounting Information: Evidence from the Field.
Ghanbari, M. and Sarfia, E., 2016. Journal of Advanced Research In Accounting And
Auditing. Journal of Advanced Research In Accounting And Auditing, 1, pp.8-15.
Ghani, E.K. and Muhammad, K., 2016. The Effect of Freemind on Students’ Performance in
an Advanced Financial Accounting Course. International Journal of Academic Research in
Business and Social Sciences, 6(7), pp.262-275.
Gomes, D., 2017. Book review: Accounting by the First Public Company: The Pursuit of
Supremacy.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Huang, Z., 2014. Advanced Financial Accounting.
Kahng, L., 2015. Perspectives on the Relationship between Tax and Financial Accounting.
Martin, X. and Roychowdhury, S., 2015. Do financial market developments influence
accounting practices? Credit default swaps and borrowers׳ reporting conservatism. Journal of
Accounting and Economics, 59(1), pp.80-104.
Maynard, J., 2017. Financial Accounting, Reporting, and Analysis. Oxford University Press.

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Randolph, A., 2016. MACC 531-02 Advanced Financial Accounting.
Richardson, A.J., 2017. The Relationship between Management and Financial Accounting as
Professions and Technologies of Practice. The Role of the Management Accountant: Local
Variations and Global Influences.
Robertson, C., 2015. CfE Advanced Higher Accounting: Financial Accounting. Heriot-Watt
University.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting.
John Wiley & Sons.