Financial Accounting: Analysis of Reporting Standards and Practices

This report provides a comprehensive analysis of advanced financial accounting principles and practices. It begins by examining the conceptual framework, focusing on its qualitative characteristics of relevance and faithful representation, and enhancing characteristics such as comparability, understandability, timeliness, and verifiability. The report then delves into various accounting theories, including public interest theory, capture theory, and economic interest group theory, assessing their impact on financial reporting and regulatory practices. Furthermore, the analysis includes a discussion on the Financial Accounting Standards Board's Statement No. 144 and its role in improving financial reporting. The report also explores the implications of decisions regarding property, plant, and equipment (PP&E) revaluation on financial statements and shareholder wealth. It concludes by highlighting the importance of accurate financial reporting and the impact of management decisions on financial outcomes.

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ADVANCED FINANCIAL ACCOUNTING
By (Student’s Name)
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Advanced Financial Accounting 2
PART A
A lot of companies are diverging into the international market, and this has prompted the
Financial Accounting Standards Board to take action so that it can minimise the differences that
are present in the reporting of financial practices. The board decided to come up with the revised
framework that ensured the differences that were present in the financial reporting of multi-
national companies were eliminated. The revised framework also known as the conceptual
framework is a framework that has two qualitative characteristics which contribute to effective
and efficient financial reporting. The qualitative characteristics ensure that companies in the
international market can carry out financial reporting in a similar manner so that they can
conclude (Giner et al. 2016).
The two qualitative characteristics in the revised framework are fundamental and
enhancing qualitative characteristics. The fundamental characteristics are made up of two main
components which are relevance and faithful representation. The revised framework ensures that
the information in the financial statements is relevant to the companies or branches involved and
that they can find it useful to make decisions (Picker et al. 2017). The CFO's, however, say that
the information in the statements is useless. This means that the information is not relevant to
their set objectives or goals and also it does not help them to do anything. In this instance, the
information cannot be used for comparisons because it does not provide any necessary
information. Therefore, the CFO's believe that the conceptual framework does not achieve
relevance.
In fundamental characteristics, we also have faithful representation where the information
provided in the statements has to meet three aspects that are neutral, complete and free from
error. If information has all these three aspects, then the CFO's can rely on it to make decisions.

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However, the CFO's said that the information was a lot and it had gone to levels where it could
no longer be managed. In this instance, we see that the CFO's were not able to depend on the
financial information. Hence the information was unreliable, and the CFO's believe that it did not
meet the three aspects of being neutral, complete and free from error (Singh 2017).
The second qualitative characteristics are the enhancing characteristics. This
characteristic aims at accomplishing four main objectives as listed below. The first is
comparability. In comparability, the revised framework ensures that companies in the
international market can be able to compare their financial statements in the different branches
(Chan and Vasarhelyi 2018). This has not been possible since the CFO's say that the information
is unmanageable meaning they cannot use it to make comparisons between different companies.
The second objective is understandability. The revised framework ensures that the
information provided in the financial statements can be understood by anyone who wants to read
the statements. However, when analysts try to read the reports they cannot comprehend them and
more often than not, misinterpret them. In this instance, we see that the companies are unable to
understand the financial statements and misinterpret them when they try. This does not meet the
quality of understandability that the framework ensures (Zhang and Andrew 2014).
The third objective is timeliness. The framework ensures that information is provided on
time so that the companies can work efficiently. In this case, the companies have to outsource for
people that are trained professionally to read the statements. This will waste a lot of time that
would have been saved if the company was able to read the statements on their own. The last
objective is verifiability, and here the framework ensures that companies can be able to agree
upon a decision after reading the reports. However, the companies cannot comprehend the
statements meaning they cannot conclude (Gummer and Mandinach 2015).

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In this instance, we see that the views presented in the article are not consistent with that
of financial reporting because they are unable to make comparisons, understand the statements
and also rely on them.
PART B
Public interest theory
The objective of this theory is to ensure that at all times the needs and interest of the
public are put first. The government usually sets the regulation and ensures that all companies
are at purr with the regulations. The government, therefore, regulates the organisation. The
public is essential to the success of a company because they form the demand of the company.
Without this market then the company will not be able to supply its products or services causing
it to fail (Mizutani and Nakamura 2017).
The government does not need to regulate a company because it blindly puts the
customers first. If there is a demand for a particular product in the market, a company will do its
best to supply the demand because this will benefit them in terms of the profits earned. This also
applies to when the market force is unhappy with a service or product, and they ask the company
to change this. The company would be forced to do so even if it was not in their objectives or
strategies. From this, we see that an organisation has to conform to the interests of the market
forces regardless of their policy because they do not want to lose the demand. Therefore, the
government does not need to set any rules for regulation.
Capture theory
The objective of this theory is that the needs and interest of a company are put first. The
body that regulates the organisation becomes captured by it so that it regulates in favour of the
company. The body is usually the government. In this instance, we see that the organisation puts

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their interest and needs first, but they will not be able to achieve these needs without the market
force. The company needs to ensure that their market force is supplied to appropriately so that
they can, in turn, achieve their interest (Cohen and Sundararajan 2015).
If a company, for example, wants to increase their profit earnings, they will have to
increase their sales by an increase in demand. If they do not meet the needs of the market force,
then there will be no demand which affects the supply which affects the profits. Therefore as
much as the company wants to put their needs first, to fulfil these needs, they need to first cater
to the market force. Thus the government does not need to set up regulations because the
organisation can regulate itself (Holcombe and Boudreaux 2015).
Economic interest group theory
The objective of this theory is to ensure that an organisation and its members benefit the
most. The government normally sets the regulation, but in this theory, it is the industry that sets
them. The work of the government is to approve the regulations established by the industry. The
organisation usually conducts surveillance on the environment before setting the regulations. The
environment consists of the demand which is the customers (Black 2017).
The company still wants to benefit but to do so; they have to know what the demand is in
public. The organisation is aware that they have to address the interests and needs of those in the
public before catering to their own. The government usually approves the set regulation, but this
is also not needed because the demand in the market will drive whatever regulations that would
be set. Therefore the organisation will always adhere to the interests and needs of those in the
market force.
PART C

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The Financial Accounting Standards Board came up with the Statement under section no
144 to improve financial reporting among multinational companies. The statement ensures that it
meets the needs of relevance and faithful representation which are qualitative characteristics in
the conceptual framework for corporate financial reporting.
In relevance, the statement ensures that all the information provided for financial
reporting is useful and it can be used in making decisions. This is evident in the statement when
they allow for the expansion of discontinued operations. This they do so that it can include more
transactions, therefore, provide all the relevant information that will be needed in the reporting.
In faithful representation, on the other hand, the statement ensures to achieve by meeting
the three aspects of this characteristic which are neutral, complete and free from error. The
statement ensures that information provided is complete through the expansion of the
discontinued operations to include more transactions. This way the information that an
organisation needs will all be there and therefore will be complete (Chen et al. 2015).
The statement also ensures that the information provided is neutral meaning that the
information will not have any bias. This they do by providing instructions on how to account for
the costs of upfront activities. The instructions will allow users to follow what to do without
having to carry out the financial reporting in a subjective manner. Therefore the statement
accomplishes the aspect of being neutral.
The statement also ensures that all the financial reporting is free from errors. The
statement allows only for one model to be used by customers in reporting. This way the
statements will have minimal to zero errors because there is no use of more than one model. Use
of more than one model also brings a lot of confusion which the statement successfully avoids.
PART D

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(a)What might motivate directors not to revalue the property, plant and
equipment?
It is never an easy task to work out feasible inspiration for the approach adopted. The
rationale given by most directors is that the assets' sale under various market condition could
lead to a much lower among of the valuations suggest. Further, they could believe that, for the
accountability, retention of historical cost valuations remains more effective and efficient.
However, their strategy seems not be conservative. By choosing never to undertake revaluations,
the assets shall be understood concerning their respective present values. Consequently, the
expenses from depreciation will remain lower may that by choosing never to revaluate and the
profits reported would also be higher. This implies it is quite challenging to know whether this is
the inspiration of management in question. Returns on assets will further increase due to higher
profit alongside decreased asset base. A decision not to revaluate the non-current assets, to the
extent that management will receive bonuses anchored on profits, could culminate in significant
gain to the managers (Islam, Nusrat and Karim 2016).
(b)What are some of the effects the decision not to revalue might have on the firm's
financial statements?
Failure to revaluate the PPP will mean that the financial statements are never an accurate
reflection of the excellent image of the firm. Historical cost-oriented accounting regards the as
PPP as being recorded at the initial acquisition value. Nonetheless, as the time passes by, the
assets will either appreciate or depreciate. Hence, it becomes a necessity that PPP assets need to
be weighed against the market value to make the desired adjustment for asset revaluation. Lack
of revaluation makes the information in a financial statement to mislead, and hence investors will
make unsound decisions. The financial statement of a company will henceforth become useless

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when the firms go for merger and acquisition where current market price is used in the purchase
consideration computation (Chaudhry et al. 2015).
(c)Would the decision not to revalue adversely affect the wealth of the shareholders?
This response is given partly by the level of efficiency it is we believe the capital
markets. Where we believe that the market is never efficient, then we might believe that the
prices of share will simply/mechanically depict the information that financial statement display.
Lower assets, and hence, lower net asset baking a share, might be impounded in the prices of the
share. Nevertheless, a given level of this decrease in share price could be balanced off by higher
profit reported triggered by lower depreciation expenses. Nonetheless, if it is believed that
capital market stays efficient, it subsequently does not a concern whether the balance sheet is an
accurate depiction of the current value of assets, provided there is specific information which is
accessible to the public relating to the present market value of the assets of the company.
Because such information is available in the financial statements' notes, a proponent of market
efficiency would indeed argue that the accounting treatment of the firm will have least or even
no impact on the price of shares (Botelho et al. 2015).

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