ACC Assignment: Review of Current Accounting Issues and Analysis

This report analyzes current accounting issues based on a recent news article regarding the Reserve Bank of Australia's conundrum with credit and spending. It delves into the accounting theory of credit losses, examining how financial organizations account for potential non-payments and the role of IFRS 9. The report also addresses the FASB's exposure draft on financial instruments and credit losses, focusing on proposed amendments and their impact on financial statement comparability. Furthermore, it explores the behavior of regulators through the lens of the public interest theory, justifying FASB's actions in providing options for fair value elections and transition relief. The analysis includes a discussion of various groups' agreements and disagreements with the exposure draft, concluding with a justification of the theories in relation to public comments and potential implications for financial reporting.

Running Head: CURRENT DEVELOPEMENT IN ACCOUNTING THOUGHTS
CURRENT DEVELOPMENT IN ACCOUNTING THOUGHTS
Name of the Student
Name of the University
Author Note

1CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
Table of Contents
Answer to Question 1.................................................................................................................2
Article Overview and Issues Covered....................................................................................2
Accounting Theory and its Applications................................................................................3
Answer to Question 2.................................................................................................................5
Major Issues covered in the Exposure Draft FASB...............................................................5
Behavior of the Regulator as the Public Interest Theory.......................................................6
Agreement or Disagreement & Issues of various groups.......................................................7
Application of Theories of Regulation...................................................................................9
Justification of Theories in Respect to Comment................................................................10
Reference..................................................................................................................................12

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Answer to Question 1
Article Overview and Issues Covered
According to the article published on March 4, 2019, have highlighted the issue
regarding squeezing of credit has created Reserve Bank of Australia in conundrum.
Australian are borrowing as well as less spending at the same time as the companies are
hiring as investing more that has created conundrum for the policy makers who are trying for
ascertaining the requirement of the economy (Elnahass, Izzeldin & Abdelsalam, 2014).The
main problem this article discusses is does the need for the dose of the stimulus for putting of
more cash into the wallets of the consumers and getting them for spending or it stand on
sidelines and then wait for expansion of the firms for spurring the higher salaries that
ultimately making stronger inflation. The most likely action for the chief Philip Lowe of the
Reserve bank for now is doing nothing, as it was with theevery meeting in the last two and
half year (Heath, 2019).
According to the article, the important aspect is the tumbling of the prices of the
property that are casting the pall over the sentiments which are compounded by the
crackdown on the banks which is discouraging the banks for lending to the people of
Australia who are already afraid of taking more debts. In China, global backdrop of the
slowdown in the China who buys exports of Australia that is one third and it means that there
is having less certainty in the overseas (Edwards, 2014). Moreover for RBA, one factor in the
housing slump that matter most is whether the losses of the paper on the property has
prompted for the heavy retrenchment in the spending of household that accounts for almost
60% of the total spending in economy. According to Cameron Kusher, the research analyst of
Corelogic, firm of property data and the analysis thatthe ongoing declining in the market off
housing is going to start that will be more headache and trouble for the Reserve bank. The

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home values of Sydney has slumped from their peak to 13.2 per cent in the mid of 2017, it
was the period when the prices have reached to the levels of eye- watering by discouraging
the buyers that is just as the new wave of the housing supply to come online. Moreover, the
banking royal commission uncovered widespread misconduct has resulted into the sharp
tightening of the standards of lending.It has been observed that the growth rate of mortgage
has slowed down to just 0.2% in January 2019, as this was the reading the month since 1984,
it was when the Australia was sweeping for the program of deregulations for reviving the
economy of moribund (Heath, 2019). The credit on the account of personal purchases has
dropped to 2.8 per cent from the earlier year as it was the worst figure since October 2009.A
day before release of the GDP of fourth quarter, RBA has met for providing the reading on
the consumption. This poor subsequent data has prompted RBA’s chief, Lowe for dropping
the tightening bias in the favor of the stance of neutral policy. According to the data, it has
been find that the final quarter of 2018 was a bit lackluster. The profits of the company have
risen by 0.8 percent as compared with the expected 3 %, while there was unexpected
dropping of inventories (Heath, 2019). The report from the Australia as well as the New
Zealand banking group has depicted that there was slid of 0.9 % of the job advertisement.
The economist have predicted that the economy of the Australia has predicted the expansion
of 0.5 per cent from third quarter as well as 2.7 per cent from the earlier year that is in line
with the estimated 2.75 % speed limit of Treasury (Bamber & McMeeking, 2016).
Accounting Theory and its Applications
According to the Accounting Theory of Credit Losses, the loss that the financial
organizations or the business records that is caused by the non-payment of the money by the
customers they owe of future or potential credit losses. For the potential credit losses, the
company has to maintain the reserves.In addition, Financial Instruments: Credit Losses helps
in examining the way the creditor accounts for the credit losses on certain derivative ornon-

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derivative financial instruments. This theory deals with providing with the way to deal with
the credit losses. The accounting board has set out the principle for which is based on the
standard for how the banks can recognize as well as provide for the credit losses for the
purposes of reporting of the financial statements. According to International Financial
Reporting Standard 9, financial instruments are introduced as the framework of the “expected
credit losses” for recognizing the impairments. It sets the way organization will classify as
well as measures the financial assets and liabilities (Elnahass, Izzeldin & Abdelsalam, 2014).
The scope of it includes recognizing the impairments. Banks are required for recognizing
expected credit losses all the time by taking into the account of past events, forecast
information and current conditions as well as updating the amount of the expected credit
losses that is recognized at each of the date of reporting for reflecting the changes in the
credit risk of assets. This approach is more forward looking than that of the predecessor and
it results for recognizing timely the credit losses. The classification of the financial assets is
according to the model for their management and characteristics of the cash flows. In case if
the financial assets is the simple instrument of debt such as loan, business model in which it
is held has the objective of collecting the contractual cash flows and representation of the
contractual cash flows is on the solely payments of the interest and the payments. This
framework is helpful in recognizing and measuring of the lease receivables loan
commitments ad well as financial guarantee contracts. The accounting standards provide the
methodology of the current expected credit losses for the estimation of the allowances for the
credit losses as well as making provisions for it. It is applied to all the banks, credit unions,
saving association as well as financial institutions holding companies (Bamber &
McMeeking, 2016).
Therefore, the credit loss of Reserve bank of Australia is linked with the accounting
regulations in relation to the credit loss. It is because the slow economy in relation to housing

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and the property market has directed to the needs of lending standards. Therefore, proper
estimation and making the allowances for the credit loss will help in reducing the shrinkage
of the loss. This will help in account for the expected credit losses. In addition, this will also
help the bank in considering the unexpected losses in their financial statements. Theproperty
business transactions is credit based it means it is not required for making the payment of in
cash. This credit results in the accounts receivables on balance sheet of the company. The
record of the accounting standard is as the current assets as it explains the amount, which is
due for providing the goods or the services (Bamber & McMeeking, 2016).
Answer to Question 2
Major Issues covered in the Exposure Draft FASB
Exposure draft on the ““Proposed Accounting Standards Update- on Financial
Instruments- Credit Losses, Targeted Transition Relief for Topic 326” has been issued by
FASB. Request has been made for several agendas to FASB for the consideration of the
amendments for guidance of the transition for 2016-13 update (Exposure Documents &
Public Comment Documents. 2019).
These amendments will help in providing the targeted relief of transitions thatintends
for the increase in the comparability of financial statementsinformation for some of the
organizations that otherwise would measure similar financial instrumentswith the
measurements of the various methodologies.This helps in the decrease in the cost for some
financial statements preparers and it enhances users of the financial statements for taking
useful decisions by the help of useful information (Novotny-Farkas, 2016).
The issues for which organizations and individuals are invited for commenting on all
matters on the update of the proposals are as follows:

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 Providing organizations with option of irrevocableelecting of the fair value in
subtopic of – eligible instruments, that are within subtopic’s area of 326-20, which is
except the securities of debt of held to the maturity, that is upon the adoption.
 The amendments that areproposed require the fair value irrevocableelectionoption,
which is applied, based on the instrument-by-instrument (Camfferman, 2015).
 The board decision regarding not providing the organizations with discontinuing
option for the measurement of fair value of the financial assets that measurement of
raw at the fair value by net income. Although, application of the guidance of
measurement in subtopic 325-30 (Hashim, Li & O’Hanlon, 2016).
 Additional disclosure requirement for the amendments proposal, which is beyond the
disclosuresrequirements in the topic 250, 825-10, subtopics 820-10 as well as
correction of error and the charges of accounting.
 Theorganizations that have adopted Topic 326 early, company’s board requires
effective date and the transition for amendments, which is proposed (Onali & Ginesti,
2014).
Behavior of the Regulator as the Public Interest Theory
The public Interest theory is referred to that regulation that providing benefits as well
as protecting the majority of the public. This theory enhances the welfare of the economy as
well as social welfare to the maximum level and the regulation will result from analysis of
thebenefit or cost for determining the market operations that outweighs the increased social
welfare amount. The theory of public interest regulations explains that the regulations seek
benefits and protections of public at large (Ginosar, 2014). It can further be described as
allocation of the resources in the best possible way for the collective and individual goods.
Regulations refers to the employment of the regulatory instruments for implementing the
objectives of socio-economic policy such as establishment of the social and economic

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regulations by the government helps in realizing the goals such as efficiency in allocations,
stabilizations and distribution of income. According to the theory of public interest, the
regulation of the government is considered as the instrument for overcoming of the imperfect
competitions disadvantages, undesirable results of market, missing markets and unbalanced
operations of market (Cohen & Sundararajan, 2015).
Hence, in relation to the FASB proposal, the theory of ‘public interest theory’ is
justified in relation to their behavior. This justification is because FASB by its amendments
in this specific proposal has raised the concerns of stakeholders by providing option for the
election of the fair value option irrevocably for some financial asset, which has measured
previously based on the amortized cost (Koopman, Mitchell & Thierer, 2014). The option for
the methodologies of measurement alignment for the financial assets that are similar will help
targeted transition for increasing information of the comparability of the financial statements
for some organizations. In addition, the relief of the transition will be helpful in reducing of
some organization’s cost in order for complying it with the amendments done in 2016-13
update. Moreover, this proposal will also enhance the user’s decision making by providing
useful information (Bös, 2015).
Agreement or Disagreement & Issues of various groups
The exposure draft documented is published by the Financial Accounting Standard
Board for soliciting the comments from various groups of people and entities on the new
proposed standards of accounting, so that the consequences that are unintended are
minimized, before the proposal becomes the law in action. The exposure draft generally
represents the judgment by the FASB on the specific issue of accounting (Schwarz et al.
2015). Comments generally come from the professional accounting firms as well as
associations of industry, with having the intimate knowledge of the influence of the new
standard on their clients. The regulatory board may revise the exposure draft, based on the

8CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
information received from the comment letter. Different views of different organizations have
been provided. There are certain organizations that have showed agreement as well as
disagreement about the proposed amendments (Beatty & Liao, 2014). Some comments by the
organizations are as follows:
MOODY’s Analytics
As per the comment letter issued by the Moody’s Analytics, the proposed exposure
draft will be providing ease for the transition in respect of the standards of credit losses that
can be done by providing the option for the fair values assets measurements of particular
type. The proposed amendments will be applied to all the reporting organizations that are
basically within the scope. Therefore, Moody’s Analytics have also agreed on the proposed
amendments (Moodysanalytics.com. 2019).
KPMG LLP
As per the comment letter of KPMG LLP, they have showed their support towards the
regulatory board decision. According to them, this amended proposal will be helpful in
increasing the loan amount measurement at fair value. Therefore, with the help of this, the
fair values gains as well as losses of financial assets will be allocated for the separate interest
income presentation. This is considered as one of the most important feature that helps the
investors of the financial organizations (Frv.kpmg.us. 2019).
Ernst & Yong LLP
As per the comment letter by Ernst & Young LLP, they have also supported the
proposal of the regulatory board, in order to provide relief for fair value electing option. They
also recommended the regulatory board for addressing the issue in timely manner
(Azevuzletembere.hu. 2019).

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Grant Thorton
As per the comment letter of Grant Thorton, this particular amendments has the
requirement for the adoption of ASU 2016-13 in fiscal year which begins after December 15,
2021 to the organization, that are private business entities not the public business. Further, in
between the fiscal year, interim period, which began after December 15, 2021, there would be
any significant impact of ASU 2018-19 of public business organizations requirement at the
effective date. Moreover, there is also exclusion of the operating leases receivables from that
of the scope of 326-20. Instead of it, there is the account for receivables of the impairments,
which have resulted from operating leases under the guidance of ASC 842. Therefore, as per
Grant Thorton’s comment, it can be said that, they have shown disagreements on the proposal
exposure by the regular (Grantthornton.com. 2019).
Application of Theories of Regulation
Public Interest Theory
This theory of regulations helps in promoting the general welfare in comparison with
the well-organized interests of the stakeholders. This theory explains regarding the
intervention of the government in the markets as well as associated rules of regulatory in
response to the failures of market and imperfections of the market. This theory promotes the
issues of the general public concerns (Siems & Schnyder, 2014).
Private Interest Theory
This regulation helps in acknowledging the individual form into group for the sake of
pursuing the self interest. This theory is also known as private interest theory. The theoretical
aspects of this do not comply with the notion of the public interest. It is considered to be that
interest of public that is able to dominate the process of regulatory. Regulation is known more
about the competition than the public interest (Koopman, Mitchell & Thierer, 2014). There

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will be lobbying by the private groups to the regulator for either adopting or rejecting the
specific rule. In case if the market on account for the regulation is on the basis of demand and
supply then those who more value the regulation will be considered as the biggest lobbyist
for any specific or particular standards or rules (Fagotto, 2014).
Capture Theory
This theory of regulation has the am for manipulating the regulations, so that they
could fit into the requirement especially for those who are generally affected by them and it
serves the concerned industry interest over given period of time. It is the economic theory
that explains that the agencies of regulatory may come up for the dominations by industries
or the charged interest with the regulating (Carrigan & Coglianese, 2016). Under this theory,
the supply of the regulations is in response of demands of the interest group who tries for
maximizing the interests or income of their members. It is on the assumption that the people
always seeks to maximize their self interest and they do so in the rational way. This particular
theory vests on the two insights. First includes, the government cohesive power is used for
giving valuable benefits for the particular groups such as accounting industry. Second, the
regulation is viewed as the product, which is governed by demand and supply laws. In this
the attention is basically focused on cost and value of regulations to the particular group (Ojo,
2014).
Justification of Theories in Respect to Comment
According to Moody’s Analytics, amendments done for application for it to be done
to the reporting organizations are within the scope. Therefore, this comment justifies capture
theory of the regulations.

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According to KPMG, amendments on the given accounting standard are done for
serving the investor’s needs for the fair value measurement. Therefore, this aspect of the
comment justifies the regulations of public interest theory.
According to EY, the amendments done by the regulator is for serving the whole
entities interests over given period. Therefore, it helps in serving public interest theory
(Siems & Schnyder, 2014).
According to Grant Thorton, the amendments have the aim of meeting the private
organization’s interest comparison with that of public organizations. It is because
amendment’s requirements for the adoption of ASU 2016-13 in the fiscal year have started
after December 15, 2016 for those organizations that are not public business organizations.
Therefore, best explanation of the theory in the comments of the company is the theory of the
public interest. It is because; exposure draft of the proposal is amended for meeting the
welfare and needs of the public (Carrigan & Coglianese, 2016).

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14CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
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