ACC518 Audit Assignment 1: Review of Accounting Standards & News

This report analyzes a news article concerning companies' reporting of climate risks, highlighting the need for environmental disclosures and the implications of fragmented information on investors. It also delves into accounting policies and theories guiding environmental disclosures, such as materiality and Corporate Social Responsibility (CSR). The report further discusses an exposure draft related to IAS 8, focusing on the distinction between accounting policies and accounting estimates, and examines various comments on the draft, providing a comprehensive overview of the issues and stakeholder perspectives. This document is available on Desklib, where students can find more solved assignments and past papers.

Audit Assignment

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By student name
Professor
University
Date: 20th Sep 2018.
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Contents
Question 1........................................................................................................................................3
Question 2........................................................................................................................................6
References........................................................................................................................................4
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Question 1
Introduction
In the given assignment a news article has been selected to be presented in front of the
team to put their opinions on the same. The article that has been selected is “'Worrying':
Companies' reporting of climate risks goes 'backwards', this article highlights the needs of
disclosures that the companies make with relation to environmental issues that occur because of
their activities and what are the steps that they are taking to take care of that (Abdullah & Said,
2017). The article is discussing an important topic of corporate social responsibility that occurs
due to increased dependence of the companies with relation to the various stakeholders that are
dependent on the company in some way or the other. The companies have some important
responsibility towards the environment in which they are functioning and thus it is important that
proper disclosures are being made with relation to that. It has also highlighted how companies
have reduced providing proper disclosures with relation to environmental effects that they are
making. The article highlights how the annual reports of various companies have been
downloaded and making sure that how they have changed with relation to environmental
disclosures that they are making in their annual report (Alexander, 2016). It has also shown how
the investors are being affected with the fragmented information that they have provided in their
annual report with relation to environmental disclosures. It thus raises an important point how
accounting standards and regulations are there that are guiding how companies should fulfil their
responsibility that they have towards the stakeholders.
A copy of the news article has been given below:
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Source : https://www.smh.com.au/business/companies/worrying-companies-reporting-of-climate-risks-
goes-backwards-20180920-p504yt.html
b) The key issues that have been included in this article are-
The article highlights the need that companies should state in their annual report proper
disclosures with respect to the environmental effects that their activities are causing to the
environment.
As per this article, The Australian Securities and Investments Commission, have downloaded the
annual report of 60 companies and have reached to a conclusion that 17 percent of the total
companies out of those 60 companies have provided disclosure regarding to enviro.nmental
risks. Also the companies that have provided the environmental risk, is very limited and not
proper disclosure are giving (Antle & Smith, 1985). The overall information is very fragmented
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and not proper and not valid at times, thus investors are not able to make an opinion on how the
companies are making proper disclosure with respect to that. The ASIC has also downloaded the
annual report of 1500 companies and have analyzed their past six years and based on that they
can see that from the past 2011 to 2014, there has been an overall reduction of 22 percent in the
total disclosure that has been made. As per the ASIC, it has been stated that this reduction was
due to the fact that repeal of the Gillard-era emissions trading scheme legislation (Belton, 2017).
It can also be seen that the disclosure provided are very fragmented and not clear and not precise.
Also if 100 companies have provided their disclosure, then that is also not clear and proper. In
this article the ASIC has urged the companies that they should follow proper disclosure policies
and state the same in their annual report under proper headings (Bouret, 2017). It has also urged
the investors that they should focus more in this repsect and see that companies are able to put
their stand in a proper way. . This ramped up the guidelines that were issued by the G20
taskforce, known as TCFD, that was anchored on the fact that the Paris agreement had pledged to
keep the global warming below 2 degrees. It has also stated that companies in New Zealand and
Australia that are having funds that are more than $2 trillion funds for management, then with
respect to that they should make proper disclosure as that might affect their capital credibility of
the company. It is evident that the overall reporting that has been down by the companies have
gone “backward” and they need to make sure that they are changing this scenario and take this
situation seriously.
c) There are various accounting policies and theories that guides the environmental disclosures
that companies need to do with respect to the environmental damage that they might do. In past
there have been serious cases of air pollution and global warming that has affected the
environment a lot and most of them have been caused because companies were not able to install
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proper equipment’s and meet proper safety standards (Charles H, Giovanna, Dennis M, & Robin
W, 2015). Because of this there were situations in which the companies lost their license and the
management were held guilty and were punished very badly. Because of this the investors had to
lose a lot of money. Then there were serious guidelines that stated that if companies are not
meeting safety standards or are involved in such type of industry then they should disclose the
same in them annul reports and follow accounting policies with that respect. But now it can be
seen that this has reduced a lot and companies have taken it very lightly. The same has been
highlighted in this article (Coate & Mitschow, 2017).
ii) The theory of materiality can be linked to this policy of accounting disclosure with respect to
environmental issues that the causes. Materiality as a concept refers to the fact that any event,
transaction or activity that might affect the position of the company financially and can affect its
going concern policies then it should be stated and disclosed. In case of environmental risks
companies never considered it to be material enough that they need to give disclosure with
respect to that. But it can be seen that with changing times, the effect that activities that the
companies were doing was affecting the environment very badly and thus on that note there was
a lot of harm caused and thus it was important that companies should state this in their annual
report (Eddy, Filip,R, & Warlop, 2004). Corporate Social Responsibility is a model that frame
rules and regulations that helps companies in taking care of all the stakeholders that are
dependent on them in some way or the other. There are many cases where companies need to
balance the interest of all one stakeholder in pursuance of another and in this case, we see that
CSR policies are very effective. So, they are effective in term of environmental policies also, and
environment is an important stakeholder for the companies, as it is their responsibility to take
care of the society in which they are functioning. Thus, government has set standards of safety
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that every company needs to meet and in case they fail, they will be penalized. Not just meeting
the standard is important, giving proper disclosures with respect to this is also important as
investors needs to be aware about the stand that the companies are taking (Ghofiqi, 2018).
Investors are the people who are putting their funds in the company, in case where the company
fails, the investors would be also affected. It has also been highlighted in this article that
companies that are providing disclosure are in a very vague manner, which makes it difficult for
them to are depending on the annual reports. Thus, need arises that there should be clear
disclosures and that should be on point and that should be helpful to the companies in some way
or the other. So, we see that still not many rules are there guiding the principles of environmental
disclosures but whatever is there they seek to spread awareness among the investors, companies,
public that it is the duty of the companies to protect the environment in which they are
functioning, and it is material and hence should be stated in the annual report of the companies
(Ruth, 2018).
Conclusion
Based on the overall analysis it can be said that there have been many changes that have
occurred with respect to environmental disclosures but what is required is that companies should
take their responsibility seriously and put proper information for the investors as the ASIC is
stating in the given article.
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Question 2
The second part of the assignment deals with draft exposures that are given for the public on the
specific websites of the accounting standards and policies forming board and the public can
comment on that exposure draft. All the comments are considered and based on that they can
take decision whether they want to pass that accounting standard or policy or not and implement
it. In this assignment one of such exposure draft that have been published on the IASB websites
is discussed and various comments on that are also analyzed and then proper conclusion has been
given (Lepistö & Ihantola, 2018).
Introduction
There are many exposure drafts that are there and people can comment on them whether they
agree to it or not. In the given case the draft exposure is in relation to the IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors. The article is mainly highlighting the
difference between the accounting policies and accounting estimates. It is very difficult for
accountants and professionals to understand the basic difference between accounting policies and
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estimates and this exposure draft aims to make it clear in a better way. It highlights the difference
between the accounting estimates and accounting policies. It is very important that companies
should be aware of this because accounting estimates are those that affects the profit loss and
balance sheet transactions and accounting policies do not impact them (Kusnadi & Wei, 2017).
So, they are materially relevant and affects the financial position of the company in some way or
the other. And thus, they need to understand what are the accounting estimates and accounting
policies are.
An extract of the exposure draft is given below:
Source : https://www.ifrs.org/projects/work-plan/accounting-policies-and-accounting-estimates/
comment-letters-projects/exposure-draft-accounting-policies-and-accounting-estimates/
#consultation
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In the above exposure draft it can be seen that the authority have stated the various amendments
that has been made with respect to IAS8. It can be stated that accounting policies are those that
helps in the functioning of the company, they are the rules and regulations that affects the
company. It is inclusive of measured procedure for disclosure of facts that are important to the
company and the stakeholder. On the other hand, accounting estimate is the measurement or
appropriation of the accounts of the companies, and deals with which account needs to debited
and credited and how the books of the company will be affected by the same. It is based on
judgement and knowledge that companies derive from relevant sources and are mostly based on
facts and figure. Few example of accounting estimates are provision for bad and doubtful debts,
provision for debtors, general reserves, measurement of inventories, various types of costing etc
(Iggers, 2018). There are many authorities that decides based on relevant facts of accounting on
how these figures would be calculated and there are specific methods that companies need to
follow for this. In case if the company fails they wont be able to present the correct value of the
elements of the financial statements and that would affect their position financially. Thus we see
that knowing the difference between accounting estimates and accounting policies is so
important. If the accountants are not aware then they wont be able to take correct decisions for
the companies.
Various Comments that have been stated in the exposure drafts.
Nandi Uchenna, is a professional from Nigeria and he has stated that he is ok with the overall
amendments that are stated in the proposed draft however he is not in favor of one policy that the
authorities have stated. In his comment he mentions that paragraph 32A and 32B are not
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consistent with each other and are providing contrast opinion on the overall concept of
accounting policy and estimates. In his opinion he states that in case of measurement of
inventories, FIFO or weighted average method can be selected as a process of accounting
estimates and not accounting policy (Johan, 2018).
Mr. Hans Hoogervorst, he is the chairman of the IASB IFRS foundation, he has presented his
opinion on the exposure draft is given below. As per him he states that the various provisions of
the accounting standard with relation to the difference between the accounting policies and
accounting estimates is stated. He has stated only one point as per which it states that the
authorities must frame definite rules and regulations with relation to the specific rules that must
be presented for the overall treatment of the inventories that can be interchanged between
companies.
Segun Adebiyi, who is one more professional and he has stated that he agrees to the overall
amendments that have been made by the authorities except one. He feel that when it comes to
accounting for inventory, the companies should see to it that they are IAS 2 should be treated as
an accounting policy and not an accounting estimates as most of the inventories are brought from
outside and then treated in the store and hence they are also part of interchangebale inventory
and companies should have proper knowledge on how they are going to treat them (Golden,
2006).
The Australian Council of Auditors, have stated in their comment that they are with the
authorities and they feel that the authorities have done full justice and have clearly stated what is
the diffferance between accounting policy and estimates when it comes of treatment of some
specific assets like inventories, intangible assets etc. So in case accountants go through this they
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