Contemporary Accounting Theory: Comparative Study of UK and Australia

This report provides a comparative analysis of the contemporary accounting theories and regulatory environments in the United Kingdom and Australia. It begins by identifying and comparing the perceived problems within each country's financial reporting systems, including issues like outdated regulations, the cost of IFRS implementation in the UK, and complexities in legislative reporting requirements in Australia. The report then details how the regulatory environments function in each country, highlighting the roles of IFRS, GAAP, FRS, and AASB. Furthermore, it explores the progress of both countries in adopting IFRS. The report then applies regulatory capture theory to analyze each environment, discussing the theory's usefulness and identifying characteristics that might indicate regulatory capture. This includes examining potential misconduct and the influence of vested interests on regulatory frameworks, such as the adoption of IFRS standards and the implications of Brexit. The report concludes with a synthesis of the findings, offering insights into the challenges and developments in accounting regulations within the UK and Australia.

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary Accounting Theory
Name of the Student:
Name of the University:
Authors Note:

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Executive Summary:
The focus of the report present presenting the current financial regulation that is being
imposed in Australia and UK. Moreover, adequate evaluation of the conditions in which the
regulations is passed are conducted to identify whether the regulatory environment was
captured. The financial regulations adopted by UK and Australia is evaluated while detecting
whether IFRS is been adequately adopted by the countries. Moreover, an explanation on the
current environment operating within the country is also explained. Furthermore, the
explanation on progress of adoption towards IFRS is also conducted on both countries, which
could help in understanding the current regulatory environment. Therefore, with the help of
above points the comparison between the regulatory environment can be conducted and
identify any kind of discrepancies among both countries.

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Table of Contents
Introduction:...............................................................................................................................3
Part A: Comparison of two regulatory environments................................................................4
1. Identifying the perceived problems in each system:..............................................................4
2. Depicting how the environment works:.................................................................................5
3. Depicting the countries progress towards the adoption of IFRS:..........................................6
Part B: Analysing each environment using Capture Theory......................................................7
1. Depicting what is regulatory capture theory and how it might be helpful:............................7
2. Depicting the characteristics, which might indicate that a regulatory environment might be
captured:.....................................................................................................................................8
Conclusion:..............................................................................................................................10
References:...............................................................................................................................13

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Introduction:
The assessment aims on providing the adequate regulatory environment in which UK
and Australian companies are conducting their operations. In addition, the overall comparison
between the regulatory environment in both the countries are conducted by identifying any
kind of perceived problems on each system. The identification process relatively helps in
comparing the overall regulatory environment currently deployed within the country.
Moreover, an explanation on the current environment operating within the country is also
explained. Furthermore, the explanation on progress of adoption towards IFRS is also
conducted on both countries, which could help in understanding the current regulatory
environment. Therefore, with the help of above points the comparison between the regulatory
environment can be conducted and identify any kind of discrepancies among both countries.
Moreover, analysis of the environment using captured theory is conducted to identify
the characteristics of the current regulatory condition. In addition, adequate explanation about
regulatory capture theory and its implication on the current environment is evaluated. On the
contrary, with the help of capture theory, the current condition about the countries can be
evaluated, whether strict laws are implemented or strained from the laws. Additionally, this
eventually will help in identifying the current accounting theory that is implemented in UK
and Australia. Likewise, it could also help in detecting whether the business environment is
adequate for organizations to survive in the competitive market. Besides, it also helps in
identifying whether the regulatory authorities are controlled by the industries the they were in
charge of regulating (Otley, 2016).

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Part A: Comparison of two regulatory environments
1. Identifying the perceived problems in each system:
Currently UK has certain problems regarding its regulatory Framework for financial
reporting, which was identified during the financial crisis of 2008 and the minor setback
during 2011. the regulatory Framework for the financial reporting is relatively outdated,
which does not allow investors to identify specific business condition of the organization. In
addition, the implementation of IFRS standard is relatively cost sensitive, which increases
expenses of the organization in adopting the standard and principles. the increment in
expenses is the greatest problem that is faced by companies in UK and is considered a burden
on the current financial reporting regulatory environment. after the Brexit the UK companies
would be responsible for preparing the financial report under IFRS conditions. However, this
regulation does not implement on Ireland, which currently runs under non-IFRS regulations
and FRC’s standard is been implemented (Scott, 2015).
The major issue of financial reporting that in Australia is identified as the Complexity
in drawing out the relevant reporting requirements from the legislation. The second issue is
relatively the internal inconsistency of the legislative reporting requirements which need to be
followed by the company. In addition, the divergent reporting types between different
entities, which increases the problems regarding financial reporting. Currently the
government legislation does not allow accounts to be prepared according to the Accounting
standards, which is relatively a problematic situation for financial reporting. Lastly the
reliability of the financial information provided by Australian companies is a major problem,
which is being addressed by AASB. Lastly, the implications and cost incurred in the
preparation of financial report is also considered specific problem for the businesses
(Ehrenberg & Smith, 2016).

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2. Depicting how the environment works:
Currently in UK there are two different segments of financial reporting regulatory
environment, which comprises of listed companies and not listed company. The listed
companies mainly need to follow all the relevant regulations and reporting regulatory of
IFRS. On the other hand, the non-listed companies in UK and Ireland use Generally Accepted
principles (GAAP) and FRS for reporting their financial condition. The companies that are
listed in the share market are compelled to prepare all the relevant accounting statements in
accordance with IFRS. However, the companies that are not listed can use FRS 100
application of financial reporting requirements to prepare their annual report. Moreover, the
FRS regulation such as FRS 102, FRS 101, FRS 105 and FRS 100 can be used by companies
in UK to prepare their financial report and adequately disclose their earnings. The above-
mentioned, reporting standard, legislative requirements, and reporting requirements that
needs to be fulfilled by Companies operating in UK. The above-mentioned regulations are
relatively for companies that are not listed in the astrology and are considered small entities
in the country (Parker & Fleischman, 2017).
However, in Australia the company is mainly need to follow regulations laid down by
AASB, which would help companies in depicting the overall financial condition. In addition,
the AASB standard listed in the financial report is relatively used by all the companies in
Australia, which helps them portray the adequate financial earnings to their stakeholders. The
overall Australian securities and investment Commission act 2001 directly allows the AASB
to operate within the confinement of Australia. In addition, the act also regulates the different
financial reporting regulatory environment within the country, which could improve integrity
of the overall financial system. Moreover, the overall regulations that are laid down by AASB
could eventually help companies depict the accurate financial returns in their annual report
(Wray, 2015).

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3. Depicting the countries progress towards the adoption of IFRS:
United Kingdom acknowledges IFRS regulation system, as it allows the regulator to
identify actual financial condition of the companies. In addition, UK has followed a strict law
regarding the preparation of annual report according to IFRS standard for companies listing
in the security exchange. Until now, the concentration of the IFRS regulation is mainly on
companies that are listed in the stock exchange. After the European Council regulation in
2005 the UK government has adopted IFRS as the financial reporting regulatory environment
for the companies that are listed in security exchange. Moreover, the progress towards the
adoption of IFRS is increasing for the period of time, where the UK Government is trying to
increase companies that are adopting IFRS financial regulatory reporting system. Though, the
current regulations only important companies that need to treat in the securities market, while
companies falling in medium scale are not obliged to follow the IFRS system. However, UK
Government is trying to implement IFRS rules and regulations within all the sectors and scale
of companies operating in the country (Mitchell & Nørreklit, 2017). Nevertheless, the high
cost incurred for the preparation of annual report according to IFRS is the main lag that is
reducing companies to adopt the financial regulation in their reporting system.
However, Australia has adopted the International Financial Reporting Standards in
2005, where all the companies operating in Australia needs to Prepare annual report
according to the IFRS regulation. Since the adoption of IFRS, AASB has use different
measures in accommodating the whole IFRS regulations into the accounting system. In
addition, the companies listed or unlisted in Australian exchange needs to file financial report
according to the IFRS standard, which helps in detecting the actual financial capability of the
company. Nevertheless, after 2008 financial crisis, different changes were implemented in
IFRS financial regulatory system, which was adequately adopted by AASB. However, the
continuous changes in IFRS regulation for strengthening the viability of financial report is

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been adopted by AASB. Moreover, in recent times AASB has been reviewing the regulations
of IFRS and modifying them, which could help nonprofit making organization to conduct
their financial report. The IFRS reporting system is a complex measure, where AASB aims to
simplify and clarify the process of financial reporting, which needs to be conducted by
companies. In this context, Christensen et al., (2016) stated that after the detection of
loopholes in financial report relevant changes in IFRS was conducted to prevent companies
from misusing the information to manipulate their annual report.
Part B: Analysing each environment using Capture Theory
1. Depicting what is regulatory capture theory and how it might be helpful:
The Regulatory Capture Theory is the measure which helps in identifying the
manipulation that is being conducted in the regulation for supporting the requirements of
different parties. With the help of Regulatory Capture Theory adequate detection can be
conducted on certain regulations that is favoring one individual rather than the whole
community. The Regulatory Capture Theory directly helps in detecting the misrepresentation
or manipulation that are conducted by regulators in formulating different standard for
industries. In this context, Beattie (2014) stated that Regulatory Capture Theory helps in
detecting the flaws and irregularities that is present within the regulatory system to support
handful individuals.
Regulatory Capture Theory can be useful in many ways, which could allow the
citizens of the country to identify and detect immoral activities conducted by regulators
within the regulatory board. The Regulatory Capture Theory allows individual to detect
adequate intentions of regulators that are drafting the regulation. this detection of the
intentions can be helpful in identifying whether it is for the citizens or for individual groups.

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Therefore, with the use of Regulatory Capture Theory adequate detection can be conducted to
identify the policies that are conducted for the betterment of interest groups or industries. the
negative intentions of the regulator and industries are identified with the help of Regulatory
Capture Theory, who are willing to subjugate common citizens for their own interest. On the
other hand, Bosse & Phillips (2016) criticizes that use of Regulatory Capture Theory in the
current market scenario is not adequate, as governments are helping the industries by
changing the regulations to boost the overall economy of the country. As proposed by Donald
Trump, the president of America, deductions in corporate tax cut needs to be conducted for
boosting income of the businesses, which would eventually help in improving financial
position of the country.
2. Depicting the characteristics, which might indicate that a regulatory environment
might be captured:
There are three different characteristics of Regulatory Capture Theory, which could
relatively help in identifying irregularities in the regulatory environment. The three options
used in the Regulatory Capture Theory allows individuals to detect any kind of
misrepresentation or manipulation that is being conducted by regulator in drafting the
regulations. The first characteristics mainly depends on the regulatory environment being
rational and is considered to be captured when all the interested parties are delivering
misconduct. This consideration relatively helps in identifying the adequate regulations that is
been tampered by the regulator to help certain individual. According to Balakrishnan, Watts
& Zuo (2016), characteristics allow individuals to and identify whether the regulatory
environment is influenced by industries and companies in formulating regulations that suit
their personal needs.

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The second characteristics is relatively identified when the regulatory environment is
filled with greed and thievery, which would increase the number of misconduct among
regulators. Therefore, if the intentions of maximum regulators are corrupted then it could be
considered that the regulatory environment is captured, where the regulations are conducted
to help Industries rather than normal citizens. On the contrary, Williams (2014) argued that
during the financial crisis government had to use regulations that were helpful in increasing
businesses, which led to the boosting of economic growth. The third characteristics that can
be considered, is when regulator fail to implement current financial regulations by
implementing regulations that improve financial capability of industries. The time taken by
the industries and companies to understand the regulation is also a factor to identify whether
the regulation is influenced by unethical means. this would eventually help in detecting
whether the regulatory environment is captured or ethical regulation is being passed.
Adequate analysis of Australia and UK can be conducted with the lens of Regulatory
Capture Theory, which would help in detecting whether the regulations passed by the
countries are influenced by industries. border countries use IFRS accounting system which
helps in reducing or minimizing the negative impact of unethical measures that could be
conducted by companies. however, both the countries have different legislation and
regulations regarding the accounting procedures which needs to be followed by companies
(Kim & Zhang, 2016). companies in UK which are not listed can follow the FRS regulations
for filing the annual report, whereas companies in Australia can use minimized IFRS
condition to prepare annual report. these regulations are relatively conducted on the basis of
boosting the economy. However, there are some regulations that increased the chance of
unethical conditions which led to the financial crisis of 2008.
There have been many cases alone in UK and Australia regarding the regulations and
the methods used by the regulator in evaluating the operations of the company. Currently in

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Australia the government is trying to reduce the corporate tax to 25% for helping the
corporation boost their performance and retain more income. This decision is relatively
discarded by maximum of the Australian citizens due to the fact that corporations in Australia
are making adequate money, which could support their longevity. The overall decision for
reducing the tax rate is influenced by companies and Other industries, which indicates the
presence of Regulatory Capture Theory, where the government is acting on behalf of
companies rather than the citizens. The arguments laid down by the government regarding the
tax cut is not strong, as there are multinational companies that are operating in the country
where the tax reduction would not benefit the normal individual (Kim & Zhang, 2016).
In UK the regulatory conditions are also weak, which was seen during the financial
crisis of 2008, as government used different regulations to support companies rather than
individuals during the crisis. However, there is less possibility in UK, which indicates that
Regulatory Capture Theory is correct, as after the financial crisis there is no other drastic
difference in the regulations that is currently being deployed within the country. Therefore, it
could be identified that with the help of IFRS the regulators in UK are not being influenced
by industries and companies in manipulating the regulations (Economics.org.au, 2014).
Conclusion:
The overall assessment mainly focuses on delivery adequate report, which consists of
all the relevant information regarding complications in the regulatory environment of
Australia and UK. The assessment mainly evaluates the current problems that is being
perceived by UK and Australian companies while preparing the annual report. In addition,
the implications of IFRS that is being conducted by both the companies are evaluated, which
indicates that UK and Australia thoroughly implementing IFRS within the country. This
could eventually help in reducing the unethical measures that was taken by companies before

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the implementation of IFRS. From the relevant evaluation the identification of capture theory
is conducted to identify whether the UK and Australian countries are influenced by industries
and companies.
From the overall evaluation of the operations conducted in UK it could be identified
that there are no signs regarding the capture of regulatory environment within the country.
This was mainly possible due to the implementation of IFRS, which needs to be used by
companies that are listed in the stock exchange. However, the signs of regulatory
environment capture were present after the financial crisis of 2008, where regulations were
conducted to support industries and companies from being bankrupt. In addition, there are
certain regulations that are currently being imposed within UK, which directly supports
companies and industries rather than citizens of the country. For instance, the interest rates
that was lowered during the financial crisis is still low to support growth among companies.
However, the decision regarding the interest rate is adequate, which would eventually help
the country to prosper rather than fall back to the condition of financial crisis. This decision
that is made by the government of UK relatively helps in improving the financial condition of
the citizens (Edwards, 2014).
Evaluation of Australian regulation under the lens of Regulatory Capture Theory,
relatively depicts the current conditions of the country. There is relatively a proposal
regarding the decline of Corporate tax from 30% to 25%, which depicts the capturing of
regulators that might be conducted by industries. Moreover, the industries can influence the
decision of tax cut to benefit move from the operations, while reducing the tax collection of
the government. however, seeing the current scenario around the world a deduction in tax cut
rate would eventually allow the company's to adequately conduct the business and boost
Australian economy (Competitionpolicyreview.gov.au, 2018). The companies having low tax
outflow would eventually increase the investment that is conducted in the country, which