Advance Financial Accounting: IFRS, Asset Valuation and Theories

This report delves into key aspects of advance financial accounting. It begins with an overview of International Financial Reporting Standards (IFRS), emphasizing their role in ensuring clear understanding of company accounts across international boundaries, the conceptual framework, and qualitative characteristics like relevance, understandability, and comparability, along with their advantages and disadvantages. The report then explores public interest theory, capture theory, and the economic interest group theory of regulation, analyzing their implications on corporate activities and social welfare. Furthermore, it discusses FASB Statement No. 144 and its predecessor, Statement No. 121, regarding accounting for the impairment or disposal of long-lived assets, highlighting the objectives and impacts of these statements. Finally, the report examines the motivations behind directors' decisions to limit the revaluation of property, plant, and equipment, and the effects of not revaluing fixed assets on a firm's financial statements, including the impact on shareholder wealth.

Advance Financial Accounting

Table of Contents
Part A.........................................................................................................................................3
Task B........................................................................................................................................5
Part C..........................................................................................................................................7
Part D.........................................................................................................................................8
References................................................................................................................................10

Part A
International Financial Reporting Standards (IFRS) are designed for the purpose of providing
clear understanding of the company accounts all across the international boundaries. In this
context, conceptual framework assists the accountants in resolving accounting related issues,
which is a framework for the purpose of establishing accounting standards. This framework
associates all the aspects of the inquiries such as defining the problem, collection of data, and
analysis of the data and such others (Wisegeek, 2018). The conceptual framework is essential
for the development of accounting standards for preparing financial reports on the basis of
rules and principles.
There are certain qualitative characteristics of the financial statements that are not satisfied by
the existing reporting practices with regard to IFRS and they are;
 Relevance- It is considered as a significant feature of financial reporting to influence
the decisions of the users. It is the aim of the conceptual framework to ensure reliance
of financial information on predictive as well as confirmatory value, wherein,
predictive values are based upon predictions while confirmatory values are based
upon the feedback of the previous assessments. The information is considered as
relevant if it possesses the ability to add value to the process of decision making by
providing all the aspects relevant to the information (iasplus.com, 2013). In the
process of making financial reports, confirmatory value is also considered as highly
significant. Following the IFRS standards, the financial reporting involves the
calculation based on fair value concept for the purpose of measuring the values of
assets as well as liabilities. It might lead to enhance the unpredictable nature of the
assets as reported.
 Understand ability- It rely on the aspect of classification and exhibiting the
information in clear and concise manner. The clarity and understand ability of the

financial information is essentially required by the users. The information in the
financial reports is required to demonstrate the content with clarity with the help of
supportive footnotes along with them (Accounting Tools, 2018). With the help of
conceptual framework, the preparation of reports can be made possible in a user
friendly manner to be used by the users having business and economic activities. The
conceptual framework also provides for the required advice to understand
complicated information in financial reports to the users. However, there are few
disadvantages as well. As the IFRS standards are not accepted all across the world, it
becomes difficult to be understood at the international level. The principles included
in IFRS are not generally understood by the users easily. In addition, the financial
statements prepared with the guidance of IFRS provide only desired outcomes that
might result into manipulation of profit.
 Comparability- Financial Information has the capability to serve multipurpose
activity by existing significantly overtime as well as to be compared with the financial
information sources. The comparison of financial information is required in order to
evaluate varying aspects of the financial position of an entity. It is the conceptual
framework that identifies the comparability that could enable the users to differentiate
between the similarities as well as dissimilarities between the items. For the purpose
of comparison, two items are required i.e. financial information of existing year as
well as previous year (Connectusfund.org, 2018). The financial reporting related
activity in IFRS is considered as less comprehensive along with increased costs of
implementation. Due to the complicated nature of the information, ambiguity arises
sometimes and hence users find difficulty in understanding it easily and to compare it.
The implementation of IFRS requires the cost of training and making the accountants
aware regarding the principles involved.

Task B
Public Interest Theory
It can be considered as an economic concept of welfare economics as its name suggests. This
theory functions as a market where business related activities are undertaken by the
organizations to grow and survive in the industry with so much of competition. The work for
social welfare or social interest acts as a motivating factor for the organizations. Majority of
business firms and organizations make efforts for improvising the social influence of business
activities as well as to protect the public interests. The public interest held in optimum
utilization of the resources for the purpose of goods production as well as in accordance with
the welfare of the society (Hantke-Domas, 2003). To a certain extent, the intervention of
government assists in effective implementation of the business policies for the welfare of
society as well as environment because the markets have become fragile and operate for the
individual interest instead of society. For public interest, there is a requirement of legislation
to be brought in effect by the government to involve the disclosure of influence of
organizational activities on society as well as environment. In addition, the organizations are
also required to be regulated to ensure the availability of essential goods and services.
The interference of the government in the corporate activities should be restricted, to
emphasize them to include various social as well as environmental responsibilities along with
their corporate responsibilities. It should be the desire of the organization itself to define
significant social as well as environmental responsibilities for them. However, it is believed
that the organizations can use it to create value by taking initiatives regarding social and
environmental welfare and business can progress rapidly through such initiatives (Open Text
Books, 2016). This theory considers government as neutral authority regarding the concept of
social and environmental development by the organizations.

Capture Theory
This theory supports the view that agencies are established to keep an eye over the interests
of the society but in actual, such agencies work for the interests of the industry. In addition,
the theory states that such government agencies are created by the former industry people,
which work for the welfare of the industry (Potter, et al., 2014). The legislation should be
made by the government for the formation of regulators instead of employing industry people
and these regulators must be well trained and educated regarding the industrial aspects. Such
agencies generate inefficient allocation of the resources instead of meeting social
requirements. Furthermore, the government should develop awareness programmes for the
customers as well as the organizations to tell them about the benefits that are associated with
the social as well as environmental initiatives. However, majority of organizations are
nowadays, aware of such benefits as such initiatives enhance their brand value and increase
loyal customer base because of taking initiatives for the welfare of the society. The
imposition of CSR responsibilities upon them would forcibly make them to participate in
various environmental practices.
Economic interest group theory of regulation
This regulatory theory proposes that the regulations are driven by the forces of supply and
demand. This theory supposes that the industry groups are created with the aim to fulfil the
interest of the economic groups instead of society and regulations are established by the
industry with a purpose to develop as well as gain competitive advantage for the industry. If
industrial regulations are reduced, it might result into the execution of free market forces and
such forces would provide exceptional information related to the welfare of society as well as
environment. In addition, such forces will help the organizations to get knowledge related to
value creation in their operations. This theory also suggests that the imposed legislation could
not lead to the liability of the business activities regarding the protection of environment and

social welfare (Open Text Books, 2016). Nowadays, majority of the organizations are well
aware about the fact that failure in ability to secure society and environment by them would
make the people unwilling to take the products or services of the organization as a result of
which, the customer base would be reduced as well as with a reduction in the sustainability of
the organization. It requires working in accordance with the existing market forces for the
growth and progress of the organization.
Part C
The Statement no. 144 of FASB i.e. “Accounting for the Impairment or Disposal of Long-
Lived Assets” has been replaced with Statement no. 121 of FASB. The objective behind
issuance of this statement is to develop single schedule for the long lived assets for disposal
by sale and it includes all the fixed assets as well as discounted operations (FASB, 2018).
Statement no.144 explains about the reporting of disposal transactions along with explaining
the difference between the ongoing or discontinued operations. It provides advantage to the
organization of showcasing the changes in the business operations occurring as a result of
disposal of operations with clarity. In addition, it provides better understanding to the users
regarding the continuous operations of the business. It improves the elucidation of the
discontinued operations in the financial statement as well as provides details of the
presentation by the inclusion of all the components of business firm. It involves all the
operations and cash flow in a proper and distinct way. There is a mention of components held
for sale as well as that are disposed of. The utilization of accounting model improves the
financial reporting and it eliminates the requisite of allocating goodwill that are attached to
fixed assets being tested for impairment. Its objective is to ensure carrying the assets at
reduced costs in comparison to their recoverable amount. The assets are considered as
impaired if their carrying amount is more as compared to their recoverable amount and the

entity is required to analyze the impairment loss which also includes disclosure for the
impairment assets (mca.gov.in, 2018). This statement mentions the cash flow of the
organization based on the probability. It involves primary asset approach which is important
at the time of determining the cash flow for the assets as well as the liabilities.
For the purpose of establishing the relevancy as well as the representational faithfulness
associated with the US corporate financial statements, the disclosure of the impairment loss
in financial statements is essential (Wisegeek, 2018). The rules regarding Statement no. 144
could improve the relevance as well as representational faithfulness of the financial
statements through clear description of the long lived assets, impaired assets, amount of
impairment loss, separate disclosure regarding discontinued operations as well as ongoing
operations (Giannini, 2007).
Part D
a) There are several reasons to motivate the directors in order to limit them from
revaluing the property, plant, and equipment;
 The revaluation of property, plant and equipment needs high implementation
cost as it is considered as a long and continuous process. In cost model, after
being recognized as an asset, it also carries less depreciation and impairment loss
along with which, it costs much for this entire process (Accounting Explained,
2018).
 It is a complex process as it needs calculation of values such as impairment of
assets, along with depreciation on assets as well as scrapping value of the assets.
 During the lifecycle of the property, it ceases to be considered n the basis of cost
but is considered under value concept (AASB, 2004).

 Directors have to face various difficulties such as fundamental issues between
values and costs concepts.
 The lifecycle of capital assets require its reflection in the financial statement.
b) The effects of not revaluating the fixed assets on the financial statements of the firm
might be;
Real value of the assets is not mentioned in the financial statement and it obtains asset
revaluation as well as impairment (Parker, 2018)
 It helps in the calculation of the accurate and reliable value of assets in
comparison to their previous costs and without revaluation; the previous costs
are mentioned in the financial statement which does not involve depreciation and
impairment aspect.
 In sale and purchase of firms, fair value or market value is taken into
consideration and revaluation of the assets provides their market value in the
financial reports.
c) The decision not to revalue would adversely impact the wealth associated with the
shareholders as increasing book value of the assets enhances the total value of the assets and
equity as well as reduces the leverage ratio. High value of equity and low leverage indicates
enhancement in the earnings of the shareholders (HTK Consulting, 2018). The upward
revaluation of the long lived assets also indicates increased earnings of the shareholders. It is
beneficial for determining the Return on Assets (RoA) as well as Return on Equity (RoE).
The accurate calculation of RoE provides the estimation of earning per share. The revaluation
of the assets depicts the change that has been taken place in the equity of the shareholder
majorly because of the change experienced in the net income of the entity. The equity of
shareholder is also increased by the revaluation of fixed assets that determines the
depreciation value (eFinancemanagement, 2018). It reduces the income tax and also helps in

issuance of new share to the existing or new shareholders and enhances the net wealth of the
shareholders.
References
AASB (2004) Property, Plant and Equipmet. [Online]
Available at: http://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04.pdf
[Accessed 15 May 2018].
Accounting Explained (2018) Statement of Changes in Shareholders Equity. [Online]
Available at: https://accountingexplained.com/financial/statements/changes-in-shareholders-
equity
[Accessed 15 May 2018].
Accounting Tools (2018) The qualitative characteristics of financial statements. [Online]
Available at: https://www.accountingtools.com/articles/what-are-the-qualitative-
characteristics-of-financial-statem.html
[Accessed 15 May 2018].
Connectusfund.org (2018) Advantages and Disadvantages of Adopting IFRS. [Online]
Available at: https://connectusfund.org/6-advantages-and-disadvantages-of-adopting-ifrs
[Accessed 15 May 2018].
eFinancemanagement (2018) Revaluation of Long-Lived Assets. [Online]
Available at: https://efinancemanagement.com/financial-accounting/revaluation-of-long-
lived-assets
[Accessed 15 May 2018].
FASB (2018) Summary of Statement No. 144. [Online]
Available at: http://www.fasb.org/summary/stsum144.shtml
[Accessed 15 May 2018].
Giannini, E. (2007) Impairment of Assets or Impairment of Financial Information. [Online]
Available at: http://digitalcommons.bryant.edu/cgi/viewcontent.cgi?
article=1000&context=honors_accounting
[Accessed 15 May 2018].
Hantke-Domas, M. (2003) The Public Interest Theory of Regulation: Non-Existence or
Misinterpretation?. European Journal of Law and Economics, 15(2), pp. 165-194.
HTK Consulting (2018) Property, Plant, and Equipment: IAS 16. [Online]
Available at: http://www.htkconsulting.com/HTKNotes/PMR/PPE%20-%20IFRS.pdf
[Accessed 15 May 2018].
iasplus.com, 2013. Conceptual Framework - Purpose and status (IASB). [Online]
Available at: https://www.iasplus.com/en/meeting-notes/iasb/2013/february/cf-purpose-and-

status
[Accessed 15 May 2018].
Mca.gov.in (2018) Impairment of Assets. [Online]
Available at: http://www.mca.gov.in/Ministry/notification/pdf/AS_28.pdf
[Accessed 15 May 2018].
Open Text Books (2016) The Public Interest Theory of Regulation. [Online]
Available at: http://www.opentextbooks.org.hk/ditatopic/24878
[Accessed 15 May 2018].
Parker, D. D. (2018) The Role of Director’s Valuations in Balance Sheet Reporting. [Online]
Available at: http://www.prres.net/papers/Parker_The_Role_of_Directors.pdf
[Accessed 15 May 2018].
Potter, M., Olejarski, A. & Pfister, S., 2014. Capture Theory and the Public Interest:
Balancing Competing Values to Ensure Regulatory Effectiveness. International Journal of
Public Administration, 37(10), pp. 638-645.
Wisegeek (2018) What Are the Disadvantages of IFRS?. [Online]
Available at: http://www.wisegeek.com/what-are-the-disadvantages-of-ifrs.htm
[Accessed 15 May 2018].
Wisegeek (2018) What Is Economic Theory?. [Online]
Available at: http://www.wisegeek.com/what-is-economic-theory.htm
[Accessed 15 May 2018].