Financial Reporting, Asset Valuation, and Regulatory Framework

This finance report provides a comprehensive analysis of financial reporting, asset valuation, and regulatory frameworks. It begins with an overview of financial reporting objectives and the conceptual framework, discussing the importance of faithful representation, relevance, comparability, clarity, and timeliness. The report then delves into public interest theory, capture theory, and the economic interest group theory of regulation, exploring their implications on the financial market. Further, the report examines FASB statement no. 144 and its impact on the faithfulness of financial statements in the United States. Finally, it discusses the motivations behind not revaluing assets and the effects of this decision on financial statements and shareholder wealth, supported by various references.

Running head: FINANCE
FINANCE
Name of the Student
Name of the University
Author Note

1FINANCE
Table of Contents
Assessment Part A...........................................................................................................................2
Assessment Part B...........................................................................................................................3
Assessment Part C...........................................................................................................................5
Assessment Part D...........................................................................................................................6

2FINANCE
Assessment Part A
According to Karadag (2015), the financial reporting comprises of various objectives
which include points like Providing useful data to make sound investment decisions, analyzing
the future cash flows in order to understand the depth of these decisions, changes in the business
structure to be accessed by the investors and other related parties.
The conceptual framework comprises of other sets of rules which is necessary for all
financial statements to possess (Brooks 2015). These aspects of the conceptual framework have
been given as follows: The report should be representing faithful information to the different
stakeholders in the organization. It is the duty of the statement to be such that they present a fair
statement of the various happenings and the financial positioning in an organization.
The reports need to comprise of relevant information so as to ensure that they do not lead
to wastage of time and other efforts (Finkler et al. 2016).The statements need to be easily
comparable in nature and the various stakeholder can hold the power to compare the results of
the organization with its past years performance along with other companies in the same
industry.
They should possess clarity and the different details present in the given statement should be
easily understood by all the investors whose investment decisions are based on the financial
statements (Brigham et al 2016).
The information must have the capability of being present on time when the investor is
actually required to use the given information.

3FINANCE
In the article, `Unwieldy rules useless for investors`, it has been stated that the different
characteristic that are required to be present in the financial reporting standards are acutely not
present in the reports presented by the organizations in the United States (Cangiano, Curristine
and Lazare 2013). The present IFRS rules do not comprise of procedures and frameworks which
help in satisfaction of the given points. It has been stated that in the article, IFRS adjustments are
not relevant enough and do not present the true picture of an organization. The investors are not
being able to understand what would help them to make critical decisions using this statement.
Furthermore, they are not comparable in nature as well.
The views stated in the article agree to it that the financial reports are required to fulfill
all the criteria’s that are present in the Conceptual Framework but in reality they are not being
able to do so. It is extremely important for the financial statements to cover the Conceptual
Framework points but in reality, they are unable to do so and the fact with supporting articles has
been provided in the article.
Assessment Part B
Public interest theory
The public interest theory states that the economical markets are quite delicate in nature
and do not operate properly in a manner in which they are actually required to cooperate. The
mere motivate of the economical market should be such that they should be giving considerable
importance to the public at large however, in reality this is not the case and the market works in

4FINANCE
self motive fundamentals (Scott 2015). Hence, due to the given scenario there exists a need to
examine the activities in the financial market and see to it that they act in the interest of the
society. However, very often this is not the case and in such a scenario, the government is
required to intervene and ensure that all appropriate measures are taken and there is a body
which helps to understand and rectify the malpractices which take place in an organization and
may harm the public.
This theory was brought into light by Pigou and he stated that the development of the
theory can take place when the public demands for it. However, another theory by Stigler
developed in 1972 was an opposite of the present theory and stated that the main focus should be
on efficient distribution of the resources. He also stated that the primary focus needs to be on the
use of the private enterprises of these tools in order to restrict the existing competition in the
market. According to his theory, the primary problem is that the enterprises just display the
monetary information in place of disclosing the non-financial ones as well (Hogg2016).
Hence, the primary jest of the public interest theory is that a proper legislation needs to
be passed which allows the firms to display and provide the entire details about the harm which
they have will face to the environment and what initiatives have they taken to undo the harm
(Khan and Bradbury 2016). An online portal may be formed which may provide details to the
public about the same.
Capture Theory
The Capture Theory states that the relationship between the industries and the society
needs to be evaluated. The governmental organizations are often formed with a motive to
safeguard the needs of the different people present in the society but the industrial workers often

5FINANCE
go to the extent of jeopardizing the equal distribution of resources which take place in a society
and have a manipulative impact on the society and its aspects. Hence, this relationship between
the government agencies and the different industries may form a barrier and induce them to form
policies and other regulations in a manner such that it tends to have a harmful impact on the
society but tends to have a positive impact on the industrial activities.
The individual workers also tend to have a major impact on the workings as they have
associations with the government workers and act as informers (Saunders 2014). Hence, even if
strict rules have been formed, it has little or no impact on the regulation of activities. Hence, it is
in this manner, the governmental agency are said to be in a captive hold of the workers in the
industry.
Economic interest group theory of regulation
The economic interest group theory states that the different groups in an industry act to
enhance the group`s economy interest and that there are various groups in existence and these
groups are in a fierce competition with one another. They tend to be very strong and ask the
government to pass the different legislations in their favor which comes in the place of the
interest of the public in general (Mao and Renneboog 2014).The self-interest plays a great role
and in order to be able to come into power again, the government as well comes into interest and
does what is being asked. Hence, the economic interest theory highlights that any kind of
legislation will not be able to stop the government from acting in favor of the private
industrialists and thus they will do anything which seeks to improve their profit.

6FINANCE
Assessment Part C
The FASB, statement no. 144 which comprises of the Accounting for the Impairment or
Disposal of Long-Lived Assets, states that the different organza toons do not have the permission
to revalue their assets accordingly but to take into account the different impairment costs which
may occur. Although these rules tend to upset the major users of the sickness they help in
presening the true value of the financial statements. It is believed that the impairment costs tend
to have a negative impact on the firm`s assets and the cash balance but in reality it does not have
any impact on the net cash flow. This goes a long way in heling the organizations to take into
consideration the historical concept and ensure that the depreciation every year is called
accordingly. Hence, the given was the impact of FASB on the faithfulness of the financial
statements in the United Sates.
Assessment Part D
Motivation behind not revaluing the assets
It is a well-known fact that the revaluation of assets takes place due to various reasons
like reflecting the fair value of the assets, portraying current rate of return, selling an asset,
negotiating deals and lastly to ensure that the debt equity ratio of the firm does well.
However many companies do not vote in the favor of this and the reasons are as follows.
 Revaluation tends to reduce the satisfaction to the investor
 The historical cost perspective is lost
 There exists higher liquidity in the asset value and hence, the firm does not prefer to use
the method.

7FINANCE
Effects the decision not to revalue the assets in financial statements
The harmful effects which would take place in case the firm does not revalue its assets
are as follows:
 The statements will not reflect on a fair and true value proposition
 The rate of capital so obtained will not be true (Deegan 2016).
 The debt equity ratio will be higher than the usual and thus eventually the investor will
not be able to obtain the right kind of information.
Effect on the wealth of the shareholders
In scenarios where the capital market is not sufficient enough to reflect on the
information which might be useful to the investors with respect to the reflection of the share
prices, it can be stated that they are not sufficient enough. The asset values tend to impact the
share prices effectively. Hence, in case the capital market is efficient, the revaluation takes place
effectually and has low impact on the share prices.

8FINANCE
References
Brigham, E. F., Ehrhardt, M. C., Nason, R. R and Gessaroli, J., 2016. Financial Managment:
Theory And Practice, Canadian Edition. Nelson Education.
Brooks, R. ,2015. Financial management: core concepts. Pearson.
Cangiano, M. M., Curristine, M. T. R. and Lazare, M. M. ,2013. Public financial management
and its emerging architecture. International Monetary Fund.
Deegan, C., ,2016. Australian Financial Accounting, 8th edition, North Ryde: McGraw-Hill.
ISBN: 9781743764022 (pbk)
Finkler, S. A., Smith, D. L., Calabrese, T. D and Purtell, R. M. ,2016. Financial management for
public, health, and not-for-profit organizations. CQ Press.
Hogg, M.A., 2016. Social identity theory. In Understanding peace and conflict through social
identity theory (pp. 3-17). Springer, Cham.
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises: A
strategic management approach. Emerging Markets Journal, 5(1), 26.
Khan, S. and Bradbury, M.E., 2016. The volatility of comprehensive income and its association
with market risk. Accounting & Finance, 56(3), pp.727-748.
Mao, Y. and Renneboog, L., 2015. Do managers manipulate earnings prior to management
buyouts?. Journal of Corporate Finance, 35, pp.43-61.
Saunders, A. ,2014. Financial markets and institutions. McGraw-Hill Higher Education.

9FINANCE
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.