Financial Reporting: IFRS, GAAPs, and Asset Revaluation Analysis

This report provides a comprehensive analysis of financial statements, focusing on key qualitative characteristics such as understandability, relevance, reliability, and comparability, in the context of IFRS and GAAPs. It examines the application of these characteristics and their impact on decision-making by investors. The report further explores various regulatory theories, including the public interest theory, capture theory, and economic interest theory, and their influence on financial reporting standards. A significant portion of the report is dedicated to the topic of asset revaluation, comparing IFRS and GAAPs approaches, discussing the implications of revaluation on financial statements, and evaluating the decision of whether to revalue non-current assets, considering its effects on financial information and accounting data, including depreciation, tax liability, and shareholder wealth. The report concludes by emphasizing the importance of providing a true and fair view of business affairs and the impact of not revaluing assets on financial reporting accuracy and decision-making.

Table of Contents
ASSESSMENT PART A.........................................................................................................1
ASSESSMENT TASK PART B...............................................................................................3
ASSESSMENT PART C.........................................................................................................6
ASSESSMENT PART D.........................................................................................................7

ASSESSMENT PART A
The Financial Statement provides those information which helps the user of financial
statement to take financial decision. However, each and every financial or non-financial
information included in financial statement is not necessary for decision making. There are
some qualities which must be incorporated in financial statement to take best possible
decision by the investors. To gain the quality result from financial statement these are the
mandatory features covered in Financial Statement (Bizfluent, 2017).
 Understandability. All the information which is included in financial statements
and its annexure and notes which is directly related to financial statement must be free
from any doubts. Whatever the information prepared and disclose in financial
statement in such a way that it is easy to understand from investor prospective. The
investor includes the person who have basic business knowledge, ability to read and
understand financial statement, and shall have general knowledge in respect of
following matter like taxation, finance, law, corporate affairs, economics and capital
market so that the user can easily understand the future impact of those information
on financial position of company (Alexander, 2016). Quality presentation of
information in financial statement helps the user to undertake and financial or
investment decisions in the interest of company as well as stakeholder of company to
fulfill future goals. If financial statement contains any complex and high priority
matter which affect the decision of stakeholder and require additional disclosure,
additional information should be highlight to give a better picture.
 Relevance. All the information contained in financial statement must be relevant
which helps the decision maker decision making. The prep rarer of the financial
statement should keep in their mind that mere presentation of data is not useful. There
has to have some end to end relationship between which leads to meaning full
conclusion. More data in report mean information in financial statement. This
statement is not true. It is not quantity of data, but its relevance, which is important
for user in process of decision making (Bromwich & Scapens, 2016).
 Reliability. Whatever the information presented in financial statement as a whole,
cannot be completely free from errors and mistake, the reliability of the data can be
measured on the basis of how much material mistake and fault are there. All the data
like account balance, related party disclosure, segment reporting, liabilities and

intangible assets should be free from misstatement and give true and fair view of
financial statement (Belton, 2017). All the transaction should be whether it is
quantifiable or not, disclose accurately. All the non-financial items, which cannot
measurable in terms of money, proper justification is requirement why this cannot be
measured in terms of money.
 Comparability. To compare the data of similar industry or one company with another
company, or of various industry from one period to another period the information
should be prepared as per the consistency principle. This comparative analysis helps
the company to analyze the performance of the company on individual basis as well
as the industry as a whole. It also shows the current strategic movement whether it is
growth, stagnant or decline to judge the financial position of company. Furthermore,
the comparability of the financial statements helps the users to perform several other
analysis like the trend analysis, the variance analysis, etc. (Chron, 2017).
So from the analysis it can be concluded that above qualitative features of understanding
cannot be satisfied by current reporting policies pursuant to IFRS. The areas which is focused
under IFRS regime are inflexible and unadaptable. Because of all this the matter become
more complex and difficult to understand and the user sometimes not able to take correct
decision due to complexity. If the user of financial statement not having professional
expertise in the field tax, account, law, finance and practical training, so the general public
not able to understand the financial implication of data present in financial statement.
Because of all this investors are not able to take significant business decisions (Defond &
Lennox, 2017). Even if each and everything is disclosed in financial statement but the user is
not they much technically strong to examine the financial impact, they are not able to take
correct decision. From the above discussion and analysis it is clear that uniform with the view
that corporate financial reports satisfy the central objective of financial reporting.

ASSESSMENT TASK PART B
The public interest theory: Public interest theory is an approach that seek the success
and protection of general public. The main objective of this theory is to give assistance to
the common mass and investor from market inefficiencies and solution of the complex
matter which is not easy for the common public to understand. It is purely relating to the
case of inefficient market place or firm whose overall power in the hands of government.
Apart from all this concept gives a huge opportunities to firms to create massive return
(Visinescu, Jones, & Sidorova, 2017). The decision of the government not to make
separate set of regulation in the interest of general mass, public interest theory has
become effective in that situation. With the view to safeguard the interest of general
public, government, many other regulatory bodies and agencies have taken first move in
making separate set of rule, regulation and policies for the betterment of common public.
Capture Theory: This theory is basically impart the relationship between government,
regulatory authority, regulatory agencies and the industries as a whole. These all are
participants of the market are which come under capture theory who take major decisions
of the market. Under this theory all the rule, regulation and law are made after
considering the interest of concerned group or industry all made by the regulatory
authority. By analyzing this theory it has been concluded that the regulator can palpate
the appeals affected by it (Trieu, 2017). By applying the above maintained theory it is
concluded that not to add separate rule and regulation in the existing laws. So from the
above analysis it I concluded that this theory not able to take special attention from the
government. Until the government or regulatory authority has not made such type of rule
and regulation which adversely affected the market or industry. Hence the question of
manipulating those rules eventually in the long run does not even stand a chance.
Economic interest theory and regulation: The name itself suggest that this theory is
based on rules and regulation made for the continuous interaction between demand and
supply. In general terms, government and regulatory its agencies represents the supply
side and general mass of public represent the demand side. The theory specifies that the
regulatory authorities’ makes rules and regulation, codes of conduct for the entire market
and consider the interest of companies as well as general public as a whole. External
authorities not having any power to interfere in their operation (Werner, 2017). Generally
government summon all their major stakeholder for any relevant decision which affect
their interest. Government has not made all separate codes of conduct in the interest of

general public. As all the decision has been taken after considering the impact of demand
and supply only those firms would be making good who able to meet the requirement of
general public.
ASSESSMENT PART C
Apart from all other differences between IFRS and the GAAPs of different countries
revaluation of considered one of the crucial topic which need extensive discussion regarding
their disclosure in a proper manner. The above discussion is based on the fact that the
different policies applied under both the standard regarding revaluation of assets like
revaluation is considered under IFRS but no reporting has to be done in GAAPs (Das, 2017).
Whether the revaluation of assets is mandatory or not it’s all depend upon the qualitative
characteristics and financial impact on financial statement. So ultimately it is based on
disclosure practice comply by the companies. All the financial users like stakeholder or
investor want to know the fair value of all the assets appeared in the financial statement of
companies. So the management of the company considering the interest of stakeholder as per
the reporting requirement disclose the amount on conceptual framework however this amount
is not considered for decision making because it does not show the correct and accurate
figure (Goldmann, 2016). Since it is very difficult to calculate the exact fair value in any
specific point of time because various analyst consider various method to calculate the
amount of assets. There are some factor based on which the realizable value of assets
fluctuate every time like useful life, efficiency of assets and many other. Due to all this
complexity, the IFRS not consider the entire impact of revaluation of fixed assets. However,
it is mandatory for all non-current assets to calculate all impairment cost and disclose the
same accurately in financial statement. As it is easy to measure the amount of impairment. So
from the above discussion it is clear that in the current day to achieve the objective of
relevance and reliability of information disclosed in financial statements.

ASSESSMENT PART D
The decision whether it is mandatory to revalue the non-current assets or not is based on the
size and business of organization as well as the quantum of Assets Company have.
a. Amidst so much of complexity and debates, many companies after considering the
factors like useful life of assets revalue the assets upside or downside. But due to this
assets revaluation it will impact both financial information as well as accounting data.
Because for all this revaluations the major heads of financial gets impacted like
depreciation, tax liability, retained earnings and net profit of the company (Dichev,
2017). Sometimes it might have massive impact on the share price of the company.
Apart from all this complexity there is a substantial degree of compliance related
work like that of disclosure to be made in the financial statements. The carrying
amount of the assets to be revalued needs to be adjusted in such a manner that it
indicates the fair value for the entire class of the assets. Revaluation being a non-cash
item, it does not have an impact on the cash flow of the business but it involves
analysis and compilation of huge data for which the assistance from professional
expert may be required. Even after so much of efforts, it may be that the revalued
figures may not match with the actual market value as the same is subjective.
Considering all the above mentioned circumstances, the management of the company
may be unwilling to revalue the plant, property and equipments.
b. Financial statements are supposed to provide the true and fair view of all the business
affairs and to give the reasonable assurance to the public and the investors at large
that the same can be relied upon for decision making. It is not only meeting the
regulatory requirement but the balance sheet and the profit and loss account should
show the realistic picture of the company which can be supported by workings, etc.
(Linden & Freeman, 2017). When the assets are not being revalued and are being
shown at the historical cost less depreciation, the same generally gives an unrealistic
figure which will never be in line with the market values or the fair value. This is like
incorrect reporting and sharing of the wrong information. Besides this, we also know
that the equity is being measured and shown at the fair value whereas assets if not
shown at fair value, fails to satisfy the matching concept and results in incorrect debt
equity ratio which might have a direct bearing on the raising of funds from market.
c. The impact of not revaluing the assets cannot be quantified in terms of its effect on
the shareholders’ wealth as the same is affected by many internal and external factors.

Firstly, the revaluation of the assets does not results in any sort of cash inflow or
outflow nor it has a direct impact on the profitability of the company (Kuhn & Morris,
2016). However, it may give an impression that the retained earnings of the company
has increased or decreased in case of upward or downward revaluation respectively.
This hardly has any impact on the market and even if it does have, the same is
temporary. Therefore, it can be said that the revaluation does not results in creation or
destruction of wealth for the shareholders.

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