PACC6004 Financial Accounting: Global Standards vs Fair Value IFRS

This report addresses two key areas in financial accounting: the appropriateness of a single, globally accepted set of accounting standards and conceptual framework, and the debate between fair value accounting (FVA) and historical cost accounting (HCA). It explores the role of various users of accounting information as per the AASB conceptual framework, including investors, employees, lenders, customers, government agencies, and the public. The report highlights the advantages of a conceptual framework, such as consistent financial statements and enhanced communication, while also acknowledging challenges related to core accounting knowledge. It further examines the increasing adoption of FVA by ASX-listed companies, weighing its benefits against those of HCA, drawing upon peer-reviewed academic research to determine whether FVA should completely replace HCA. The report references various academic sources and accounting standards to support its analysis.

Answer 1
International accounting standards board uses conceptual framework for the financial
reporting. As per the AASB conceptual framework the users of the accounting information
are as follows:
 Investors: Investor plays a major role in deciding a financial statement of the entity.
Accounting information prepared by the management needs to be correct as it is used by the
users. The investor uses financial statement for taking the investment decisions. If he finds
that the accounting information is good and it can give him a good return then he should
invest in the securities of the company. The conceptual framework of AASB states the
management of the company has to prepare correct financial statement to assist the investors
in taking investment decisions.
 Employees: Employees is an integral part of the organization and their decisions
affects the functioning of the company. They use the accounting information to determine the
growth made by the company. They took decisions regarding raise in their salary, bonus from
the top level management after checking the accounting information.
 Lenders and suppliers: The Company has to purchase material and it cannot
purchase whole material on cash as so much cash is not available to the company. The
company’s accounting information is checked by the lenders and creditors to check the credit
worthiness of the company. Lenders give loan to the company and they want an assurance
that their money is safe and they will receive a good amount of interest if they give loan to
the company. If they found that the accounting information provided by the company is good
and as per the conceptual framework then they easily give loan to the company.
 Customers: The whole business is done for attracting the customer, so they can
purchase the goods and services of the company. The future of the company depends upon
the customers as they check the financial information to determine that the product produced
by the company is harmful or not. The annual report contains all the information about the
business of the company. The customer check that information to satisfy himself that the
product produced by the company is safe.
 Government Agencies: Government affects the functioning of the business as they
assess the financial information to check the financial performance of the company is good. If
the company’s financial performance is good then it levies taxes on that income and if the
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financial performance of the company is not good then it provides subsidies to the business to
help them in succeeding in the future.
 Public and society: Public and society is the surrounding where the company
operates its business. The public uses the financial information to determine that the business
of the company does not affects the functioning in an adverse way. They check the
accounting information to determine whether the company took decisions towards the
welfare of the society. The information about the welfare of the society can be checked from
the CSR report of the company as it contains all the information about the functions of the
company towards the welfare of the society.
Yes the identification of particular users within the conceptual framework has implications
for the future of accounting information. The company’s overall objective is the
maximization of the wealth of the shareholders and investors plays an major role. The future
planning needs to be done by taking in considerations the requirements of the investors as
they are the one who invested money in the company. Investors are providers of risk capital
to the entity.
The company has to prepare its financial statements as per the guidelines of the IASB and
AASB conceptual framework. The company has to prepare its financial statements on the
basis of fair value. The accounting regarding the preparation of the financial statements needs
to be done as per the fair value accounting. The complete description about the accounting as
per the fair value is given in accounting standard and the company needs to follow the
guidelines of the accounting standard in order to do the fair value accounting as the investor
wants to know the fair value of the business and he took decision after checking the fair value
of the business. Historical cost accounting is an accounting concept and it also used by the
company to determine the historical cost of the company. The users check the historical
information also to take their decisions.
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Answer 2
Advantages for accounting that could result from the development of conceptual frameworks
are as follows:
1. Consistent financial statement: The management has the responsibility for the
preparation of the financial statement and their assumptions on the preparation of the
financial statement affect the content. The conceptual framework clarifies all the doubts
regarding the preparation of the financial statement and the guidelines are used for the
preparation of the financial statement.
2. Assist the auditor: The auditor has to examine that the accounting information
prepared by the management as per the applicable reporting framework. The applicable
reporting framework gives an assurance that the accounting information of the company is
correct. In such case, the auditor does not to have to conduct detailed checking.
3. Achieve economic development: The Company can achieve economic development
in accounting by using the guidelines of the conceptual framework.
4. Can achieve overall enhanced communication: Communication plays a major role
in achieving the objectives as the company seeks an effective communication in the
preparation of the accounting information.
5. Records kept in a systematic manner: The records of the business need to be kept
in a systematic manner as they can be needed in the near future for something.
The conceptual framework helps in preparing the financial statement and also helps in
financial reporting. The conceptual framework provides guidance in the preparation of the
financial statement. The knowledge about the core financial accounting is highly problematic.
The accountants do not know about the core financial accounting concept and because of that
they prepare wrong financial statement. The accounting assumptions taken by them are
wrong that ultimately affects the business of the company. The AASB issues Conceptual
framework that is used by the accountants to prepare the accounting information of the
company.
The most who gains from the development of the financial statement is the accountant as they
gain professional knowledge about the preparation of financial statement. The accounting
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institute of Australia conduct the course for increasing the knowledge of the people about the
core accounting. Many people start that course to gain the knowledge about the concept of
core accounting. This also helps them in making correct assumptions when they are preparing
the financial information of the company. The accountants now days has the knowledge and
they prepare the financial statements that remains consistent over a period of time.
The views of the Hines in that article are to give knowledge about the concepts of core
accounting and how to resolve the problems underlying with it. The core accounting
problems are solved after the development of the conceptual framework. The advantages
stated in the part a about the accounting matches with the views of Hines. The conceptual
framework assists the accountants in gaining knowledge about the fundamental concepts of
the financial accounting. The main advantages identified in the part a is the consistency in
the financial statement, assist the auditor in their audit as it reduces the work of the auditor.
No one has complete knowledge about the concepts of the accounting but the introduction of
conceptual framework provides a way to reduce these problems.
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References
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