HA3011 Advanced Financial Accounting: IFRS, Revaluation & Reporting

This assignment provides a comprehensive analysis of advanced financial accounting concepts. It begins with a critique of International Financial Reporting Standards (IFRS), examining the perspectives of CFOs on their utility and manageability, further analyzing the qualitative characteristics of financial reporting, including relevance, faithful representation, comparability, understandability, timeliness, and verifiability. The assignment also discusses different regulatory theories such as public interest theory, capture theory, and economic interest group theory, evaluating the role of government regulation in ensuring public needs are met. Additionally, it assesses the impact of Financial Accounting Standards Board (FASB) Statement No. 144 on financial reporting effectiveness. Lastly, the solution discusses the importance of revaluation of plant, property, and equipment, along with the reasons why directors may avoid it and the adverse effects of not performing revaluation on financial statements and shareholder wealth. The document is available on Desklib, a platform offering a range of study tools and resources for students.

Advanced Financial Accounting 1
ADVANCED FINANCIAL ACCOUNTING
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Advanced Financial Accounting 2
ADVANCED FINANCIAL ACCOUNTING
PART A
A lot of businesses are branching into the international market because there is high
demand in these markets. These businesses are faced with challenges due to the differences that
exist in the financial reporting standards. Therefore, the way the financial statements are
recorded is not the same which makes it difficult for the business to read and evaluate the report.
The Financial Accounting Standards Board came up with a revised framework in conjunction
with the international accounting Standards Board that tries to eliminate this differences
(Palmrose and Kinney 2018).
The revised framework was issued as an aim to eliminate the differences that exist in
financial reporting. Global market firms can use the framework to ensure adequate financial
reporting to make compare financial statements. The framework is comprised of two qualitative
characteristics whose objective is to ensure that financial reporting can be as similar as possible.
According to the article, the conceptual framework does not meet the objectives of the
qualitative characteristics. This is shown below:
The first qualitative characteristic is fundamental characteristic. The fundamental
characteristics comprise of two groups which are relevance and faithful representation. The
conceptual framework aims to achieve relevance in financial reporting. This is by ensuring that
the information that is provided for financial reporting is useful and can be used to make
decisions. In the article, the CFO's believe that the financial provided is useless. In this
statement, it is evident that the information that is provided is not relevant. This means that the
CFO's cannot use the information in any given circumstance because it is not applicable to the
statements (Nobes and Stadler 2015).

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The revised framework aims to achieve reliability in reporting to make sound decisions.
A reliable report meets characteristic of faithful representation through faithful representation.
The CFO has complained that the financial information has gone to levels where it can no longer
be managed. In this instance, we see that the information cannot be depended on because the
CFO's cannot even handle it. For information to be reliable, it needs to be complete, neutral and
free from error. The CFO's cannot rely on the information they are provided because it does not
meet these qualities.
The second qualitative characteristic is enhancing qualitative characteristic which has
four qualities. First is comparability. The revised framework aims at ensuring that companies in
the global market can be able to make comparisons between their financial statements because
they are similar. However, the CFO's are not able to make comparisons because the information
provided is useless and therefore, they cannot achieve comparability.
Second is understandability. The framework aims at ensuring that companies can be able
to read and understand their financial statements so that they can make decisions. However, in
the article understandability is not achieved because the analysts are unable to interpret the
reports. In cases where they can read the statements, they misinterpret them. Therefore, the
framework fails to meet understandability because the IFRS accounts cannot be comprehended.
Timeliness is the third one. The revised framework aims at ensuring that all financial
reporting is carried out promptly so that the reporting can be useful. In the article, the companies
have to look for professionals to read the IFRS account and this consumes a lot of time.
Therefore the framework does not achieve timeliness (Yurisandi and Puspitasari 2015).
Lastly is verifiability. The revised framework aims at ensuring all the parties involved in
the decision-making process can reach an understanding and conclude. However, this is not

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achieved in accordance with the article because the analysts are not able to interpret the accounts
and therefore will not be able to agree.
According to the views presented in the article, it is not consistent with those of corporate
financial reporting. This is because, in corporate financial reporting, it aims at achieving
comparability, understandability, and verifiability. This is not met according to the views
expressed in the article.
PART B
Public interest theory
The public interest theory from its name aims at catering to the needs and interest of the
public. The public is the customers or the community at large, in other words, the demand.
Therefore an organization will be regulated in a manner that it favors its customers and not the
organization. The government is the one that governs the organization by setting the rules.
Organizations put their customers as their priority and respond to their demands. In this
theory, the customer is always right, and therefore their needs are to be met under all
circumstances. The government is not needed to regulate the company because the company has
already put the customers as their priority (Aryee et al. 2015).
For instance, if the market force of certain company demand for better services because
the services are inadequate, the company will need to act on this first. This is because if the
customers are unhappy with the services they are receiving they will gladly leave the company
and seek one with better services. Therefore it is not necessary for the government to regulate the
company because they will always put their customers as the priority.
Capture theory

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In the capture theory, the agency sets to regulate a company so that it caters for the
interest of the public. The agency, which in this case is the government, gives the company
pointers on what is hot in the market and the demands of the market force. This way the
company can be able to act upon this so that they can maximize their gains and thus benefit the
members of the company (Christensen 2016).
In most cases when an organization is formed, it aims to increase its demand by the
expansion of the market force. The organization will have to evaluate the market to determine
their needs then act on this by providing what the public wants. In this instance, we see that it is
not essential for the government to give the organization pointers because they are capable of
assessing the market. Therefore when they are benefitting from the surplus profits, the public is
also benefitting because their needs are catered for.
Economic interest group theory
In this theory, unlike the others, the company is the one that sets the regulations. The
company usually sets these regulations in relation to its surrounding environment. The
environment includes the market force and the customers as well. The government in this theory
approves the regulations set by the organization. The organization sets the rules in a way that
benefits it and the stakeholders. In this instance, we see that the organization can establish the
regulations without the help of the government (Chauvey et al. 2015).
The organization aims at the maximum profit of its members, and to achieve this; they
need high demand from the market. Therefore as much as they want to cater to their interests,
they will have to cater to the interest of the public so that they can achieve their own. In other
words, the market force is a means to achieve their set objectives and goals. Therefore the
organization will as well put the interests of the market first so that they can achieve their goals.

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The government thus does not require to set regulations that will ensure the needs of the public
are met because the organization will automatically do this.
PART C
The Financial Accounting Standards Board issued a Statement under No 144 to make
financial reporting and accounting effective and efficient. The statement aimed at achieving
relevance and faithful representation in accounting. These are the fundamental characteristics
that ensure the differences that exist in financial reporting are eliminated or minimized.
Relevance is when the financial information provided in the statement is important and
useful in accounting. The statement has been able to achieve relevance by allowing for the
expansion of discontinued operations to include more transactions. In this instance, all the
information that is relevant to accounting practice and that which is useful will be available.
Therefore financial reporting can be carried out effecti AryeeAryee vely (Plummer and Patton
2015).
In faithful representation, the financial information has to be reliable. Reliable
information is that which can be depended on. The statement has been able to provide reliable
information by providing guidance on the costs of impairment that are classified as non- current
assets. Therefore companies can use this guidance in their accounting. Also, the guidance allows
for the information in the statements to be neutral. Therefore the reporting will not be subjective
or biased because the companies will follow the guidelines provided.
Also in faithful representation, the financial information needs to be complete. The
statement can provide comprehensive information through the expansion of the discontinued
operations. This way, the information in the reports will be complete and enough to make
decisions in accounting.

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Lastly, in faithful representation, the financial information needs to be free from error.
The statement makes this possible by allowing the use of one model. This will ensure that the
financial statements will have little or no errors as compared to using more than one model.
The statement, therefore, achieves both relevance and faithful representation and allows
for effective financial reporting and accounting.
PART D
A
Revaluation is an essential aspect of any given organization to determine the assets that
they have. A company that does not revalue its plant, property, and equipment may be affected
adversely. However, most directors do not carry out revaluation (Small, Smidt and Yasseen
2017). Some of the reasons that may cause this are:
 The revaluation process is costly and timely. Revaluing the plant, property, and
equipment of a company costs a lot of money and directors prefer not using it to save the money.
Also, the revaluing process is long and therefore takes a lot of time which directors do not have.
 Directors do not carry out revaluation because the process is tedious. The process
not only takes a lot of time but also a lot of energy and therefore most directors stray away from
it.
 Directors do not carry out revaluation because they are not familiar with it. The
process is still new, and therefore many directors do not know it.
 Directors do not carry out revaluation because the fair value estimates are usually
subjective because a valuer estimates the fair value of the assets (Mogylova 2014).
 Directors do not carry out revaluation because it involves the accurate estimates
of the fair value of the assets which can be hard to accomplish.

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B
If directors of a company do not carry out the revaluation process, then it will have an
adverse effect on the company and the financial statements. The statements will be affected in
the following ways
 The financial statements will not have the exact rates of the returns in
investments.
 The financial statements will not have an increase in the assets that the company
has acquired.
 The company will not be able to get high amounts of loan because the financial
statements do not contain the fair value of fixed assets (Hu, Percy and Yao 2015).
 The financial statements will not have the fair value of assets, and therefore the
company cannot lease or sell their assets.
C
When a company does not revalue the wealth of the company is affected which also
affects the wealth of the shareholders. Without revaluation, the company is unable to decrease
the ratio of debt to that of equity. Therefore with high deficits, the company is not able to pay its
shareholders (Van der Velde 2016).
Also without revaluation, the company is not able to increase its assets, and therefore
there are no returns on investments. This affects the wealth of the shareholders because they also
do not receive any profits. This also affects the dividends that the company pays its shareholders.
The dividends will be insufficient. In conclusion not revaluing a company's plant, property and
equipment affect the company which directly affects the wealth of the shareholders as well.

Advanced Financial Accounting 9
References
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