Question:
Explain on new accounting treatment for leases under IFRS 16 that affects tenants in entering into debt convenants with creditors.
Implementation of IFRS 16 leases depends largely on the debt convenants as well as cost of borrowing factors that needs attention as far as possible. It leads to changed lease accounting as well as fails in affecting level of commitments in paying cash (Spiceland, Thomas and Herrmann 2011). It helps in considering matters by the lenders as well as understanding their economic position of business firms. It depends upon the terms and conditions in case of future debt convenants for changed lease accounting standards for the same. Implementation of new rule in form of IFRS results in effective decision-making process in the near future. Addition to that, debt hypothesis indicates concepts relating Positive Accounting theory for future analysis purpose (Shim, Siegel and Shim 2012). It gets violated as per debt convenants as per accounting matters. Firm manager intends in selection of accounting procedures as well as shifting from earnings future with specified period in an overall manner. It includes terms and conditions for future debt convenants. It brings changes for anticipation of IASB in distinguishing between true economic changes as well as accounting changes in the near future (Scott 2012).
Possible social and economic consequences resulting in adoption of IFRS 16 Leases
It is necessary to view at the possible social as well as economic consequences in resulting adoption of IFRS 16 leases. It aims at recognizing right use of assets in accordance with lease liabilities in the most appropriate way (Scott 2011). As far as accounting change is concerned, it deals with defining accounting principles as well as reporting entities and accounting estimates at the same time. It indulges in changed accounting principles as mentioned in the accounting method for future analysis purpose. It addresses usage of various types of depreciation methods like LIFO and FIFO methods (Schroeder, Clark and Cathey 2011). It indulges in adequate changes by the accountants working in an organization. It needs to disclose on matters relating to accounting changes as per the notes to financial statements. It provides extreme help to the shareholders in analyzing with the financial position of business firm in an accurate manner. Total amount of liquidity involves decreases cash allocation for decreased standard of living. It affects the cash flow cycle for fewer amounts of cash and inflation brought in the society. An increased ratio lowers the cash amount that affects society as a whole. It mainly takes into consideration on various financial metrics for tenants and lower return on assets for future analysis purpose (Riahi-Belkaoui 2012).
Relation to objectives and qualitative characteristics of general purpose of financial reports as stated in conceptual framework in AASB
General purpose of financial reporting renders financial information for reported entity. It aims in providing reliable information especially to the potential as well as existing investors, lenders and creditors. It indulges in several qualitative characteristics that are faithful representation as well as provides relevance in decision-making process (Libby, Libby and Short 2011). It includes enhancing qualitative characteristics like verifiability, timeliness as well as understands ability and comparability in the most appropriate way.
Identification of positive theory and explanation with examples
Positive accounting theory is identified in the particular question for bringing actual accounting practices for future analysis purpose. Implementation of positive accounting theory are kept in optimal condition as well as prescribed in desired ways (Hendriksen and Van Breda 2012). Positive accounting theory counts from the perspective of modern theory on accounting. It helps in guiding selected accurate accounting practices in case of specified products as well as services in an overall manner. Positive accounting theory establishes methods for transactions in case of ascertainment of accounting theories in giving permission for practical course of action. For instance, positive accounting theory occurs when managers of specific industry studies for predicting the accounting theories (Glautier, Morris and Underdown 2011). Managers need to select positive accounting theory for using for specified situation in an effective way. Positive theories examples include stakeholder theory as well as legitimacy theory in an accurate form. Positive accounting theory determines in realistic assets as well as liabilities values in representation of general financial condition of business enterprise (Freeman 2011).
Discussing relation between positive and normative theories
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Positive theories |
Normative theories |
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Positive theories fail in guiding business entities with respect of application of accounting theories. It aims at analyzing particular accounting theory for specified industry based upon current market situation. It establishes explaining on particular industry for future reference purpose. This theory fails in suggesting ways that accounting theories runs under successful business in the near future (Feldmann and Rupert 2012). |
Normative theories aim at taking fundamental unique approach. This particular theory fails in looking at the current situation of any company. It mainly aims at guiding ways in accordance with accounting policies (Dyckman, Magee and Pfeiffer 2011). It undertakes making strategies and application of theoretical principle in an overall manner. |
Examples of Positive theories of accounting
From the real-world examples, it is noticed that positive theories of accounting is used for explaining past financial events and causes of business individual current financial standing. Wesfarmers makes use of positive theories of accounting in making the assumptions from past financial statements. This particular company determines on operating net loss requirements as per accounting practices. It compares actual revenues with actual expenses for specified period. It typically used for construction of financial documents like balance sheet, cash flow statements.
Examples of Normative theories of accounting
Woolsworth is an Australian Listed Company that uses normative theories for setting economic policies based upon the theories. Woolsworth mission statement as well as market strategies in business plans as reflected in the normative statements.
Discussion on professional judgment allowed as per accounting standards and poses material impact on reported profits
It is important to understand the fact that professional judgment establishes in the accounting standards and fails in gaining material impact for reported profits. It becomes judgment by the professional auditors for analyzing ways in gaining information on matters relating to material misstatement in the financial statements (Duska, Duska and Ragatz 2011). Professional auditors should be ethical in making judgment and maintain quality of audit reports at the same time. Process of judgment should be held in accordance with framework as well as proper documentation on justification of judgment in an overall manner. On critical analysis, it is noticed that professional judgment plays an important role for item measurement as presented in the financial statements. It includes transactions presented in financial statements in judging free from materiality and estimation of ascertaining of accounting in any form. Judgement should be carried forward after gathering relevant information and proceed with proper analysis in the most appropriate way (Devi and Hooper 2011).
Example:
In case of asset recognition, business entity in beverage business and brand name known in and throughout the world. It includes products command on premium prices as well as product names represented on future economic benefits. In case of liabilities, it measures substantial degree of estimation. It includes provision for payments as well as under existing warranties for covering pension obligations.
Australian Accounting Conceptual Framework issued by AASB highlights stewardship, decision usefulness or both
On critical analysis, it is noticed that accounting information has increased demand as it helps in decision making process and stewardship at the same time. It helps in evaluating accounting information in case of stewardship plays an important role in the current scenario. Stewardship is a concept presented in governance as well as involved in assessment of management for future analysis purpose. Stewardship helps in information-taking verification in an accurate manner. It reveals demonstration of implied stewardship in case of treating as separate objectives as well as interpretation by the respondents at the same time (Deegan and Unerman 2011). It provides relevant information for fair representation of financial statement figures in final decision-making process. AASB proposes ways for performance management in discharging responsibilities in stewardship. It affects business reporting entity in various cash flow generations. It results in investor’s analysis for providing capital for performance management in an overall manner. For example, AASB and Stewardship manages with the company performance in real world scenario. Manager performance relates with discharging stewardship responsibilities for business entity in generation of cash inflows. Management performance interest for potential capital providers
Critical perceptive of accounting in providing social and environmental information
On critical analysis, it is noticed that disclosure involves bringing social as well as environment information by business organization. It is opined that business organization hesitates in rendering true picture and figures mentioned in the financial statements. Imposition of fines reduced as indicated in the income for taxation. It gains advantages in case of fiscal means of communication for future analysis purpose. Reasons include environmental accidents as well as tendency for avoiding remedial costs for the same (Barnett 2012). Information regarding environment helps in providing business as in case of loss for subjective environmental disruptions on an adverse manner. It requires depiction ways in case of penalties and deduced taxable income for derived fiscal advantage in the most appropriate way. It reveals social as well as environmental information for loosing trust in case to stakeholders and portraying ethically and environmental responsible.
Arguments for supporting the view those companies provide an optimal level in case of social and environmental information
It is important to understand the fact that absence of information would lead to company devastating impact in every form. Regulations mandate ways for providing environment as well as social information in acting for bringing compulsion in disclosing details in an overall manner. In case of mining firm, it is noticed that operations takes place in an isolated area for wastage of oil and leading extraction. It requires proper disposal of waste in absence of regulatory measures like environmental regulations (Albrecht, Stice and Stice 2011). It mandates companies for following appropriate methods for disposable wastes on an adverse manner. It needs dumping waste anywhere in the river without even thinking of inhabitants as well as posing ethical irresponsible. It measures loss in monetary terms as well as negotiation loss for bearing costs in social wealth for future analysis purpose.
Reference List
Albrecht, W., Stice, E. and Stice, J. (2011). Financial accounting. Mason, OH: Thomson/South-Western.
Barnett, K. (2012). Accounting for Profit for Breach of Contract. Oxford: Hart.
Deegan, C. and Unerman, J. (2011). Financial accounting theory. Maidenhead, Berkshire: McGraw Hill Education.
Devi, S. and Hooper, K. (2011). Accounting in Asia. Bingley: Emerald.
Duska, R., Duska, B. and Ragatz, J. (2011). Accounting ethics. Chichester, West Sussex, U.K.: Wiley-Blackwell.
Dyckman, T., Magee, R. and Pfeiffer, G. (2011). Financial accounting. [Westmont, Ill.]: Cambridge Business Publishers.
Feldmann, D. and Rupert, T. (2012). Advances in accounting education. Bingley, U.K.: Emerald.
Freeman, R. (2011). Governmental and nonprofit accounting. Boston: Prentice Hall.
Glautier, M., Morris, D. and Underdown, B. (2011). Accounting. Harlow, England: Financial Times/Prentice Hall/Pearson.
Hendriksen, E. and Van Breda, M. (2012). Accounting theory. Homewood, IL: Irwin.
Libby, R., Libby, P. and Short, D. (2011). Financial accounting. New York: McGraw-Hill/Irwin.
Riahi-Belkaoui, A. (2012). Accounting theory. San Diego: Harcourt Brace Jovanovich.
Schroeder, R., Clark, M. and Cathey, J. (2011). Financial accounting theory and analysis. Hoboken, NJ: Wiley.
Scott, W. (2011). Financial accounting theory. Toronto, Ont.: Pearson Canada.
Scott, W. (2012). Financial accounting theory. Toronto: Pearson Prentice Hall.
Shim, J., Siegel, J. and Shim, J. (2012). Financial accounting. New York: McGraw-Hill.
Spiceland, J., Thomas, W. and Herrmann, D. (2011). Financial accounting. New York: McGraw-Hill/Irwin.
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