More and more industries are diverging into the global market, but this has become challenging because of the differences that are present in recording financial statements. The Financial Accounting Standards Board decided to team up with the International Accounting Standards Board to come up with a single set of standards that could be used by companies in the global market. These standards are the International Financial Reporting Standards (IFRS) that aim at eliminating the differences that exist between the financial statements in the different companies. These standards contain the Conceptual Framework that entails two characteristics.
These characteristics are the fundamental characteristics and the enhanced qualitative characteristics. These qualitative characteristics aim to ensure that financial reporting is as smooth as possible (Choudhary, Merkley and Schipper 2017).
The first group of characteristics is the fundamental characteristics. These characteristics entail of two main categories that are relevance and faithful representation. The revised frameworks efforts are aimed at ensuring that all financial reporting is of relevance. In the article, the CFO’s believe that the information provided in the financial statements is useless. This, therefore, does not meet the aim of relevance because if the information is not useful, then it is not relevant in making financial decisions.
Also, the CFO’s believe that the information provided has gone to levels that are not manageable. Therefore the information is not reliable. Reliability falls under faithful representation. Faithful representation is the characteristic that aims at ensuring that the financial information is reliable to the CFO’s in terms of completion, error-free and neutral. The CFO’s are not able to rely on the information because they cannot even manage it (Muda, Dharsuky, Siregar and Sadalia 2017). Also, it can be unmanageable because it contains too many errors that are hard to correct.
The enhancing qualitative characteristic is the second one with four main aspects that are comparability, understandability, verifiability, and timeliness. The CFO’s believe that the financial information provided is useless. This means that they are unable to make comparisons of financial information between companies. The revised framework aims at comparability between financial statements which the CFO’s have not been able to achieve because they cannot use the information given.
In understandability, the conceptual framework aims at ensuring that the financial information in the statements can easily be read and comprehended. In the article provided analysts are having a hard time reading IFRS accounts and most of the time misinterprets them. This does not meet the understandability aspect because the analysts do not understand the financial statements and if they do they are prone to misinterpret them.
Also, in the article only professionally trained persons can be able to interpret the IFRS accounts. Therefore the company will have to hire the professions every time they want to understand their statements. This goes against the objective of timeliness because a lot of time will be wasted looking for professionals as compared to if the company was able to read the accounts on their own (Chen 2018).
In verifiability, the revised framework aims at ensuring that any participants involved in financial reporting can reach an agreement. However, this is not possible according to the article because the IFRS accounts are often misinterpreted, thus if they are unable to comprehend them they are not able to conclude.
The views in the article are not consistent with those of corporate financial reporting because of some reasons (Henderson, Peirson, Herbohn and Howieson 2015). First, they are unable to make comparisons because the financial information in the statements is not useful. Thus it is not consistent with the corporate financial reporting that ensures comparability. Second, corporate financial reporting aims at understandability which is not achieved in the article because analysts often misinterpret the IFRS accounts because they are not able to understand them. Lastly, in the report, they view the information is not manageable and thus cannot be relied on which corporate financial reporting tries to achieve.
Public interest theory
This theory aims at putting the needs of the public (customers) as the priority as opposed to those of the industry. Industries always ensure that their set objectives and strategies cater to the interest of the public. The government which is the agency that sets the regulation makes sure that every industry is of benefit to the public at large. The public is the market force that ensures an industry is up and running. However, the government does not need to set the regulations because an industry is capable of putting its customers first as seen below
For instance, if there is a company that sells trousers and the customers complain that the price is too high. The company is most likely going to lose customers to another company that sells headsets but for a lower price. The company will have to adjust to the market force by reducing their costs to that which the customers believe is affordable. In this case, we see that the company caters to what the customers want without there being set regulations for this. The company is well aware that without the customers then the company is doomed to fail.
Economic interest group theory
In the economic interest group, theory and industry will act in a way that is of benefit to it economically. The objectives and goals that the company sets are directed towards the members so that they can benefit. In this theory, however, it is the company that sets the regulations, and the government is the supplier (Becker 2017). The regulations are set on the basis of the demand in the market. This way the company can know how to maximize their profits from supplying what the market wants most. The role of the government in this theory is to approve the regulations set by the government.
The following is an example of this theory. A school may set regulations that want the government to build them more classrooms. However, the parents at the school may disagree to this because they believe they are paying a lot of money for school fees and the school should use that money for building the schools. If they do not agree to this most parents may be prompted to remove their kids from the school. Since the school does not want to lose this market, they will have to follow the demands of the parents. Therefore the government does not need to regulate the school because they will act on the demand of the public.
Capture theory
In the capture theory, the governmental agency is ‘captured’ by the industry. The government that is set to regulate an industry to act for the benefit of the public later diverts and operates for the benefit of the industry. The governmental agency will establish regulations that will ensure an industry can achieve their goals and strategies so that the members of the company can benefit. The government gives the industry player guidelines on how to maximize their profits with information about the demands of the market. However, this is not necessary because the industry can deliver to the needs of the market force without being told (Devaux 2017).
A company is able, without the help of the government, gauge the market and know what their demand is. This is because without the customers the company will not be able to clear their stock and this, in turn, reflects in the profits of the company because they will be minimal. Without gains the company undergoes losses and therefore, they will have to reply to the demand of its customers. In this case, the government does not need to regulate a company because the company will always cater to the market force.
FASB issued a Statement in section 144 that aims at helping entities in financial accounting and reporting. The statement addresses the following issues. First, it provides instructions on the accounting for impairment costs which are classified as non-current assets. Second, it ensures that there is no revaluation of assets to their non-current assets. Third, it allows for expansion of discontinued operations to ensure that they include more transactions. Lastly, it recommends the use of one model for the accounting of impairment costs.
The statement achieves relevance in that it allows for the expansion of discontinued operations to include more transactions. This way all the information that will be provided in the financial statements will be relevant and can be used for financial reporting and accounting.
The statement also achieves the aim of accounting and reporting being free from error which is an aspect of faithful representation. This is seen when they recommend the use of one model for the accounting of impairment costs. This helps in that any error that may arise by use of two models will be eliminated and thus the accounting will be adequate.
The statement provides instructions on how to account for impairment costs. This helps in that the information contained in the financial statements will be neutral. The information being neutral is also an aspect of faithful representation. It eliminates any possibilities of the accounting and reporting being biased because the statements will not be subjective but somewhat objective.
The statement also shows faithful representation in that it allows for complete information to be relayed. This is evident when the statement allows for the expansion of discontinued operations to include more transactions. This way the information provided for financial accounting and reporting will be complete and of use. This helps in the making of financial decisions from the complete statements. Therefore, it is correct to say that the FASB statement meets the needs of relevance and faithful representation that are required in financial reporting and accounting.
Most directors do not carry out the revaluation of their company’s plant, property, and equipment. Some of the factors that motivate them not to do this are:
Not revaluating ones plant property and equipment has the following effects on the financial statements
The shareholders of a company that does not revalue their plant, property, and equipment are significantly affected. First, there is no increase in assets which affects the return on investments. If the returns are insufficient, then the dividend that the shareholders get is also insufficient (Van der Velde 2016).
Also, the company is not able make enough profits if it does not revalue. This has an effect on the wealth of the investors because if there are no profits it means that they will also not make enough money from their investments. Some of the shareholders may even opt out of the company because they are not getting sufficient dividends, but this may also be a problem because the company will not be able to pay them back their shareholder percentage. Payments may be made in installments which is not something that the shareholder may want as compared to one large sum.
References
Becker, G.S., 2017. Economic theory. Routledge.
Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement comparability and the efficiency of acquisition decisions. Contemporary Accounting Research, 35(1), pp.164-202.
Choudhary, P., Merkley, K.J. and Schipper, K., 2017. Qualitative characteristics of financial reporting errors deemed immaterial by managers.
Devaux, C., 2017. Towards a legal theory of capture. European Law Journal.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Muda, I., Dharsuky, A., Siregar, H.S. and Sadalia, I., 2017, March. Combined Loadings and Cross-Dimensional Loadings Timeliness of Presentation of Financial Statements of Local Government. In IOP Conference Series: Materials Science and Engineering (Vol. 180, No. 1, p. 012099). IOP Publishing.
Small, R., Smidt, L. and Yasseen, Y., 2017. Revaluation of depreciable assets-benefits to organizations. Professional Accountant, 2017(30), pp.22-23.
Van der Velde, J., 2016. Trusts: Revaluation of assets by trustees. Bulletin (Law Society of South Australia), 38(10), p.36.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download