Question1:
newspaper article or web page report of an item of accounting news, i.e. it refers to a current event, consideration, comment or decision that has been published after 15 September 2014. Your article could also come from one of the professional journals such as ‘Charter’. The article should not come from an academic journal. Academic journals generally do not contain news articles or articles of less than one page and are usually only published 2 or 4 times a year.Explain the article that you have found in your own words and clearly relate the concepts, ideas and facts within the article to one or more of the theories or topics that you have studied this session.
Regulation as Accounting Theory
Regulation in accounting is important to serve best to the society and optimize the allocation of the resources. The changes in the accounting entries are done to bring the impact of regulation on the accounting principles. The regulation in the accounting theory is essential to provide necessary information to make the economic decisions (Gaffikin, 2015).
The article of Accounting News published in the BDO in December 2014 presents news of the changes in the Annual Financial statements for the year 2014. The new reflects that there are not many significant changes in the Annual Financial statements for 31 December 2014. The changes in the Annual Statements will be in the following –
The rationale behind financial accounting and the changes in the financial statements for the year 2014 has been reflected in the article. According to the changes made to the Annual Statement reporting for the year 2014 includes deletion of the additional information about the individual key management personnel (KMP) remuneration, information related to option holdings of shares and information related to other transactions that appear in the notes to financial statements. According to the Corporation Act Regulation 2M.3.03 (1), items 17-24, the following information has to be incorporated in the remuneration report that has been audited. Thus the following changes have to be incorporated in the new financial statements. The reasons for the following changes in the financial statements are that it is considered by the Australian Accounting Standards Board (AASB) that the disclosures of KMP represent the disclosures of Corporate Governance. They must be included in the Corporations Act of 2001.
There have been certain changes in the amendments regarding the investment entity. There has been certain change in the disclosures of AASB 10 which has included the concept of investment entity. In case of an investment entity, the investments to the subsidiaries must be recognized at fair value via profit or loss calculation. The calculation of fair value must be according to the guidelines represented in AASB 9 and AASB 139. There are certain criteria for a firm to become an investment entity. They have been incorporated in the new financial statements.
There have been certain changes in the disclosures of the recoverable amounts. Earlier the recoverable amount had to be disclosed of a cash generating unit. The goodwill and the intangibles are attached with the recoverable amount. But the change that has been implemented in the financial statements states that the recoverable amount must be disclosed in case of individual assets. According to AASB 2013 -3 there are various additional disclosures that have been introduced. In this measure the amount that is recoverable is calculated by deducting cost of disposal from the fair value. This is applicable in which the fair value is at the level of 2 or 3.
There have been certain annual improvements in the AASB 2014-1. The changes have been made in the Share based payments. The targets of performance can be based on various metrics. There will be changes in accounting when the metric was a non market condition. There have been changes in the AASB 3 Business combination in which the contingent consideration is measured at fair value via calculation of profit or loss.
According to the changes in the representation of the Annual Statements, there have been changes in the interpretation of the 21 Levies. It was initially imposed on the European banks which had to deal with the banking levies. But the area of concern of the particular levy has been widened. It will deal with all types of Government levies. But it will not cover the income taxes under AASB 112 Income Taxes(Asic.gov.au, 2015)
The revision in the Annual Statements reports that the RDR is only applicable on or after 1st July 2013. The Reduced disclosure requirement is not applicable for the private companies, charitable organizations and the clubs. The financial statements have to comply with the IFRS or the additional disclosures of RDR.
For not for profit organizations, the following standards AASB 10, AASB 11, AASB 12, AASB 127 and AASB 128 will be applicable from 31 December 2014. However it is not easy to apply these measures for NFP. Since the variable return does not flow to the investor via dividend it is tough to apply these measures.
The changes implemented in the Financial Statements focuses on the valuation of the assets. It encourages the auditors to consider the need to impair the goodwill and the other assets. It identifies the cash flows that are unrealistic and based on assumptions. The new amendments have been made to identify the mismatch between the cash flow and the assets that has been tested for impairment. It focuses on fair value calculations. The fair value calculations of the financial assets must be based on specific models. The accountants have to abide by the policies of accounting that will have potential impact on the results of reporting. These include arrangements of the balance sheet, recognition of revenue and tax accounting.
It is a challenging job to make the financial statements according to the standards of AASB and IFRS. It is a tough job to apply the new changes that takes place every year. The changes impact on the presentation of the financial statements and the disclosures that are accompanying the financial statements. There have been little changes for the profit entities financial statement reporting. But changes have taken place in the annual reporting for not for profit entities. Thus the auditors and the preparers of the financial statements will be posed with challenges while reporting for not for profit sector. Over the next few years there will not be any significant changes in the IFRS and the AASB standards (grantthornton.com.au, 2014). The changes has been made in the reporting standards of the not for profit organizations so that it can suit to wide range of scenarios. But the changes has not been implemented for the profit organizations which will reduce the burden on the preparers and the auditors of the financial statements (bdo.com.au, 2014) ; (ey.com, 2014).
a) Describe in your own words the issues that the exposure draft/proposal and comments letters are dealing with.
b) Is there agreement among the various groups? Describe the issues where there is agreement/disagreement and provide examples.
c) In your opinion, which of the three theories of regulation (eg, public interest, private interest orcapture theory) best explains the comment letters? Justify your answer.
Exposure Draft on Investment Entities: Application of the consolidation exception ( proposed amendments to AASB 10 and AASB 128)
According to the norms of IFRS 10 norms, clarification has to be provided regarding the consolidation of the financial statements for the subsidiary. The subsidiaries will be measured at fair value. The parent company will be responsible for the preparation for the consolidation of the financial statements. The subsidiary does not have to prepare separate financial statements ( ifrs, 2015)
According to IFRS 10, the subsidiary does not have to prepare the financial statements. They are part of the operations of the parent company. They do not have to measure the financial statements at the fair value. The duty of the subsidiary companies is to provide service which is known as the investment activities (Aasb.gov.au, 2015). The measurement of the investment at fair value will be done by the parent company. The subsidiaries will not be involved in the measurement of the financial statements at fair value.
According to IFRS 10 , the non investment entity parent of the investment entity cannot retain the fair value measurements as applied by the investment entity to the interest of the subsidiaries. The consolidation of all the investment of the group will be done by the non investment entity (Bryan ,2007). The non investment entity has the full responsibility of the consolidation of the financial statement. The parent company will have to consolidate the financial statements at fair value. The subsidiary companies have to be taken into consideration. The application of this method has been prevented by the IAS 28 for the non investment entities in the subsidiaries. It is not applicable for the joint venture and other major entities of investment (www.aasb.gov.au, 2015).
1. Dr Bikram Chatterjee from Deakin Graduate School of Business – The professor of the business school find these changes satisfactory. The changes to IFRS 10 are appropriate. The changes from AASB are satisfactory. The Government of Australia will not form a barrier to the changes that has been made for the investment entity. The proposal will help in the cost of savings for the investment entities. The investors will have information about the performance of the organization. The information will be beneficial for the investors in making their investment decisions.
2. Deloitte Touche Tohmatsu limited – According to them, there will be lack of transparency within the financial statements as a result of fair value considerations for the investment entities. There will be other issues like difference in obtaining information. It will create difference in the equity method of accounting in case of joint venture and the other associates. There will be lack of feasibility which will create huge amount of confusions.
3. PwC – The implications of the exposure draft has been agreed by PwC. According to them the proposal of ED 249 will be helpful for the preparation of the consolidated form of the financial statements. It will be a relevant for the investors and helpful to make their investment decisions. But there have not been significant changes for the nonprofit organizations. The changes has not been implemented for the public entities (Ifrs.org, 2015).
4. Macquarie Group Limited – The group has agreed to the norms presented in the exposure draft. They agree to the fact the parent company will be responsible for the consolidation of the financial statements. They agree to the proposal that the subsidiaries will be involved in the operations but the financial statements will be prepared by the parent company. There are certain issues presented by the group. They do not agree to the fact that the equity method will be used by the non investment entity by using fair value measure. Lack of transparency is the major issue . It is not appropriate on a theoretical aspect. The associates lack consistency as they donot have a legal entity structure.
The regulation can be described by the Private interest theory. The theory provides solutions that will be beneficial for the company and the investors. According to the Private interest theory, it is applicable for the self interest of the company. The exception to consolidation is favorable for the company as the companies does not have to prepare the financial statements twice. The changes in the structure of AASB 249 and AASB 250 will be helpful for the users and the company. This leads to time saving. The amount of investment is less and the reporting is less complex. The company will be able to save cost. This will be helpful for the economy of Australia as there will be proper allocation of resources (Bryant, 2010); (Ku, 2010).
Conclusion
From the two assignments it is clear that the company has to abide by certain standards for the preparation of the financial statements. The changes in the financial statements will make reporting transparent. It can be said that the comments from the companies and the other governing bodies is in mixed form. But the application of the equity method by the use of fair value for the non investing entity investor has not been accepted by majority of the group members. Overall it can be said that the members has agreed to the amendments that has been made the AASB and the IFRS 10.
References
Aasb.gov.au, (2015). News.
bdo.com.au, (2014). ACCOUNTING NEWS.
Bryan, M. (2007). Private law in theory and practice. London: Routledge-Cavendish.
Bryant, W. (2010). General equilibrium. Singapore: World Scientific Pub. Co.
grantthornton.com.au, (2014). Technical Accounting Alert.
Ifrs.org, (2015). IFRS – Exposure Draft and Comment letters.
Ku, M. (2010). Political change in view of the theory of change and balanced, harmonious union of the private interest and the public interest. Lanham, Md.: University Press of America.
www.aasb.gov.au/, (2015). Investment Entities: Applying the Consolidation Exception.
Gaffikin, M. (2015). Regulation as Accounting Theory.
ey.com, (2014). EndeavourTM (International) Limited November 2014 edition An illustration of an Australian company’s annual financial report for the 31 December 2014 year end (also applicable to 30 June 2015 year ends).
Asic.gov.au, (2015). 14-294MR Focus for 31 December 2014 financial reports | ASIC – Australian Securities and Investments Commission.
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