Based on the application of the conceptual framework usefulness of the financial information is considered with the application of factors such as “comparable, verifiable, timely and understandable” nature of the financial reporting. The relevance factor is associated to the making a difference in the decisions which relate to the economic theories. It has been further seen that the financial information is needs to be useful for the predictive value and confirmatory value. The predictive value will assist the users in anticipating the future outcomes. In addition to this, the confirmatory value allows the users to check and confirm the various types of the earlier predictions. The materiality aspect of the relevance is related to the specific entities. This is related to “what the material is to one entity may not be material to another” (Vinnari and Dillard 2016).
As stated by Spraakman and Jackling (2014), the comparability of the information allows for comparisons to be done among the entities. The contrasts made within these entities are further compared from one accounting period to another. The verifiability helps the users in faithful representation of the information which seen to be supported with the various individuals who support the evidence and the independent individuals to confirm the verifiability of the information.
The timeliness of the information provided to the decision maker allows for influence their decisions. This needs to be ensured without any delay. The understandability of the information is seen to be related to the various types of the factors which ensures there is no delay or else the information “will be of little value”. The understandability requires the financial information to be comprehensive and understandable as per realistic knowledge of business and economic activities. It is also irrational to ignore the complex items to make the reports simple and understandable in nature (Craig, Smieliauskas and Amernic 2014).
As per the given scenario in the case study it has been seen that due to the lack of adjustments there may several instances of omission of critical entries in the financial statements. Henceforth, it cannot be stated that Wesfarmers has adhered to the qualitative characteristics which is stated as per the conceptual framework.
(a)
The public interest theory is identified as an economic concept which relates to the Welfare economic and provides the theoretical justification for the regulation. The theory takes into consideration the various types of the justifications which are characterized by the features such as “imperfect competition, asymmetric information and externalities”, This are recognised as inefficient with the market failure and may be corrected with the use of appropriate regulation. As per this the implementation of this theory the regulators are motivated by the various types of the societal interests and often in intervene in the market for improving the social relation.
As per the decision taken by the Government to inquire the “corporate social responsibilities” with the aim of deciding whether the “Corporations Act”, there had been no specific regulation be introduced from the perspective of regulation. The application of the public interest theory related to the various facets of the information which are seen to be associated to the promotion of the public interest. However, as per the given case the ‘market forces’ would be relied upon to “encourage companies” to do the ‘right thing’. The policy did not consider the environmental impacts or the way people would like to consume the organisations’ products, invest in the organisation and be aware of the various types of the market forces to right thing even in case of absence of legislation (Ryan et al. 2014).
(b)
The conceptualization of the “regulatory capture theory” relates to the failure of the government which occurs when a “regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the industry or sector it is charged with regulating”. It needs to be further understood that the various types of the decisions taken by the regulatory agencies are able to prioritize over the interest of the public which ultimately leads to a net loss for the society. In the given situation the companies acting in favour of the government may be termed as captured agency. This consideration is seen to be evident with the fact that the various types of the initiatives taken by these agencies are seen to be based on the interests of the public without consideration of the environmental impacts or the way people would like to consume the organisations’ products, invest in the organisation and be aware of the various types of the market forces to right thing even in case of absence of legislation (Brouwer, Faramarzi and Hoogendoorn 2014).
This due to the fact that the regulatory capture occurs as the groups and the individuals are identified with high interest stakes in the outcome of the policy and regulatory decisions. The main inference made form the different types of the perspective of the “regulatory capture theory” has been further able to relate the different types of the information which are related to the “expected to focus their resources and energies in attempting to gain the policy outcomes they prefer, while members of the public, each with only a tiny individual stake in the outcome, will ignore it altogether”(Ding, Hellmann and De Mello 2017).
The identification of the initiatives taken by the company in terms of the regulatory capture theory in the given scenario has been further seen to be consistent due to the fact the “people would not want to consume the organisations’ products, and people would not want to invest in the organisation, work for them” .This is directly associated to the various types of the perspective as stated in the “regulatory capture theory”.
(c)
The “Economic Interest Group Theory of regulation” are associated to set of procedures which is driven by the forces of “supply and demand”. It has been further seen to be related to the different types of the factors associated to the government being regarded in the supply side and interest group in the demand side. This theory suggests that the regulations needs to be developed to create specific advantage to the industry concerned. The theoretical implementation was developed in “1971 by Chicago theory of government and the economic theory of regulation”. The theory operates with such regulation that no external mechanism is involved. The government allows the stakeholders to participate in the various types of the various industries to the participate in the decision-making activities concerning the matters affecting the economy. The main form of the theory has been further able to suggest that characteristic groups in the government decision needs to be small and to operate with reduced running costs (Zhang and Andrew 2014).
The application of this concept has favoured “some groups more than others”. For instance, the policy aims to maintain a uniform price for the basic items and give more advantage to the government. Despite of the uneven production cost in the different types of the geographic regions, some of the main type of the assessment has been able to state that there may be greater profit to the government than to the public. It needs to be also understood that in general the politicians are not predictable and they may be using the regulation of the corporation’s act in the favour of the government and the common public will not reap any significant benefit in such a case. It has been further discerned that the important facets of the theory advocates for the use of “representative groups in the establishment of regulations”. “The industries involved send their own representative groups in the decision-making process to make policies which regulate the activities in the entire economy” (Manes Rossi, Aversano and Christiaens 2014).
The given statement aims to address the “financial accounting and reporting for the impairment or disposal of long-lived assets”. The statement is also seen to supersede “FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30”. The main implication of these rules has for the relevance and representational faithfulness of US corporate financial statements is identified in the reporting results for the “Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business”. In addition to this, the amendments as per the statement is related to the “ARB No. 51, Consolidated Financial Statements”, for eliminating the exceptions for consolidating the subsidiary for which the controls are likely to be temporary in nature. The “Long-Lived Assets to Be Held and Used” is able to retain the requirement of the requirements removes the scope for removing the goodwill and eliminating the requirements as stated under statement 121 for allocating the goodwill to the “long-lived assets to be tested for impairment” (Wittayapoom 2014).
(a)
The different types of the evidences related to measure their property, plant and equipment at the cost model shows the motivation of the management to reduce the debt ration ad also avoid the debt covenant violation. This has been further suggested with the firms revaluing the assets upward which signals more growth opportunity and liquidity improvement thereby decrease information asymmetry. The different types of the results are further seen to contribute the management in choosing the incentive policy and accounting policies for improving the overall nature of the financial position (Bauer, O’Brien and Saeed 2014).
(b)
Revaluation is determined as the process describing the true value of the assets which are owned by the company. The process of the revaluation involves long-lived assets to used in both the account standard as per GAAP and IFRS. This technique is applied in case of reporting the fair “market value of the long-lived assets”. The revaluation is seen to be different from the planned depreciation which is generally linked to the age of the assets. In case a firm is looking at reselling of an asset it is negotiated for considering it for revaluation.
The main effect on the firm for not revaluing the financial statements is seen to be having the difficulty in determination of actual rate of return on the capital. The firms will be further not able to determine the “fair market value of long-lived assets after a huge appreciation since their initial purchase”. In several cases while taking loan from a bank a correct revolution leads to higher amount of loan. This opportunity may be completely missed out on the decision of not revaluating the financial statements (Sutton, Cordery and van Zijl 2015).
(c)
The main answer to this part of the question needs to be assessed on the way capital market is driven. In case we believe share price will not reflect the information provided in the financial statements then the market is not depicted to be efficient. Lower assets and net assets may get impounded in the share prices. However, in case of decrease in the share price, this may get offset by the higher reported profit, which is caused by the lower depreciation charges.
In case we believe that the capital market is efficient then it is of no value whether statement of financial position reflects the assets current value as long as the information is publicly available on the firm’s asset as per the current value in the market. In addition to this, as the information is available in the notes to the financial statements, the individuals will be able to believe that the market is efficient and would argue on the accounting treatment having minimal or not implication on the share price (Husin and Ibrahim 2014).
References
Bauer, A. M., O’Brien, P. C. and Saeed, U. (2014) ‘Reliability Makes Accounting Relevant: A Comment on the IASB Conceptual Framework Project’, Accounting in Europe, 11(2), pp. 211–217. doi: 10.1080/17449480.2014.967789.
Brouwer, A., Faramarzi, A. and Hoogendoorn, M. (2014) ‘Does the New Conceptual Framework Provide Adequate Concepts for Reporting Relevant Information about Performance?’, Accounting in Europe, 11(2), pp. 235–257. doi: 10.1080/17449480.2014.967788.
Craig, R., Smieliauskas, W. and Amernic, J. (2014) ‘Assessing conformity with generally accepted accounting principles using expert accounting witness evidence and the conceptual framework’, Australian Accounting Review, 24(3), pp. 200–206. doi: 10.1111/auar.12039.
Ding, Y., Hellmann, A. and De Mello, L. (2017) ‘Factors driving memory fallibility: A conceptual framework for accounting and finance studies’, Journal of Behavioral and Experimental Finance, 14, pp. 14–22. doi: 10.1016/j.jbef.2017.03.003.
Husin, M. A. and Ibrahim, M. D. (2014) ‘The Role of Accounting Services and Impact on Small Medium Enterprises (SMEs) Performance in Manufacturing Sector from East Coast Region of Malaysia: A Conceptual Paper’, Procedia – Social and Behavioral Sciences, 115, pp. 54–67. doi: 10.1016/j.sbspro.2014.02.415.
Manes Rossi, F., Aversano, N. and Christiaens, J. (2014) ‘IPSASB’s Conceptual Framework: Coherence with Accounting Systems in European Public Administrations’, International Journal of Public Administration, 37(8), pp. 456–465. doi: 10.1080/01900692.2014.903269.
Ryan, C., Mack, J., Tooley, S. and Irvine, H. (2014) ‘Do Not-For-Profits Need Their Own Conceptual Framework?’, Financial Accountability and Management, 30(4), pp. 383–402. doi: 10.1111/faam.12044.
Spraakman, G. and Jackling, B. (2014) ‘A conceptual framework for learning management accounting’, Accounting Perspectives, 13(1), pp. 61–81. doi: 10.1111/1911-3838.12024.
Sutton, D. B., Cordery, C. J. and van Zijl, T. (2015) ‘The Purpose of Financial Reporting: The Case for Coherence in the Conceptual Framework and Standards’, Abacus, 51(1), pp. 116–141. doi: 10.1111/abac.12042.
Vinnari, E. and Dillard, J. (2016) ‘(ANT)agonistics: Pluralistic politicization of, and by, accounting and its technologies’, Critical Perspectives on Accounting, 39, pp. 25–44. doi: 10.1016/j.cpa.2016.02.001.
Wittayapoom, K. (2014) ‘New Product Development, Accounting Information, and Internal Audits: A Proposed Integrative Framework’, Procedia – Social and Behavioral Sciences, 148, pp. 307–314. doi: 10.1016/j.sbspro.2014.07.047.
Zhang, Y. and Andrew, J. (2014) ‘Financialisation and the Conceptual Framework’, Critical Perspectives on Accounting, 25(1), pp. 17–26. doi: 10.1016/j.cpa.2012.11.012.
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