Answer A:
In order to extend the financial performance of a firm, qualitative features of an organisation is required to produce their financial statement. These are made in such a way that that it can aim the qualitative ideologies of the same so as to guide the investors in their endeavours. According to the (Chaudhry, 2015), major parts that are considered under the general form of the qualitative features are the faithful relevance and depiction of the financial performance of the firm. in the same manner, there are various other parts that are incorporated in the enhancing the qualitative features of the timeliness, understandability, comparability and opinions of the International Financial Reporting Standards (IFRS) that enforce the general principles of the same (Barth, 2015). This report provides focus on the feature that certain parts of the financial statement of the firm are incorporated in the financial reporting, however, all of them are non-coherent in nature. Details regarding the same can be found below:
As per the Geoff Roberts who was the earlier head of the AXA Finance, there are almost no inquiries from the economic investigators as well as from the fund managers for the financial statement adjustment so that the accurate financial brief of an organisation can be perceived that are conducted depending upon the norm of the IFRS (Jodoin, 2017). Due to this, they safeguarded from the any issues while contrasting the financial statement of the various organisation along with getting information about their financial standing in the operation market.
Thus, important evidences are sourced from these sources that implies financial statements prepared as per the IFRS norm potentially have comparability and understandability in them. Under this context, these two qualitative values initiate to expand the value of the financial information of the firms (Dudin, Prokofiev, & Fedorova, 2017). However, arguments are there that financial statement made as per the IFRS norm fails to provide details about the understanding of the firm and miserably fails to bring in comparison of the same. Under this context, deficiency can be observed that in IFRS as per the terms of the understanbility and the comparability.
As per the argument of the Terry Brown, who was the financial director of the Wesfarmers, financial statements of the firm can be misunderstood, if financial analyst focus to explain the same with the utilisation of the IFRS standard and the firm lacks knowledge regarding the norm of the IFRS (Defond, 2018). Verifiability is another important qualitative feature of the financial statement of the firm that enhance the financial statement’s quality by producing path to the end operators to apply their financial knowledge as well as the financial observation of the financial statements regarding the financial position of the firm.
It would aid the firm to determine the insight of the financial statement and have important factors that has influenced the performance of the firm. This interprets that ability of the end users to judge the content described in the notes by the means of the application of their knowledge and observations. Depending upon the above mentioned statement, understanbility and the verifiability aspects of the qualitative features are not present in the reporting framework of the IFRS (Mayo, 2017).
According to the perspective of David Craig, the CFO of Commonwealth bank, the speculators don’t deliver cautious consideration to IFRS-created budgetary frameworks, as they are of the idea that such reasons may additionally deliver misrepresented records with appreciation to the monetary exhibitions and cash associated locations of the corporate factors (Skinner, 2017). It’s far essential to assure significance and persistent depiction of the financial statements exposed inside the every year reviews of the associations with a specific aim to make beneficial outcomes, so the challenge selections can be attempted definitely by the firm.
In the event that these highlights are absent, no knowledge regarding the economic states of the associations will be achieved. It has been recognized that the associations speaking to the cash related data through setting up the financial articulations as according to IFRS framework appear to be in significance and committed portrayal. Due to this reason, the speculators do consider the financial statement a favourable option for their decision (Chaudhry, 2015).
Finally, it is great to specify that financial statement expects to provide the clients information regarding the budgetary explanations with specific economic information that might be vital for deciding the financial position of the firm, which means the budgetary states of the commercial enterprise institutions along attempted suitable hypothesis alternatives (Tsalavoutas & Dionysiou, 2014). The conversation above indicates the absence of some important qualitative features, which confines the objective of financial reporting.
Answer B:
During 2006 Australian government took an important decision associated with the modifications in the Corporations Act of 2001, where any introduction of the regulation in order to enhance the social and the environmental responsibilities is missing (Fisch, 2015). In spite of the initiating regulations, Australian government has asked the forces of the market to perform with the purpose. Through aiding three well faced regulations, Australian government decision can be analysed. Details regarding the same are as follows:
Public interest theory:
As per this theory introduced rules have significant amount of role in assurance of the public welfare. In addition to this, it ensures that it benefits the stakeholders that makes it insignificant in order to meeting the role of the public demand. Under the given situation of the Australia, it could be applied, so that Australian government can initiate regulation as per the Corporations Act (Henderson & Donnay, 2017). Doing so Australian government can enhance the social as well as environmental responsibilities among the general public.
Economic theory:
One of the basic idea of the economic theory regarding the industries is that, they are the creator of the regulations and it is aimed to enhance the growth of both the common individuals as well as the business enterprises. Thus, according to this theory, it is evident that the Australian government could have initiated regulations in the Corporations Act so as to promote social as well as environmental responsibility (Skinner, 2017). basic reason for this is to transfer the burden of the social responsibility from the producer to the common individuals and both the parties are need to adhere with the norms decided by the governing authority for the social and environmental benefit.
Capture theory:
It is only the turnaround of general society interest hypothesis that argues, no controls are required for guaranteeing the welfare of the people. Rather than presenting directions, this hypothesis lays attention on the working of the market powers with a specific end goal to fulfil the general premiums of the clients (Grillo, Einloft, & Seferin, 2017). Also, the standards of this hypothesis recommend that the controllers could control with the directions for guaranteeing their self-interest; thus, directions would not be suitable. This hypothesis is connected in the given circumstance, that the correct advance is gone up against the piece of the Australian government by not authorizing directions for advancing natural and social obligations in the Corporations Act (Gans & Ryall, 2017). Since directions are not there, there is no possibility for the controllers to control the same for meeting their self-interests.
Answer C:
After cautious evaluation of the given situation, it can be said that there is a certain regulation in the US Financial Accounting Standards Board (FASB). As per this direction, there is no requirement for the business associations in US to play out the system of asset revaluation. Rather, they are expected to consider those hindrance accuses related of their non-current resources (Michels, 2017). In this regard, it is essential to specify that some critical ramifications are natural on faithful portrayal and pertinence of the financial statement because of the asset revaluation norm that are portrayed as followed:
Answer D:
There are plenty of factors that acts as the motivation for the directors of the firms to revaluate their property. Key motivating factors that influence the directors to revaluate their assets are as follows:
a:
While the revaluation of the fixed assets procedure is under operation, directors need to perform revaluation of their assets frequently that provides them added benefit. Such revaluation enables the directors to have adequate information regarding the asset values (Borji, 2015). Proper knowledge regarding the property value enables the directors of the plants to bring in smooth performance as well as aid them during the course of merger, price negotiation and acquisition. Additionally it has been observed that frequent revaluation of the fixed assets aids the directors to achieve insight regarding the actual return on employed capital that help the director in policy making as well as smoothen the fund allocation in the firm.
b:
If the firms are not indulged in undertaking the decision of revaluating their fixed assets like, property, equipment, plant and others, then it would have provided much amount of impact on the financial statement as well as financial position of the firm. When the method of the revaluation is not enabled, property, equipment and plant are expected to elaborate or minimise their financial position that make the valuation improper (Tsalavoutas & Dionysiou, 2014). Thus, under this condition, there would be realisation of the abnormality in the revenue of the firms from its fixed assets, which can influence the selling or procurement decision of the firm. In addition to this, firm could expect to face reduction in overall earning over the time if the firm fails to perform revaluation of their fixed assets. With the fall in the income level, it would impact the profit and the share price of the firms, which will ultimately cause undesirable performance of the firm.
c:
The capital market efficiency aid to drive the verdict related with the revaluation. In case of the lack of efficiency in the market, price of the stock of the firm would denote information that is provided in the annual reports of the firm (Watts & Zuo, 2016). The reduction in the asset per share of the firm can be considered as the stock price. However, higher reported income of the firm might guide in offsetting the share price. The decision of refraining from the revaluation of the asset provides negative impact on the shareholder and the repercussion impact of the same makes the shareholders impacted by the decision of the firm. During the time of the no revaluation of the fixed assets of the firm, profit level of the firm is expected to fall by a large extent (Fisch, 2015).
As the firm face reducing profits through their endeavours, the share price return will also be reduced because of fall in the price of stock of the firm. Under this condition, it would limit the overall return of the investment to the shareholders affecting the wealth of the same. To conclude, it can be said that, fall in the share price would reduce the financial position of the firm as well as reduce the balance of the shareholders assets too.
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Fisch, J. E. (2015). The Mess as Morgan: Risk, Incentives and Shareholder Empowerment. University of Cincinnati Law Review, 83(1), 651–686.
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