Global Accounting Theory and Analysis †Free Samples to Students

Question: Discuss about the Global Accounting Theory and Analysis. Answer: Introduction The report in consideration was published by Grant Thornton Ltd which is one of the leading financial advisory firms in Australia acclaimed all over the world. It discusses in details the new and changed Standards in accounting applicable in Australia. Besides that, it also throws light on other significant developments in financial reporting. These changed requirements for accounting procedures are mandatorily applicable for the annual or half-yearly business periods ending in June 2017. These changes would have a substantial impact on the accounting reports from the different corporations operating in Australia(Devine, Hendrickson and Williams, 2004). All the relevant developments as well as pronouncements made till the publication date of the report, that is, 7th April, are also included in the discussion. The new standards also set certain requirements of the lessees regarding their leases. According to such standards, the tenants would require accounting for the leases on standa rd financial documents by the recognition of an asset of right of use type. Description of the major issues in the article The report discusses the amendments that would have significant impacts in the system of accounting applicable to companies operating in Australia. They would also have a considerable impact on the different entities or stakeholders operating within an organization. Thus it excludes many other revised standards which would be effective for the periods ending on 30 June 2017. This is owing to the reason that the latter are not likely to have any notable impact on the organization(Fischer, Taylor and Cheng, 2010). The following are the more significant and relevant amendments among those mentioned in the report: The first notable change is that in the requirements that exist for reporting on financial terms by plans of superannuation. The amendments are applicable to large entities for superannuation which is controlled by the Australian authority for prudential regulation (APRA) and the public sector entities for superannuation(Flower and Ebbers, 2002). The report says that the changes are expected to bring about significant reversals relevant measurements and disclosures in the financial statements of such superannuation entities. The next most significant change discussed in the report is that on the accounting amendments relating to interest acquisitions in joint operations. The amendments state that any acquirer of such an interest should apply all principals in accounting for business combinations in AASB 3 and other such standards except principals which are not in accordance with the rules of AASB 11. This would lead to the acquirer retaining joint control in the operations(Godfrey, 2010). Another significant amendment is that relating to the method of depreciation applied for property, equipment, and plant. The amendment prohibits the use of a method which is revenue-based. The amendments also provide advice on the application of the method of diminishing balance for types of equipment, property, and plant(Horngren, 2011). The changes prescribed present a presumption that revenue-based method for amortization of assets of intangible nature is inappropriate. The inappropriateness can only be overcome in the case of two situations. The first is when any asset which is intangible, is expressed as a means of measuring the revenue. The other situation is when the revenue and economic benefits derived from the intangible asset can be shown as being correlated. Theories linked to the article The Australian commission for securities and investment (ASIC) is still left to make the announcement on its areas of focus for the reports for 30 June 2017. They are however expected to be similar to the focus points of the ASIC for December 2016(Horngren, 2013). Likely, the areas of focus would be: Testing of impairment and value of assets The arrangements for the matters off-balance sheets The recognition of revenue The deferring of expenses The accounting of taxes Estimates and judgment of accounting policies The effect of new revenue, standards in leasing and financial instruments Global Entities all set to present financial statements for general purpose An amendment was made to the tax law and was passed by the parliament in 2015. The amendment was made in the Act for administration of taxation. It required corporate entities for taxation having a global standard to prepare and present financial statements having a general purpose. The presentations required approval of the ASIC and recorded on the organization's publicly accessible register(Kew and Watson, 2012). The amendment applies to the income years which commenced after July 2016. For any entity to be of a significantly global standard, certain requirements need to be fulfilled. They are as follows: An organization is considered global entity, if the parent entity records an annual income of A$ 1 billion or greater than that. A member of a group comprising of entities is consolidated for the purpose of accounting, and one among the remaining members has an annual income of A$ 1 billion or greater than that. The report points out that there are yet some doubts that need to be cleared about how this legislation is to be implemented. There are some unclear areas in the following cases: What global income means(Kieso, Weygandt and Warfield, 2010). The meaning should be more explicitly asserted, as it the current definition suggests Whether the statements of financial matters prepared with the help of Australian requirements for disclosure will be accepted or not. The acceptable standards for accounting applicable other than the Australian standards. The status of those entities that presently meet the requirements for relief in the ASIC Orders. The status of large proprietary service companies which are grandfathered. These matters are now being introspected for the purpose of obtaining more clarity. The ATO is engaged in this process which is critical to achieving perfection in the matters related to accounting. A consultation paper was issued by the ATO corresponding to which there were comments by the public(Libby, Libby and Short, 2014). Applying the theories to the major issues in the article After the continual of the project for ten long years for overhauling the requirements of income for organizations of the non-profit category, a new set of revenue requirements have been issued by the AASB. The newly established requirements of income will hopefully result in improved matching of the income and other related expenses. This is because the recognition of the income will now face will be deferred when there is any obligation regarding performance or some other liability(Schroeder, Clark and Cathey, 2011). If any donation or any grant is received by an entity which is a not-for-profit type and has a specific obligation for performance, the revenue will be recognized by the entity when the performance obligation is fulfilled. The current requirements, which differ from this, force the recognition of income even though the entity has not5 fulfilled the obligation concerned with performance. On top of that, there would be more assets on record in the sheet of balance, as th e current requirements broaden theories of fair values on the initial recognition. The previously existing requisites in AASB 1004 have been replaced by the new standards(Schroeder, Clark and Cathey, 2011). Though still relevant, the AASB's scope has been slightly decreased for covering issues which are unique to certain departments of the governments. Accounting to the Australian accounting standard board the leases AASB16 which was published on 23rd February of 2016 can help to complete the long-running leases projects. The publication of the IFRS 16 was followed by the publication of the AASB 16. According to the Australian accounting standard board, the IFRS 16 will be applicable on the 1st January of 2019 by replacing the IAS 17 leases. For the reorganization of the "right-of-use" of assets and the liability of "on-balance-sheet" is accounting by the application of the new standard leases. Most of the companies under AASB which involve the leasing and the assets of the leases are majorly affected by the new standard(Scott, 2015). The main effecting changes are the annual reporting time will start after 1st January of 2019, various transitions will have reliefs. According to the report of International accounting standard board (IASB) which controls the replacement of the insurance contract of IFRS 4 which was published on Marc h 2004. As per the expectations of the AASB, the new standard will be able to eliminate the weakness of the insurance contract and including the principal based framework. The new leases will be expected to represent the comparability between the various insurances. There are also some new standards set on leases and insurance that have been described. These new changes would serve to bring about a positive change in the financial reports of organizations and would make the enterprises surge forward and achieve new milestones. The paper on consultation presented clearly, certain issues, but left several questions over other issues open. The final advice of the ATO will hopefully be released in the next few months. The newly prescribed standards will serve to discard the inconsistent features and other weaknesses in the practices that are existing in the current Standard. Things would be much less complicated since the new amendments are very clearly described, so as to eliminate any chances of confusion(Smith, 2011). The important amendments which would clearly bring about a change in the financial reports that organizations would prepare have been described above in details. The companies have to follow the accounting standards. The global accounting standards changes their rules and regulations for the welfare of the common people and also for the companies. The changes applied by the accounting standards need to be followed by the companies. To become more acceptable worldwide and to provide a unanimous and opposite solution to the global companies, the International Accounting Standard Board (IASB) has an intention to amend their accounting standards. Issues in the Exposure Draft/Comment Letters The amendment done as per this idea has been taken out to the public to seek a mass opinion about it by the IASB. This was done only to attain the perception of the mass about the proposed amendment. The changes made to the accounting standards were documented and exposed to the public. This was done to fulfill the purpose where the public could place their opinions over the document(Strauss and Woods, 2007). The changes that were made to the accounting standards are as follows. Standard Subject to amendment Sale of IFRS 5 Non-current asset and the discontinuation of its operations The proposal of disclosure is altered Disclosure of IFRS financial statement Contract service Changes applicable to IFRS 7 into a condensed interim financial statement. IAS 19 employees benefits Issues in local market, discounted rates IAS 34 Interim Financial Reporting Disclosure information not provided in interim report There was an issue detected with the amendments thus made, and it was found to be with the standards of the inventory. Furthermore, the changes set up by the IASB in their accounting standards has made some Australian companies upset as a result. Difficulties arose due to the new amendment for several companies(Waterston, 2006). This is because; the new inventory standard includes adding the inventory amount in the balance sheet in the standard cost. Normally, a company buys a stock, there are chances that the cost of the stock may fall during the years, as they are old, and the standard cost of them in the market is high. As a result, this may reflect a heavy adverse impact on the value of the stock or inventory on the financial statement of the company. Agreement/Disagreement by Respondents In Australia there are several companies testified to the fact that the new accounting standards are unacceptable as to the public, they display flawed information. The flaw in the new amendment is that it improves the value of the asset of the company. Naturally, in comparison, the value of the liability of the company is lessened. This change though brings about improvement in the financial performance but also misguides the investors by falsely attracting them to the company(Wolk, 2009). However, in the long run, they face severe loss. As a part of the disclosure framework project, the allotment for the proposed update is shown by the exposure draft of FASB. Primarily, the focus and objective of the explanation in the notes to the financial statements are to generate comprehensible information. It is specifically required for the people who use the financial statements of the company accepting the accounting principles. The effect of LIFO will generate the changes in the inventory balance and the qualification of cost type to capitalize into the inventory. Deloitte supports the effectiveness of the improvements of the disclosure in notes to the final statements by continuous efforts of FASB. This is evident by their comment letter for this (Kew and Watson, 2012). The board had proposed the aspects of ASU, and the company agrees with all of them. More emphasis is thus given to materialize the disclosures by the board. For the people who use the financial statements, the company stated detailed information of the req uirements for newly proposed disclosures. The company supports the effectiveness of the disclosure and is also of the belief of undertaking the cost examination but the board. The examination should be capitalized as the part of inventory and changing the cost to the goods sold. As per the accounting practices, the project should also be beneficial. Assumptions behind the theories of regulation It was evident from the public interest views that economic markets tended to function inefficiently since they are fragile, however, the public interests were given lesser importance. This stated that for regulating the economic market in a proper direction, there was a requirement only for the Government. For instance, to make the financial statements function for the society and mass, the proper regulations are made by the government. They also bring about alternatives in the rules and policies of the accounting standards to make them work for the welfare of the society(Waterston, 2006). According to the private interest theory, it has been found that only to satisfy their personal interests, an individual or a group carries out their works. It is also found that the private interests suppress the regulatory processes, what could have been for the public interests. It echoes the sole concentration of the powerful groups. Therefore, in the public interest theory, it is evidently seen that the regulatory works for the organizations' personal interest. From the capture theory, it is evident that to abide by the requirements the rules are mended only to fit the generated rules and regulations. The regulations are also concentrated in a single concerned industry for a given period. The intentions behind designing regulations are also clearly noticed as per the capture theory(Schroeder, Clark and Cathey, 2011). The individuals assigned for designing them hugely influence the formulation of the regulations. Ironically, the interest groups, as well as the politicians, generally represent the people developing the regulations. Theory that best explains Exposure Draft/Comment Letters The public interest theory clearly explains that the rules and regulations are implemented for the benefits of the public. The IASB has amendment the rules and regulations for the fair preparation of the accounting statements. In the comment letter, it is stated clearly that is proposes that the amendment should only be for the public. The disclosures in the notes to the financial statements shall get the information for the investors and stakeholders (Godfrey, 2010). These financial statements hugely benefit the users of the financial statement as they provide significant information to them. Conclusion The IASB even published samples of the proposed amendments to expose to the public as drafts specifying every detail of the pros and cons of the proposed accounting standards even describing why the changes were being made. As for instance, it is found that the IASB team documented about the issues regarding the accounting process and the claims to improve them. References Devine, C., Hendrickson, H. and Williams, P. (2004).Accounting theory. London: Routledge. Fischer, P., Taylor, W. and Cheng, R. (2010).Advanced accounting. Mason, OH: South-Western Cengage Learning. Flower, J. and Ebbers, G. (2002).Global financial reporting. Basingstoke: Palgrave. Godfrey, J. (2010).Accounting theory. [Sydney u.a.]: Wiley. Horngren, C. (2011).Cost accounting. Frenchs Forest, N.S.W.: Pearson Australia. Horngren, C. (2013).Financial accounting. Frenchs Forest, N.S.W.: Pearson Australia Group. Kew, J. and Watson, A. (2012).Financial accounting. Cape Town: Oxford University Press. Kieso, D., Weygandt, J. and Warfield, T. (2010).Intermediate accounting. Hoboken: Wiley. Libby, R., Libby, P. and Short, D. (2014).Financial accounting. Maidenhead: McGraw-Hill Education. Schroeder, R., Clark, M. and Cathey, J. (2011).Financial accounting theory and analysis. Hoboken, NJ: Wiley. Scott, W. (2015).Financial accounting theory. Toronto: Pearson. Smith, M. (2011).Research methods in accounting. Los Angeles: SAGE. Strauss, R. and Woods, R. (2007).One well. Toronto: Kids Can Press. Waterston, C. (2006).Financial Accounting. Pearson Education UK. Wolk, H. (2009).Accounting theory. Los Angeles, Calif.: SAGE. Comment letters. (2017).Cite a Website - Cite This For Me.Fasb.org. Retrieved 6 May 2017,rom https://www.fasb.org/cs/BlobServer?blobkey=idblobnocache=trueblobwhere=1175834682348blobheader=application%2Fpdfblobheadername2=Content-Lengthblobheadername1=Content-Dispositionblobheadervalue2=492161blobheadervalue1=filename%3DDISFR-INV.ED.018.DELOITTE_TOUCHE_LLP.pdfblobcol=urldatablobtable=MungoBlobs