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ACC 518 Current Development In Accounting Thought
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ACC 518 Current Development In Accounting Thought
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Course Code: ACC 518
University: Charles Sturt University
MyAssignmentHelp.com is not sponsored or endorsed by this college or university
Country: Australia
Question:
The CEO has forwarded to you an interesting article and requires you to provide her with a deeper theoretical understanding of the issues discussed so that she can fully engage in the lively discourse at an upcoming conference.
Answer:
There are lot of exposure drafts that are circulated in the professional websites and people are asked to give their opinion on that and what they think about the things that the draft exposure is stating. When it comes to dealing with challenges and opinions, draft exposures are a great way for the authorities to understand how the companies and professional are conceiving the latest amendments that are made by them. It can also be seen that it is helpful for the authorities in many ways as they can analyze all the opinions on such drafts and then decide what they want to publish and implement. Exposure drafts are a brief description of what the authorities are planning in respective accounting fields and provides the details of amended changes in a very brief manner (Abdullah & Said, 2017). In the given assignment one of such draft exposure that was published on the website of the IASB has been taken into consideration and has been discussed and all-important points that are related to that along with analysis of the comments that are made on that draft exposure has been stated in the given assignment.
Introduction
There are many exposure drafts that are there and people have a choice to comment on them based on their agreement or disagreement to the proposed changes. In this assignment the draft exposure that has been initiated in the context of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors is a point of discussion for the authorities. The article helps in stating the difference between accounting estimates and accounting Policies so that stakeholders have clear knowledge about that, and they know what is the implication of their application on the overall accounting that is done by the companies (Alexander, 2016). It is very important that accountants and professionals should know what accounting policies and accounting estimates are as they are people who deal with the preparation of the financial statements, if they are not aware then there are high chances of misstatement
Key issues reported in the exposure drafts
As per the exposure draft, accounting estimates are those items that affects the item of the profit and loss account directly and are material in nature and whenever the management makes an accounting estimate they need to state it clearly in their notes to account. Accounting Estimates includes items like method of depreciation, rate of discounted cash flow, method of valuation of the inventories etc. They have clear impact on the material type of the companies and hence they need to make sure that the accountants are well-versed with them else it will cause errors in the books of account. Accounting policies on the other hand are the rules and guidelines that guides the way companies should prepare the books of accounts for the company. It is important that rules and regulations should be followed because in case they are not followed then that might lead to major discrepancies and the management would be held responsible for the same. Therefore, both accounting estimate and accounting assumptions are important for the companies and both cannot be ignored and the companies need to follow them properly (Bouret, 2017).
There are large number of accounting theories that can be linked to the issues which are found in this article. Few of these involve Normative accounting theory, standard-setting process and international accounting. There are various rules and regulations that companies need to follow for the valuation of the asset or liabilities, as we see that different ways are there in which different assets are valued, some are valued at historical cost or fair value cost of accounting and that represents the normative theory.
Agreement and disagreement between the parties
There are few comments that the professionals have stated for the following exposure drafts-
Australasian Council of Auditors-General (ACAG)
2. Financial Reporting Council (FRC) [UK]
“Exposure Draft and comment letters—Accounting Policies and Accounting Estimates (Amendments to IAS 8)” (Eddy, Filip,R, & Warlop, 2004)
Nnadi Uchenna
“Exposure Draft and comment letters—Accounting Policies and Accounting Estimates (Amendments to IAS 8)” (Ghofiqi, 2018)
The Institute of Certified Public Accountants in Ireland (CPA Ireland)
“Exposure Draft and comment letters—Accounting Policies and Accounting Estimates (Amendments to IAS 8)” (Golden, 2006)
Analyzing the various comments that have been presented above, it can be said that most of the professionals and institutes have advocated the proposed changes and are ok with it. But there are few changes that they have stated and want the authorities to take care of that. Nnadi Uchena has stated that there are various accounting methods and accounting estimates that the companies need to follow. There are measure of costing which are adverse and it depends on companies to companies on how they are following it. Basically, the aim is that accountants and the stakeholders should understand that the basic difference between the accounting standards and accounting estimates and they should apply it accordingly. All the above comments have agreed to this amendment but there are few changes that they want and the authorities should consider it accordingly (Iggers, 2018).
Arguments ‘for’ or ‘against’ regulation
Most of the amendments that have stated in the following draft exposure are for the betterment of the conceptual reporting framework that companies need to follow when they are applying their financial statements. These methods make it clear what are the overall differences between accounting regulation and accounting estimates. If one is applied in place of another then that may affect the basic accounting guidelines and can make the financial statements materially misstated and thus the authorities have proposed such changes and the management needs to make sure that professionals have proper knowledge about that so those can be the ‘for’ reasons (Gullet, Kilgore, & Geddie, 2018). But there are lot of complexities involved and there is a thin line between accounting regulation and accounting estimates and sometimes both need to work in combination for the betterment of the accounting framework (Johan, 2018). So, given the complexity involved these amendments are not enough to make the professionals realize and make them understand the difference between these aspects of accounting so they are not complete and thus not that helpful as they have mentioned.
The main aim of these amendments is that they should not cause any material misstatement and cause undervalue or overvaluation of the assets and liabilities and thus the investors should get the correct picture about the position of the company and their financials.
Application of regulation theories (Public interest, private interest and capture theory)
Public Interest theory
The given amendments are in the pretext of the public as common people are not aware about the differences between the accounting estimates and accounting policies. The common people needs to analyze the annual reports to understand whether they need to invest in the company or not based on their overall financial statements (Kusnadi & Wei, 2017).
Private Interest Theory
It helps in stating the needs of the stakeholders and aims at wealth maximisation of the shareholders by transferring them maximum interest for their investments. (Charles H, Giovanna, Dennis M, & Robin W, 2015). It is important that the stakeholders needs to understand what are the areas in which they need to invest and what are the areas in which there might be some element of risk involved. Thus we see it helps in improving the overall efficiency of the stakeholders (Lepistö & Ihantola, 2018).
Capture Theory – As per the capture theory the amendments are made to capture the needs of the parties that are affected by it. So in this case also these topics are related to the shareholders, investors and other parties and thus the capture theory can be applicable as these changes are regulated towards them and they can use it for their betterment.
Evaluation of underlying assumptions and assumptions of the theories of regulation
The IASB has issued these amendments so that common mistakes that they see in the financial statements of the companies can be reduced and people need to have common knowledge about the various aspects of the accounting regulations and accounting estimates. Thus that is the basis which aims the company needs to follow (Ruth, 2018). It is very important that financials are prepared to the best of ability of the financial framework and the management of the company and take important decisions that are based on that. It is important that regulatory procedures needs to be followed and proper disclosures need to be given in the books of the company and thus we see that accounting disclosures helps in bringing the company to the best of their ability (Belton, 2017).
References
Abdullah, W., & Said, R. (2017). Religious, Educational Background and Corporate Crime Tolerance by Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, 129-149.
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.
Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
Bouret, I. (2017). Benefits of higher education in mid-life: A life course agency perspective. Journal of Adult and Continuing Education, 23(1), 15-31.
Charles H, C., Giovanna, M., Dennis M, P., & Robin W, R. (2015). CSR disclosure: the more things change…? Accounting, Auditing & Accountability Journal, 28(1), 14-35.
Coate, C., & Mitschow, M. (2017). Luca Pacioli and the Role of Accounting and Business: Early Lessons in Social Responsibility.
Eddy, C., Filip,R, & Warlop, L. (2004). The Value of Activity-Based Costing in Competitive Pricing Decisions. Journal of Management Accounting Research, 16, 133-148.
Ghofiqi, M. (2018). FORMATION OF VIEWS AND INTERESTS TO THE ACCOUNTANTS PROFESSION IN MASTER OF ACCOUNTING STUDENTS OF JEMBER UNIVERSITY FORCE OF 2016 USING STRUCTURATION THEORY ANALYSIS. THE 3RD INTERNATIONAL CONFERENCE ON ECONOMICS, BUSINESS, AND ACCOUNTING STUDIES.
Golden, T. W. (2006). A Guide to forensic accounting investigation. Hoboken: Wiley.
Gullet, N., Kilgore, R., & Geddie, M. (2018). USE OF FINANCIAL RATIOS TO MEASURE THE QUALITY OF EARNINGS. Academy of Accounting and Financial Studies Journal, 22(2).
Iggers, J. (2018). Good News, Bad News: Journalism Ethics And The Public Interest.
Johan, S. (2018). The Relationship Between Economic Value Added, Market Value Added And Return On Cost Of Capital In Measuring Corporate Performance. Jurnal Manajemen Bisnis dan Kewirausahaan, 3(1).
Kusnadi, Y., & Wei, K. (2017). The equity-financing channel, the catering channel, and corporate investment: International evidence. Journal of Corporate Finance, 47, 236-252.
Lepistö, L., & Ihantola, E. (2018). Understanding the recruitment and selection processes of management accountants: An explorative study. QUALITATIVE RESEARCH IN ACCOUNTING & MANAGEMENT.
Ruth, W. (2018, September 20). ‘Worrying’: Companies’ reporting of climate risks goes ‘backwards’. The Sydney Morning hearld.
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