Qualitative Characteristics of Financial Reporting under IFRS
A criticism for IFRS and their constructed financial standards have been seen by reading the article “Unwieldy rules useless for the investors” and the criticism is done with respect to the domain of accounts. Kim, Shi and Zhou (2014) explained that one of the effective techniques that is used for the purpose of accounting has been financial reporting as this process is an extensive one with the help of which valid and effective information can be attained with the help of which the decisions related to the investments can be undertaken, construction of the future cash flows are easy to prepare and even supports in the assessment of the alterations that are taking place in the business model.
The conceptual model is known to be the layout that is associated to the financial values and standards, which are to be given out. Leuz and Wysocki (2016) explained the features of the framework that are in nature qualitative and they have been explained as follows:
Relevancy: It is seen that the financial statements requires to have the information that are valid and precise and therefore the data that is not required on the part of the investors may not be disclosed in the statement.
Comparability: Comparability is essential in order to evaluate the performance of an organization in a precise way in order to understand that the aspects that are present needs have the capability in order to undertake a comparison with one another. This has been explained in order to have an understanding of the fact that the features that have been explained can be evaluated in a simple way in order understand the similarities and the variances (Tschopp and Huefner 2015).
It becomes pertinent for the various kinds of financial reports to display an ethical explanation all the aspects to the stakeholders. They need to have the potentiality to generate precise and valid data to the financial report users.
The data needs to be freely available to the various member of an organization within the stipulated time frame and from the correct aspect in order to assist them in undertaking decisions in a precise manner with respect to given aspect (Richards and van Staden 2015). The financial reports needs to be transparent and understandable properly in order assist the users with the idea about the information that is available within it.
In case the statements that have been explained are not adhered effectively, the entire intention for framing the financial statement becomes ineffective.
The article that has been taken into consideration addresses the fact that the aspects that have been explained are vital, but in the current scenario with regards to the standards of reporting from the companies, these aspects are not followed with respect to the area of IFRS (Christiaens et al. 2015). The article has provided the facts that the changes that have been constructed by IFRS are not effective for the investors and therefore the financial statements mislead the investors. It has been even addressed that the financial statement layout is ineffective and inappropriate in order to undertake a comparison as well. The article has even expressed the fact that the financial statements of the companies needs to have all the aspects that have been explained in the conceptual framework in order to assist the investors in respect to the decisions they want undertake with respect to the equities, assets, costs and liabilities.
Decision on Corporate Social Responsibility Regulations
Therefore, the document is an evidence of the faults that are present in the construction of the financial statements and therefore addresses the areas that are need of assessment and thereby support in the understanding of the faults that are present in the reports in accordance to the current system of reporting.
The initial estimation which is the basis on which Public Interest Theory has been constructed has been the market of economy within the organizations performs are fragile and inconsistent and therefore look to deviate from the process within which they are looking to function in the economy. The market needs to be liable for the wellbeing of the community but it is seen that they are more associated to taking care of the demands of the individuals. The intervention from the government is considered to be a corrective initiative and this plays a fundamental role in order to assure that such mistakes do not occur (Frias?Aceituno, Rodríguez?Ariza and Garcia?Sánchez 2014). The theory that is related to the interest and the welfare of the public was initiated by the well known economists in the year 1932. This theory explains that anything related to public that would cause an issue will be created as a complaint and therefore this would compel the government to establish new rules and regulations which would be helpful in generating a control on the mal practices and the immoral practices that is undertaken by the companies. The regulatory committees are constructed inn order to take care of the community. The other theory was proposed by Stigler and this one is contrary to the one that was constructed by Pigou and defines the fact that policies can only occur when the community addresses their issues and concerns in relation to the resource distribution, which found to be effective. In accordance to this theory, the policies are utilised by the private organizations in order to limit the extent of competition (Lang and Stice-Lawrence 2015).
It become essential that in order to provide the benefit of all the parties, the firm exhibits the non-financial as well as the financial data, which would helpful in the creation enhanced relationships. Therefore, this theory concentrates over the area that the legislations requires to be sanctioned that would enhance the concentration on the disclosure of the elements that are non-monetary as well. In addition, this kind of style of documenting requires to give out sufficient data regarding the steps and the operations that are used by the concerned firms in order to surpass the damage that was done over the society (Marzuki and Wahab 2016). The government can even provide a contribution in order to make the process a clear one and thereafter disclosing in the internet.
The concerned theory explains the fact that the labours who have authority on the government and they function with the intention of taking care of the interests with the special issue to the sector that is concerned. These labours look to operate in accordance to the interest with respect to the level that they can go through and thereby look to endanger the requirements of the community. This kind of manipulations looks to have an effect on the demands of the community which have not been satisfied (Acharya and Ryan 2016). The theory that has been taken into consideration explains that the various industries and the government bodies are given out with the obligation to monitor the various demands of the community and to make sure that the companies are not harming the entities harmfully. Conversely, this does not become successful in scenarios where there are various kinds of employees in an industry that have a relationship that is positive in nature in accordance to the employees who are within the regulatory agencies of the government.
This can take place as it becomes very simple to induce the employees functioning in the government bodies they are easy to bribe and they have the authority to construct several kinds of policies and laws (Hanlon, Hoopes and Shroff 2014). These policies and laws ascertain the success of the organization and therefore, it is in their possession to construct an optimal standard of the functional activities and therefore it becomes essential for the bodies to display proficiency and honesty in accordance to the level of work. It is seen that in practicality this is not possible.
This is authentic for the companies and it is seen that the industries mostly comprises of a number of employees who are obligated and have knowledge about their duties. In most of the conditions, it occurs that the government bodies may face some past experiences in the companies or even want to a section of the future and therefore they act as informers in order to undertake favours (Tschopp and Nastanski 2014). This is the circumstances when it can be said that the government is withheld by the employees of the industry.
The economic interest theory sheds light in the significance of creating the distinct groups in the companies. It has been defined that this theory that the groups have been created with the intention of creating competition and thereafter act accordingly in order to put a stress on the government in order to make sure that some of the legislations are created which rule in their favour. The essential feature of the group has been that they are not concerned by the community but are only thoughtful about their own issues (Gassen 2017). It is seen that the government even does not display any worries about the various member of the public but surrender to the stress that is being put on by the economic group with the idea of getting selected again. These groups have adequate economic authority with the help of which they are able to put in pressure. Therefore, in accordance to the theory, the actions that are fraudulent in nature undertaken by the organizations may never be known as they have already created a government which construct their plans accordingly. It is seen that this theory acts as the base of the ferocious cycle of the companies and the government.
In accordance to the “Accounting for the Disposal or the Impairment of Long Lived Assets” that is seen in the FASB Statement No 144, there has been an explanation that the organizations are not permitted to reassess their assets but needs to consider the cost of impairment of the various assets that are non-current in nature which are existent in the balance sheet. The set of rules that are provided has the intention of making sure that the process is able to provide significance and display the truthfulness in accordance to the corporate financial reports of US. The set of rules can have negative effects on the firms with respect to the fact that the costs related to impairment will be mitigating the profits for a firm (Garrett, Hoitash and Prawitt 2014). The profit that has been disclosed in the financial reports of the firm look to alter when there is an existent of these effects on the expenses. It is seen that the expenses of the firm will not have an impact in practicality, the balance of cash remains unaltered but it looks to display the effects that are negative in nature over the investors who undertakes investment over a specific organizations.
It is seen that these aspects assist the companies to stay in line with the various accounting concepts that requires to be maintained in order to keep up with the financial report integrity. Christensen et al. (2015) explained that the principles that have been taken into consideration provide a better image to the firms with respect to the activities that are ongoing. The investors now can have effective knowledge of the companies with the help of these operations. By looking into it in the historical progress is not looked upon in the financial reports. The transformations that occur is known to be the value of the assets. Therefore, this can be marked as the negative effects of the FASB of US on the truthful presentation of the financial reports in US.
The factors that lead to the revaluation of the assets have been explained as follows:
- Revaluation is undertaken in order to reflect and explain the fair and true value of the various assets
- The rate of return in accordance to capital has to be employed
- During the time of selling the method of a specific asset undertakes
- At the time of negotiating of the asset pricing prior to any kind of mergers taking place
- To enhance the debt to equity ratio of a company
It is seen that the given process id advantageous, it is seen that several companies does not have the desire to initiate the asset revaluation for several factors and therefore look to make use of the cost framework and they are as follows:
- Mitigation of the investor satisfaction due to the fall in profits
- The point of view of the historical expenses is not found in the condition that is provided
- The liquidity of the asset value increases
The assessment of these reasons comes with the conclusion that the directors of the company are not influenced in revaluing their equipment, plant and property.
In circumstances, when the companies are not valued on a timely manner, there can be numerous results. The significant disadvantages have been that the financial reports will not show a true value of the company (Rensburg and Botha 2014). The other aspect has been that the capital rate that has been used may not be correct. The next aspect has been that the debt to equity ratio will be inaccurate and would be more than the standard rate. Finally, the various steps of success that include gross profit margin and net profit will not be accurate in circumstances when the revaluation and the impairment do not take place.
It is seen that the share price of the companies is reflected on the financial reports when the capital market is not adequate. The transformations in the share values may be because of the altering asset value (Flower 2015). Therefore, it can be said that in circumstances where the capital market is not effective, then the revaluation of the asset may have some or no level of impact on the share prices and the income that belongs to the various kinds of stakeholders and investors.
Reference List
Acharya, V.V. and Ryan, S.G., 2016. Banks’ financial reporting and financial system stability. Journal of Accounting Research, 54(2), pp.277-340.
Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.
Christiaens, J., Vanhee, C., Manes-Rossi, F., Aversano, N. and Van Cauwenberge, P., 2015. The effect of IPSAS on reforming governmental financial reporting: an international comparison. International Review of Administrative Sciences, 81(1), pp.158-177.
Flower, J., 2015. The international integrated reporting council: a story of failure. Critical Perspectives on Accounting, 27, pp.1-17.
Frias?Aceituno, J.V., Rodríguez?Ariza, L. and Garcia?Sánchez, I.M., 2014. Explanatory factors of integrated sustainability and financial reporting. Business strategy and the environment, 23(1), pp.56-72.
Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal of Accounting Research, 52(5), pp.1087-1125.
Gassen, J., 2017. The effect of IFRS for SMEs on the financial reporting environment of private firms: an exploratory interview study. Accounting and Business Research, 47(5), pp.540-563.
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Kim, J.B., Shi, H. and Zhou, J., 2014. International Financial Reporting Standards, institutional infrastructures, and implied cost of equity capital around the world. Review of Quantitative Finance and Accounting, 42(3), pp.469-507.
Lang, M. and Stice-Lawrence, L., 2015. Textual analysis and international financial reporting: Large sample evidence. Journal of Accounting and Economics, 60(2-3), pp.110-135.
Leuz, C. and Wysocki, P.D., 2016. The economics of disclosure and financial reporting regulation: Evidence and suggestions for future research. Journal of Accounting Research, 54(2), pp.525-622.
Marzuki, M.M. and Wahab, E.A.A., 2016. Institutional factors and conditional conservatism in Malaysia: Does international financial reporting standards convergence matter?. Journal of Contemporary Accounting & Economics, 12(3), pp.191-209.
Rensburg, R. and Botha, E., 2014. Is Integrated Reporting the silver bullet of financial communication? A stakeholder perspective from South Africa. Public Relations Review, 40(2), pp.144-152.
Richards, G. and van Staden, C., 2015. The readability impact of international financial reporting standards. Pacific Accounting Review, 27(3), pp.282-303.
Tschopp, D. and Huefner, R.J., 2015. Comparing the Evolution of CSR Reporting to that of Financial Reporting. Journal of Business Ethics, 127(3), pp.565-577.
Tschopp, D. and Nastanski, M., 2014. The harmonization and convergence of corporate social responsibility reporting standards. Journal of Business Ethics, 125(1), pp.147-162.
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