Qualitative Characteristics of Financial Reports under International Financial Reporting Standards
Discuss about the Deliberative Theory of Interest Representation.
The discussion deals with the issue that has been presented in given question states the fact that International Financial reporting Standards adoption by the companies that are listed enables them to enjoy certain advantages that have resulted in the quality improvement of the financial report. In other terms it can be said that the accounting standards had been instituted with the objective of establishment of the point that the business organizations have made the preparation of the statements of accounting for the ease of the third party investors and the other business stakeholders (Ghani and Muhammad 2016). The quality improvement of the statements of accounting and the sense of a clarified image or information in regards to the particular business has helped the stakeholders in taking the prospective economic decisions. However, there have been certain opinions regarding the fact that the effects International Financial Reporting Standards adoption is having a negative influence. In other terms according to the experts the financial report which has been structured according to the International Financial Reporting Standards, has caused a large sum of amounts of money requirement especially in the preparation of the reports accounting statements as per the norms established by the regulatory body of accounting (Kleven, Kreiner . and Saez 2016). On top of that individuals engaged in the financial reports preparation have also been of the opinion that the adoption of the International Financial Reporting Standards have also led to the many annual report disclosures of the business organizations that are not required (Gilens and Page 2014). This has also increased the report volume and the financial information that has been reflected has become more complex.
The financial reports qualitative characteristics that can be recognized in order to comply with the International Financial Reporting Standards are the qualitative characteristics of understandability, relevance, faithful representation and timeliness. A point must be noted in this context is that the standards of reporting that have been further exploited or have led to the ruination of the financial report quality. For this the evidence is from the point that the faithful representation’s qualitative characteristics has replicated in the disclosures overload in corporate entity’s annual report (Horton 2018). This has also led to the increase of the accounting statements complexity and has given rise in the difficulty of the stakeholders or the third party investors of the business during the interpretation of the financial information from the annual report. One of the qualitative characteristic of relevance has also let to the enhancement of the chances materiality or misstatement accounts books. Consequently, relevance is a qualitative characteristic that have spoilt the accounting statements quality of the business organization (Pappadà and Zylberberg 2015). The other qualitative characteristic that is the quality of understandability has also resulted in the increase in the disclosures volume and declarations in the company’s financial report. This has unreasonably lengthened the financial report, enhanced the complexity and further resulted in the disclosure of the unnecessary information by the third party investors and the business stakeholders. In addition to it the reporting standards compliance have contributed in investment of a huge sum of money. In other terms the International Financial Reporting Standard compliance has led to the increase in the business entity’s operating cost. Finally, there comes the qualitative characteristic of timeliness have also further increased the difficulty of the accounting statements of the corporate entity (Keynes 2016). Hence, the International Financial Reporting Standards essentiality have been pointed out in this particular answer and it can be concluded that there have been various benefits of this standard of reporting, however there have pointed out several limitations that are needed to be overcome by the business entities.
Theories and Regulations related to Corporate Social Responsibilities
In the current question the issue that has been represented highlights the fact that the statements of accounting or the financial reports that are prepared by the corporate entities have been carried out in compliance with the Corporations Act. The major criteria that the business entities must be followed with is the Corporations Act.
In other terms the Corporations Act points out the vital necessities that must be followed by the business entities based on the fact that the annual financial report of the companies that have been prepared reflect the major qualitative characteristics like comparability, timeliness and other vital qualities of Corporate Reporting (Mansbridge 2018). Also the Corporations Act points out the regulations according to which the corporate social responsibilities should be carried out by an entity. In the discussion the focus is on the point that the investigation of the Corporations Act that had been conducted did not result in the addition of any further legislation to the Act and the judgment that had been passed was that the regulation regarding the corporate social responsibilities of the business organization’s would be reliant on the characteristic of the forces of the market (Chaffee 2015).
The explanation can further be extended on the basis of the theories that have been mentioned in the question, the theories are as follows:
Public Interest Theory – The theory of public interest includes the specific theory that represents the point that the operations of the business organization must carry out in regards to the public welfare. In other words it can be said that the theory of public interest has been prepared supporting the public and represents the element that the business organizations should carry out the vital operations with the motive of the public welfare. The Business organization’s identify and analyze the environment of the business surroundings where the company is engaged. Hence, public interest theory adaptation will contribute in corporate social responsibilities automatic regulation of the corporate entity who have adopted. This is due to the workings of the organization that will be headed towards with the motive of public social welfare (Miller and Shawver 2016).
Capture Theory – The capture theory implies the theory that the business organizations have been dealing in a specific industry will contribute in the operation regulation of the industry. In other terms the bulk of companies who are dealing in the same industry will eventually capture the market and led to regulations guidance exists in the specific industry (Berry and Wilcox 2018). For example, the energy industry might consist of a bulk of companies that operate and carry out the similar level of corporate social responsibilities. Again, a specific regulation standard regarding the corporate social responsibilities may be present in the market, but all the organizations of the same industry who are adopting a similar kind of corporate social responsibilities will contribute in the framework of the social responsibility in a similar way. Therefore, the forces of the market control the capture theory regulation. Hence, it is fully matched according to the requirement that has been presented in the question that the legislations in regards to the corporate social responsibilities will be managed by the forces of the market (Scott 2015). The capture theory regulation will alter the structure of corporate social responsibility in technique that ties with the present market requirements, resulting in the market forces adherence.
Impact of Compulsory Rules on Qualitative Characteristics of Financial Reports
Economic Interest Group Theory – The theory of economic interest group is more r less similar to the public interest theory. It can be said that the economic interest group theory highlights the specific processes in which the workings that are being implemented by the business organizations to maintain the well-being and welfare of the economic groups are taking place (Robson, Young and Power 2017). In the context the economic groups is the group that indirectly or directly impacted by the operations of the corporate entities. The compliance with the economic interest group theory will contribute in the carrying out of the corporate social responsibilities that should be carried out by the entities. The theory of economic interest group is implemented by the business organizations with the motive of making the corporate social responsibilities of the companies simple and easy. The theory of economic interest group additionally supports the corporate social responsibility framework regulation with the help of the forces of the market by making it mandatory for the entities to implement the operations that will enhance the working environment and the group of economic interests. Hence, the conclusion can be made from the understanding that the companies that who are implementing the theory of accounting regulation will led to the formation of the framework of corporate social responsibility that the market forces regulates.
There has been a representation of the issue in the question that highlights the point that the Financial Accounting Standards Board of US does not allow the non-current assets revaluation to fair value, but it is not mandatory to account for the costs of impairment attached with the non-current assets. This is according to the “FASB Statement No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets” (Weber 2014).
In addition to it question has been raised on whether the compulsory rules have impacted in the qualitative characteristic of relevance and representational faithfulness or not. It has definitely influenced the qualitative characteristics of the financial report prepared by the business organization (Beatty and Liao 2014). This for the reason of the point that the entities that have been delivering a particular standard should have also mentioned the loss or gain of the impairment of the corporate entities financial statement. Again, as the method of impairment has not been stated in the statements of accounting of the business originations, this makes the users of the financial statements accounting statements confused as they may find no basis of the impairment loss or gain (Kleven, and Saez 2016). Therefore, it can be mentioned clearly regarding the qualitative characteristic of relevance has been hindered in such an action. It can be identified that the reason to be that the users of the financial statements find no resemblance in the disclosures regarding the loss or gain impairment and may contribute in the increase in the difficulty of interpreting the annual report that organization prepares. Additionally, such a technique also enhances the probability of material misstatement occurrence in the books of account. In the accounting statements no particular disclosure has been provided in the annual report of the listed corporate organisations of UK (Arnold and Kyle 2017). Moreover, it also makes it complicated the process of financial reports accounting statements preparation. The accountant has to carry on with the standard of current accounting with the standards of accounting that has been instituted by the FASB. Therefore, it can be clearly mentioned that the qualitative characteristic of financial reporting that deals with the particular quality of representational faithfulness also has been disturbed by this specific practice (Wong and Yeung 2014). Therefore, it can said that here that the adherence to the norm established by FASB results in the non-compliance with the vital financial report qualitative characteristics.
In the given question the issue that has been raised refers to the point that many directors options of not to valuing the assets like plant, property and equipment at fair value and chooses to measure or value the assets based on the cost model. The directors do not choose for assets like the property, plant and equipment asset revaluation for the point that the process of revaluation may contribute in a loss that will positively be represented in the statements of accounting of the business organization and will lessen down the profit that has been earned by the corporate entity throughout the financial year (Abdel-Maksoud, Cheffi and Ghoudi 2016). This will additionally result in the lessening the value of the firm’s goodwill regarding the market in which the operation is being taking place.
The statement of Accounting as mentioned previously impact on the financial statements is that the profit would lessen in case of an impairment gain and the profit would reduce in case of an impairment loss in regards to the asset valuation.
The verdict of not making revaluation of the property, plant and equipment will impact the shareholders wealth financial position true reflection of the business organization will not be represented in the company’s annual report
References
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