The importance of qualitative aspects in financial reporting
The conceptual framework developed by “Australian Accounting Standards Board (AASB)” indicates that there are two qualitative aspects related with the financial reporting that are enhancing as well as important (Abdel-Maksoud, Cheffi and Ghoudi 2016). The fundamental qualitative characteristics are deemed to be relevance as well as faithful representation along with improving the qualitative aspects. Such features include timeliness, comparability understandability as well as verifiability. The financial statements value is enhanced in the existence of mentioned qualitative aspects for the users of the financial statements. The vital users of these statements include borrowers, investors, creditors and a few more. The explanation under indicates absence of qualitative aspects within the framework of financial reporting framework explained in the IFRS (Birkland 2015).
Every financial statement is necessary in attaining suitable qualitative aspect of understandability as such feature might improve the quality of overall financial statement. In addition, at the tine such aspect is present within the financial statements, it turns out to be simple for the users to classify overall financial information for the reason that depiction is made in a way that information concerning the recent financial position of the companies is offered to them. From the statements presented by finance head of AXA “Geoff Roberts”, the investors of the companies totally depend on the management report for obtaining suitable understanding of financial situations (Camfferman and Zeff 2015). Considering the same, the individual has indicated that there is less understandability factor present within the company’s financial statements developed in alignment with the IFRS. The complexity within financial statements might be recognized to be the major cause behind IFRS implementation. Conversely, it fails to offer necessary understandability factor within the company’s financial statements. Focused on this, it might be gathered that financial statements must have qualitative aspect of comparability and it is deemed to be an aspect of improving the qualitative characteristics. The function of this feature is to facilitate the users in recognizing the similarities and differences in the company’s financial statements (Villiers, Rinaldi and Unerman 2014). Considering the viewpoint presented by Terry Brown of Wesfarmers Limited, the financial analysts deal with the difficulties in analyzing the financial notes explained within financial statements of companies as this might interpret them because of lack in necessary technical know-how. Such situation indicates that the users of the financial statement need to include significant financial account based technical know-how. This is to make sure that financial notes might be developed in compliance with IFRS that can be easily interpreted. Hence, it might be stated that understandability and comparability is not present within financial statements developed under IFRS.
The impact of understandability and comparability on financial statement users
Faithful representation is deemed as a considerable qualitative aspect as it facilitates in offering useful financial information to the financial statement users. In addition, this specific aspect makes sure in confirming financial statements with the necessary principles and standards of accounting. Focused on viewpoint presented by David Craig “CEO of Commonwealth Bank”, the suitable overview of the company’s real financial situation might not be offered with support of financial statements developed in IFRS framework confirmation (Dutta and Patatoukas 2016). This has been the major cause for which investors might be suitable consideration of annual report in attaining important information for attaining suitable investment decisions. This explains the fact that faithful representation is not maintained in the company’s annual report as the absence of compliance does not offer better insight regarding the company’s financial situation. However, in such situation where this aspect is not present, it indicates that several elaborations are not suitable in consideration to a number of economic processes related with financial statements (Ehrenberg and Smith 2016). Such characteristics facilitate in increasing the scope of financial manipulation or fraud. Focuses on the major objective of AASB conceptual framework, necessary financial information must be offered to the users of financial statements in making sure that suitable financial situations as well as business performance is maintained. Such objective might not be addressed in case qualitative aspects of financial information are existent.
The decision of Australian government does not encompass regulations as per the Corporation Act that can be segmented by means of the below mentioned theories on regulation:
- Public Interest Theory:One of the major principles related with the public interest theory is to put increased reliance on addressing the public demand and interest by means of developing regulations (Ghani and Muhammad 2016). Such theory is observed to have increased relevance to offer theoretical justification to all the regulations that is disclosed for use by common public. Such reason contributes in developing regulations in having a considerable role to resolve the market concern. For this reason, focused on such theory, the market forces facilitate in making sure the public welfare through initiating certain regulations. The implementation of such theoretical concept is focused on government necessity to develop regulations as per Corporations Act in consideration to environmental social duties (Mansbridge 2018).
- Capture theory: Such theory indicates thatthe regulations are developed with focus on making sure advantages for the companies and common public. Conversely, the principles of such theory do not match with the public interest theory (Henderson 2017). After an estimated timeframe, the used regulations start to address the overall interest related with regulators. At time of implementation of such theory, the primary group might be recognized based on which emergence of introduction takes place. The principle focused on the capture theory indicates that the Australian government takes the suitable decision to abstain from implementing any regulation within Corporations Act in increasing environmental and social responsibilities (Henderson, Peirson, Herbohn and Howieson 2015). This also indicates that the companies might conduct their business operations honestly with due diligence at the time the regulations does not exist as they are totally aware of the market forces. Therefore, this might also decrease the opportunities for the regulators to attain their self interest such that no regulation is encompassed on Corporations Act. Due to such reasons, it is needed for the government to permit the market forces to operate independently for promoting social and environmental responsibilities.
- Regulation for economic interest group theory: Such theory perceives that the implemented polices and regulations are linked together and along with that the demand and the supply forces have significant impact in them. In consideration to this case, the demand forces encompass the interest group and the supply forces encompass the government (Horton 2018). For this reason, the regulations are introduced to make sure that it makes things simple for the industries to implement. For this reason, the implementation of such theory indicates that the government might implement regulations within Corporations Act. Moreover, this can also make sure that social and environmental responsibilities can be addressed that could of great advantage for industries and common people. They can also take part in the regulations development process that can also facilitate in maintaining a balance between the industries as well as common people.
The provided situation indicated that the US Companies are not responsible to carry out the asset revaluation process at the fixed assets fair values. Conversely, consideration must be made concerning the accounts impairment related with the fixed assets in adherence with “FASB Statement No. 144 accounting for the Impairment or Disposal of Long-Lived Assets” (Kahng 2015). This particular regulation related with the fixed assets revaluation makes sure that the financial statements are indicated with suitable information of the existing companies in US. For this reason, the regulation offers suitable importance in improving the financial reporting related with the fixed assets. Through presenting such regulation, it has facilitated the US FASB to develop a single framework for reporting for the accounting disposal valuation or sales associated with fixed assets related to suitable representation of discontinued business operations. For this reason, the quality of financial reporting might be improved through decreasing the changes in accounting transactions of the similar accounting events.
The role of faithful representation in financial reporting
Every financial statement is necessary in attaining suitable qualitative aspect of understandability as such feature might improve the quality of overall financial statement (Leung et al. 2014). In addition, at the tine such aspect is present within the financial statements, it turns out to be simple for the users to classify overall financial information for the reason that depiction is made in a way that information concerning the recent financial position of the companies is offered to them. From the statements presented by finance head of AXA, the investors of the companies totally depend on the management report for obtaining suitable understanding of financial situations. Considering the same, the individual has indicated that there is less understandability factor present within the company’s financial statements developed in alignment with the IFRS. The complexity within financial statements might be recognized to be the major cause behind IFRS implementation.
Additionally, this specific regulation plays major role in attaining the solution of major accounting concerns related with the fixed assets enforcement (Mansbridge 2018). In addition the total aspects facilitates in ensuring conformance of the companies with vital accounting standards or regulations. Such aspects are considered to have positive impact on faithful representation along with comparability of the necessary financial information. Numerous inconsistencies are observed to be existent in two distinct accounting frameworks. This is necessary for carrying out fixed assets accounting valuation and it is likely to remove these inconsistencies by means of implementing FASB regulations. For this reason, the considerable differences and similarities can be recognized in account for several accounting events set related with fixed assets (Henderson, Peirson, Herbohn and Howieson 2015).
The directors are observed to be interested in order to revalue their business assets because of several reasons (Perera and Chand 2015). The process of asset valuation is increasingly advantageous for offering directors with real rate of return on the capital employed. For this reason, it offers support to the directors in a way that they can develop suitable accounting strategies. As facts as such strategies are developed, the process related with asset revaluation is another useful technique for the directors in making sure of the fait asset values, as the values of the asset are associated in regular appreciation from the acquisition date. In addition, at the time such efficient process is existent and along with that another opportunity is offered to the directors of the business (Henderson, Peirson, Herbohn and Howieson 2015). This is on order to attain the opportunity to negotiate concerning the fair prices related with fair prices related with fixed assets while carrying out merger and acquisition. Adequately, it might also be stated that the directors might gather total resource values of the company in the existence of asset revaluation.
The importance of asset revaluation in financial reporting
In case the process of asset revaluation is not available, there might not be any increase or decrease in book value of several asset classes for the companies. For this reason, there might not be any unnecessary loss or gain attained after the sale of these assets (Scott 2015). The overall aspect attains negative reparations’ on the financial situation of the companies as the company’s earnings are anticipated to decline because of such aspect. For this reason, the there might not be any unnecessary gain or loss attained after selling such assets. The overall aspect has negative repercussions on the company’s financial situation, as the company’s earnings are anticipated to decrease because of this characteristic (Henderson, Peirson, Herbohn and Howieson 2015). For this reason, the process of asset revaluation is highly important and lacks of the same a cause decline in the set values with having negative effect on the financial situation of the companies.
The shareholders wealth might be drastically impacted through asset non-revaluation. In consideration to the past explanation it might be gathered that the company’s earnings are anticipated to decline (Wong and Yeung 2014). Considering this, it might not be likely for the companies to offer the investors certain anticipated return. For this reason, all of such aspects might have considerable effect on the shareholders total wealth.
References
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