Advanced Financial Accounting Assignment

ASSESSMENT PART A

The information presented through financial statements or part of Financial Statement like profit and loss account, the balance sheet and cash flow statement helps the decision maker and investor to take investment and business decision. However, all the information recorded in financial statement is not relevant for decision-making purpose (Belton, 2017). However, there are some financial or non-financial information, which are mandatory for decision-making. Some of the mandatory feature in this type of information are:

• Understandability: The information presented in financial statement should be easy to understand by the end user. The user should have the capability to read and understand the financial statement one who have the basic knowledge of accounts, law, taxation, finance. All the information included in financial statement should be true and correct so that the user can take best possible decision(Bizfluent, 2017). However, if there is any complexity regarding any item to avoid the complexity proper supporting with respect to that transaction should in attached in financial statement.
• Relevance: The information included in financial statement must be relevant. As based on this information the user of financial statement take all major future More information in report does not mean all are relevant for decision-making. The Preparers of the financial statements should be understand the fact that the data must be qualitative which helps in decision making rather than quantities, which creates complexity (Dichev, 2017).
• Reliability: The Financial statement of any company cannot completely free from any misstatement. However, the percentage of misstatement can be minimised with the correct reporting in financial statement. At the time of preparation of financial statement, the preparer consider the interest of stakeholder as well as the investor as a whole and disclose all the true and accurate information. If the information show in financial cannot presented in monetary term, proper justification need to be attach with financial statement(Bae, 2017).
• Comparability: Now a many investor take decision whether to invest in respective company or not based on the trend in financial data. Hence, many companies make comparative financial statement for different companies in the same industry or different companies of different industry. The preparation and presentation of financial data should be done in such way that the user can analyse the profit margin, variance in turnover etc. After analysing the complete data, the user can identify the current position of company whether it is in topside, downside or is in stagnant position(Alexander, 2016).

After the extensive study of all the qualitative features of financial statement, IFRS standard not comply with all this practices. The reporting practices under IFRS are inelastic, sometimes which is useless for financial users. The reporting framework under IFRS is difficult which is not easy to understand by common people. Hence, the common people are not able to take business decision based on that information. So even if all the information is included in financial statement but in lack of understanding the user not able to recognise the future impact of those information. Therefore, on the basis of above discussion it is concluded that the financial statements satisfy the central objectives of finance.

ASSESSMENT PART B

• The Public Interest Theory: the main objective of this theory is prosperity of the public, solve their problem, and remove all drawback from system. The main aim of this theory solve the difficulties of external stakeholder like bank and government as well as internal stakeholder like employee, creditors and investors. As per this theory the imperfect market is controlled by Government but this is actually only to fulfil the requirement of public and objective of company(Goldmann, 2016). Hence, it is concluded that public interest theory has not be justified, as government did not made separate laws.
• Capture Theory: The theory reveals the relationship between government, regulatory authority and businesses. The regulators making the rules and regulation after considering the interest of entire group. However to meet the requirement the all parties few changes in laws can be acceptable. However, the government did not made any separate laws implies that even this theory has not been applied. So it is concluded that question of modifying it or making changes not acceptable(Vieira, et al., 2017).
• Economic interest theory and regulation: This theory come into force with the interaction of the demand and supply forces. Government and the regulatory agencies constitutes supply side and public constitutes the demand side. The laws made by the industry applicable on the entire market and take business decision without any external interference. Here the government not implement any legislation to present the social responsibility performed by company. Hence, the business who fulfil the general requirement would succeed(Farmer, 2018).

ASSESSMENT PART C

There is a massive difference between IFRS and the local GAAP in reporting framework. One of the major difference being discussed here is revaluation of assets. Revaluation of assets is considered under IFRS but not under local GAAPs. The decision whether to revalue the assets or not depends upon the fact that how the relevance and reliability of financial statement are being effected by considering it and what will be the financial impact of  these practice. Now a days all the investor all stakeholder want to know the correct fair value of assets shown in financial statement to take best possible decision (Das, 2017). To meet the requirement and in the interest of stakeholder and investor the management disclose the accurate value in the financial statement as per IFRS reporting framework. However, it is impossible to calculate accurate fair value of assets because various preparer or an analyst consider different assumption to calculate the value of assets. The realizable value of assets keep on changing due to some factors like estimated useful life, efficiency of assets any many more things. Here after considering all this drawbacks IFRS aims to eliminate the practice of revaluation and considering the impairment cost to adjust the value and calculate fair value of non-current assets, which can be easily measured in terms of money. Therefore, from the above discussion it is concluded that now a days it is necessary to consider correct reporting framework to disclose all the relevant information in the financial statement.

ASSESSMENT PART D

It is mandatory to consider the size of business as well as the amount of fixed assets company held to decide whether it is necessary to revalue the fixed assets or not.

1. a) Even if there is so many complexity and contradiction regarding revaluation of fixed assets still many entities revalue their assets based on efficiency of assets upside and downside accordingly. Revaluation of assets directly affect financial as well as accounting data(Visinescu, et al., 2017). Due to upside or downside revaluation of assets, it will affect major heads of financial statement like depreciation, retained earnings tax liability and net revenue of company. It also affects the share price of company(Heminway, 2017). Due to revaluation, the in reporting framework extra reporting for revaluation also required. The carrying amount of assets is calculated in such a manner that it will reflect core t fair value of assets. Even if revaluation is non cash item, which does have a monetary impact on financial statement but it all the major business and future decision will be taken by board and investor after considering these factors. Revaluation of assets required forecasting, expertise in complex calculation and compilation of financial data. Even after applying due diligence many time the revalued value is quite different from actual figure. Due to all this, twist management try to avoid the revaluation of assets like real estate property, plant and machinery, which is diverse each moment due to several factor.
2. b) At the time of preparation of financial statement it is necessary to comply with all accounting policy and procedures. The financial statement is prepared in such a manner that all the ledger balances shown in financial statement reveals the true and fair picture of financial statement. If the non-current assets are not disclosed in financial statement at revalued figures, they are disclosed at after deducting depreciation from book value of assets. It is difficult the accurate carrying amount of assets in the fluctuating business environment(Bromwich & Scapens, 2016). Due to all this misleading and unfair balances the financial statement is giving relevant and reliable information which impact the vary objective of financial reporting framework. Equity share are always disclosed at fair value however we cannot follow the same trend in case of non-current assets as it affects the debt equity ratio.
3. c) There is a massive impact of revaluation decision on the wealth of shareholders. Even if it is impossible to prove a direct impact on shareholder wealth if any particular asset or group of assets not revalue as the revaluation is non cash transaction which do not impact cash flow statement. Therefore, the profit would remain constant. As revaluation reserve is part of retained earning so the shareholders believes that it is wealth creation. The same theory apply in case of downside revaluation. Therefore, it is just a myth there is a null effect on market due to revaluation. From the above it is concluded that no revaluation of assets does not have any adverse effect on shareholder’s wealth.

References

Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.

Bae, S., 2017. The Association Between Corporate Tax Avoidance And Audit Efforts: Evidence From Korea. Journal of Applied Business Research, 33(1), pp. 153-172.

Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.

Bizfluent, 2017. Advantages & Disadvantages of Internal Control. [Online]
Available at: https://bizfluent.com/info-8064250-advantages-disadvantages-internal-control.html
[Accessed 07 december 2017].

Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management Accounting Research, Volume 31, pp. 1-9.

Das, P., 2017. Financing Pattern and Utilization of Fixed Assets – A Study. Asian Journal of Social Science Studies, 2(2), pp. 10-17.

Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), pp. 617-632.

Farmer, Y., 2018. Ethical Decision Making and Reputation Management in Public Relations. Journal of Media Ethics, pp. 1-12.

Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, Volume 4, pp. 103-112.

Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, pp. 1-35.

Vieira, R., O’Dwyer, B. & Schneider, R., 2017. Aligning Strategy and Performance Management Systems. SAGE Journals, 30(1).

Visinescu, L., Jones, M. & Sidorova, A., 2017. Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), pp. 58-66.