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HA 3011 Advanced Financial Accounting Assessment item 2 — Assignment Due date: 11.59 pm Friday Week 10 Weighting: 20% Assessment Task Part A XXXXXXXXXX6 Marks) In an article entitled ‘Unwieldy rules...

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HA 3011 Advanced Financial Accounting
Assessment item 2 — Assignment
Due date: 11.59 pm Friday Week 10
Weighting: 20%
Assessment Task Part A XXXXXXXXXX6 Marks)
In an article entitled ‘Unwieldy rules useless for investors’ that appeared in the Australian Financial Review on 6 Fe
uary 2012 (by Agnes King), the following extract appeared. Read the extract and then answer the question that follows.
Millions of dollars have been spent adopting international financial reporting standards to help investors make like-for-like comparisons between companies in global capital markets. But CFOs say they are useless and have driven financial disclosures to unmanageable levels. The criticism comes as the United States, the world’s largest capital market, decides whether to retire its domestic accounting standard (US GAAP) and adopt IFRS.
“In seven years I never got one question from fund managers or investment analysts about IFRS adjustments,” former AXA head of finance Geoff Roberts said. “Investors...rely on investor reports and management
iefings to understand companies’ numbers.”
If analysts did delve into IFRS accounts, they would most probably misinterpret them, according to Wesfarmers finance director Te
y Bowen. “Once you get into the notes you have to be technically trained. If you’re not, lot of it could be misleading,” Mr Bowen said.
Commonwealth Bank chief financial officer David Craig said IFRS numbers were disregarded by investors because they could actually obscure an institution’s true position.
Required:
You are required to explain which qualitative characteristics of financial reporting, as per the conceptual framework, do not, in the opinion of the above quoted individuals, appear to be satisfied by cu
ent reporting practices pursuant to IFRS. Also, you are required to consider whether the views are consistent with the view that corporate financial reports satisfy the central objective of financial reporting as identified in the Conceptual Framework. 
Assessment Task Part B XXXXXXXXXXMarks)
In 2006 the Australian Government established an inquiry into corporate social responsibilities with the aim of deciding whether the Corporations Act should be amended so as to specifically include particular social and environmental responsibilities within the Act. At the completion of the inquiry it was decided that no specific regulations would be added to the legislation, and that instead, ‘market forces’ would be relied upon to encourage companies to do the ‘right thing’ (that is, the view was expressed that if companies did not look after the environment, or did not act in a socially responsible manner, then people would not want to consume the organisations’ products, and people would not want to invest in the organisation, work for them, and so forth. Because companies were aware of such market forces they would do the ‘right thing’ even in the absence of legislation).
Required:
You are required to explain the decision of the government that no specific regulation be introduced from the perspective of:
(a)Public Interest Theory
(b)Capture Theory
(c)Economic Interest Group Theory of regulation
Assessment Task Part C XXXXXXXXXXMarks)
The US Financial Accounting Standards Board does not allow revaluation of non-cu
ent assets to fair value, but it does make it compulsory to account for the impairment costs associated with non-cu
ent assets as per FASB Statement No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets.
Required:
What implications do you think these rules have for the relevance and representational faithfulness of US corporate financial statements?
Assessment Task Part D XXXXXXXXXXMarks)
Many organisations elect not to measure their property, plant and equipment at fair value, but rather, prefer to use the ‘cost model’. This will provide lower total assets and lower measures, such as net asset backing per share.
Required
You are required to answer the following questions:
(a)What might motivate directors not to revalue the property, plant and equipment?
(b)What are some of the effects the decision not to revalue might have on the firm’s financial statements?
(c)Would the decision not to revalue adversely affect the wealth of the shareholders?
Answered Same Day May 23, 2020 HA3011

Solution

Pulkit answered on May 25 2020
131 Votes
(PART A)
At the time of preparation of Financial Statements, following relevant qualitative features of Financial Reporting are needed which makes it useful to the users by providing requisite information.
· RELEVANCE: All the information which makes difference in decision making is considered as relevant information. The information which is included in the financial statements should be relevant for the purpose of decision making by its users. The relevance of information is affected by 2 things: Nature of information & its Materiality.
· FAITHFUL REPRESENTATION: It means that financial information should represent what it purports to represent. Complete, Neutral and E
or free information are three characteristics of Faithful Representation.
The usefulness and reliability of financial information can be enhanced by adding following four attributes:
· COMPARABILITY: The financial information becomes more useful if it can be compared with similar information of other organizations. It enables comparison within the entity & across the entity.
· VERIFIABILITY: It means that the financial information should communicate the fundamental economics of the company’s business.
· TIMELINESS: The information should be accessible to users on timely basis so that they can take their actions quickly. Information becomes obsolete and useless if not provided timely.
· UNDERSTANDABILITY: The information reported should be concise and easy to understand.
By taking reference of the above, qualitative characteristics of comparison and consistency of financial reporting does not get satisfied. Comparability means that the financial statements should be prepared in such a way that it can be compared with the available alternatives.
Consistency is not the same as comparability. Consistency means using the same accounting methods, policies and principles for the same items either within the entity or across the entity whereas in comparison users must be able to make distinguish between different accounting policies
Constraints that affect the objective of financial reporting of the conceptual framework are:
MATERIALITY: The information is considered material if it affects the decision making power of the users of Financial Statements. The omission or non disclosure of such information can alter the results of the financial position of the organization. Materiality depends on user to user, what may me material for one may be immaterial for another. There is no particular method to identify materiality. Whether the transaction is genuine or not depends on its materiality.
COST: It is both qualitative as well as quantitative part of financial reporting and evaluation of financial statement in relation to the cost will be a qualitative assessment than a quantitative assessment. It includes the cost of collecting information, processing it and providing the same to the persons who are in need of it.
(PART B)
(a) PUBLIC INTEREST THEORY: Public interest theory explains, in general terms, government through this seeks the protection & benefit of public at large. Through this, prices prevailing in the market get regulated by restricting the trade practices. The main objective of this theory is to work for the welfare of public by efficiently regulating the trade practices. This theory assumes that the market prices does not get affected by the intervention of the government, it helps in maintaining efficiency in each and every situation. The benefits derived from applying this theory is more than the costs incu
ed. In monopoly market, its regulation is necessary so that violation of consumer does not takes place with increase in prices, as it can also affect the economy of the country.
(b) CAPTURE THEORY: It is also known as private interest theory. Capture theory attempts to consider demands of the interest groups & aims to maximize the income of their members. This theory is vice-versa of...
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