Advanced Financial Accounting (Research Paper Sample)

Advanced Financial Accounting
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Abstract
Financial accounting involves gathering of financial information and processing it to facilitating in making resolutions by parties peripheral to the firm. Financial statements are the most evident products of any company’s reporting process. It is very important for persons who intend to use financial information to be in a position to understand the financial reporting environment. They must also understand any other accounting information that may be presented (Allam and Lymer, 2003).
This paper will clearly discuss the financial reporting environment by providing that framework for analyzing the decisions that form the corporate information environment in the capital market setting. This will show the notion of public interest in relevance to decision making using financial information. The financial reporting environment which includes the decisions regarding disclosure of information and voluntary reporting from managers; reports and disclosure mandated by regulators and; reporting decisions made by third party intermediaries like the analysts. Disclosure of accounting policies will be discussed in regard to the topic that will be chosen, for example, goodwill and other intangible assets.
Consequently, the paper will also include a review of current research on disclosure regulation, existing lenders, creditors and other investors. Portrayal of the users of financial information will be critically discussed showing how the change of the conceptual framework will affect them. Finally, amendments that are made in the conceptual framework that vary in different countries must be considered. This is for the purpose of the users who intend to use this financial information. Positive accounting theory and the reactions of capital markets must be considered.
Introduction
Understanding financial reporting is very vital for the parties that may be involved. These parties include potential customers, lenders, employees, suppliers, investors, local community, and governments the media. Financial reporting will assist these parties make various decisions through the financial information provided. These parties do not engage in the everyday activities of running a firm. Moreover, these parties have different information demands and needs. Financial information results for the production of financial reports that are considered to be all-purpose for all parties to use (Shiffrin, 1983).
In many countries, financial accounting has been highly regulated in regards to the standards of accounting and other regulations that govern how dealings and events are measured, recognized and disclosed. Every financial report that is generated, for example, the balance sheet, income statement, (Madubela, 2011), operating and financial review and others are directly impacted by various accounting guidelines. Therefore, when the obtainable financial accounting guidelines vary or even others are executed, this will have an effect on the diverse numbers for instance expenses, revenues, liabilities and assets. For any end users of financial reports, they ought to have adequate operational familiarity of a variety of accounting regulations and standards. This is because devoid of such understanding it will always be difficult to construe the reflections of the reports (Tsamenyi et.al, 2006).
The conceptual framework will help in solving a lot of financial problems because it is fundamental in prescribing the function, nature, and restrictions of financial reporting and accounting. It is also supposed to provide consistency in terms of guidance. Moreover, understanding the concepts and the establishment of objectives will assist the board in developing new guidance that will help those affected by Generally Accepted Accounting Principles (GAAP). As a result, they will understand the purpose, components, and features of information given by financial accounting and reporting.
The opinion of public concern and its significance to financial reporting
The public has an interest in any financial information that is provided by a corporation. These public parties such as the government, creditors, investors, suppliers and the media are interested in financial reports, but all of them have different demands and needs regarding financial information. Every country has a Public Interest Oversight Board (PIOB) that enhances overseeing of auditing and assurance. The oversight boards help in increasing the investors and others people who may be interested in financial information.
There are also other international entities that help widen the interest of the public sense, by having a set of enforceable, high quality and worldwide acknowledged International Financial Reporting Standards (IFRSs). The oversight undertook by IFRS foundation and the body that set standards rests with the professionally diverse body of trustees. They are accountable for protecting the independence of the IASB and making sure the organization financing is proper. Financial reporting improves the quality and transparency of the information companies provide so that entities with the public interest can make better-informed decisions.
For most of the existing potential lenders, investors, and added creditors cannot necessitate those reporting business to offer information unswervingly to them. Therefore, they depend on with common function financial reports which do not offer all the reports that may be desirable. They ought to get other information in terms of the political climate, economic conditions, and company and industry outlooks. Reports on financial are prepared by the management of the company who obviously are not the owners. This is because they possess more information than the shareholders and stakeholders in the company. Information by the management might not be fully disclosed to the public unless the disclosure is for their benefit. Every company also must comply with financial accounting standards such as IFRS and others (Johnson, 1973).
All public companies, for example, in the US are given the mandate by the Securities and Exchange Commission (SEC) to tag their financial statements. Different countries are working to merge the Generally Accepted Accounting Standards (GAAP) with the International Financial Reporting Standards (IFRS) to help in creating fresh standards for financial reporting. This will regulate the way financial reporting will be undertaken. The International Accounting Standards Board (IASB) in their theoretical framework state that providing financial information is useful to the public interest and is the main purpose of financial reporting.
This assists the existing and potential investors, creditors and lenders to make various decisions involving, buying, selling, providing or settling loans and debt instruments. Therefore, accounting information must be in a position to relay the financial information that will assist the users of the information in making economic decisions.
Accounting policies and their disclosures in relation to Australian firm (Westpac Bank)
There are advantages in listing a company on the ASX because it allows the company to raise a wider market in order to expand business, establish or acquire new business, and fund acquisitions; helps enable existing shareholders to realize the value of their holdings in the market; potentially offers an exit strategy for the company founders, initial investors and existing shareholders; helps in improving the company’s public recognition and commercial standing (Watts & Zimmerman, 1978).
In Australia, firms use accounting policies that are used for decision-making. These policies help the management of the firm to make useful decisions regarding the future of the firm. These policies that are listed on the Australian Securities Exchange (ASX) and the 2013 Annual Report include in the case of Westpac bank;
Property, plant and equipment
Property, plant and equipment are approved at cost less accrued impairment and depreciation. The cost attributable to the acquisition of property, plant and equipment is described as the fair value of the deliberation given plus subsidiary costs. Other expenses are documented in the income statement as expenses in terms of how they have been incurred.
Nonfinancial assets like computer software are capitalized at outlay, and it is categorized as property, plant and equipment since it is vital to the businesses of the related hardware. Depreciation of property, plant and equipment is evaluated using the straight line technique to facilitate in the allocation of the costs. The remaining value over their projected useful lives should be deducted from the cost of assets. Consequently, any gain or loss which arises from the retirement or disposal of an asset should be calculated by the variance between the sale income subtracting disposal costs and the residual amount of an asset.
Westpac realized policy for valuation of property, plant and equipment was that they must understand the real value of these items. Depreciation and disposals of these items also had to be calculated and subtracted from the net book value of the items. Any additional of this item should also be added up to the items cost to get the real cost. Any impairment that may be carried by these items should also be deducted. Through these calculations, the real cost of Westpac bank’s property, plant and equipment will be identified. This may prompt addition of these items or even replacement. This is the reason Westpac listed property, plant and equipment in their financial statements.
Goodwill and other intangible assets
Goodwill denotes the amounts that arise from the acquisition of the business. Before the revision of the AASB 3 Business Combinations, goodwill indicated the additio...