Development Current In Accounting Thought †Myassignmenthelp.Com

Question: Discuss About The Development Current In Accounting Thought? Answer: Introducation As per FASB, conceptual framework refers to a body comprising of certain fundamentals and objectives that are essentially interlinked. The objectives tend to resonate with the underlying purpose of financial reporting while the key concepts in place to fulfil the objectives are known as the fundamentals (Deegan, 2014, p.214). The IFRS exposure draft highlights that the conceptual framework foundation is derived on the basis of the objectives to be served by the general purpose financial reporting (Alexander et. al., 2007, pp. 120-121). Hence, the various concepts and principles outlined as part of the conceptual framework must ensure that the underlying financial reporting objectives may be met or it would lose its relevance. Various stakeholders such as creditors, lenders, investors (existing potential) have information needs as they need to take decisions but do not have direct access to the reporting entity. As a result, the financial reporting is intended to fulfil the informati on needs of these primary users in order to facilitate decision making. Also, it is imperative to note that the financial reporting aims to satiate the information needs of the highest number of primary users and not necessarily all (International Accounting Standards Board [IASB], 2010, pp. 8-11). In order to meet the various objectives, certain qualitative characteristics need to be possessed by the accounting information. One of these is understandability which essentially depends on the comprehension skills of the intended users but is critical so as to use the information for decision making. A primary qualitative characteristic is relevance which implies that the represented information must be able to make a difference to the decision making. Three characteristics tend to highlight the relevance namely predictive value, feedback value and timeliness. It is imperative that the information provided must be able to shed light on the future expected earnings of the reporting entity and also must be furnished early enough so that the user is able to use the same in making key decisions. Another primary qualitative characteristic to be met by the information provided is faithful representation. This implies that the information that is reported must represent the underlying ph enomenon, it aims to represent in a faithful manner. Three essential parameters that need to be fulfilled in this regard are neutrality, error free and completeness (IFRS Foundation, 2015, pp.27-32). There is an intrinsic tradeoff between relevance and faithful representation. On one hand, it is imperative that the information must be faithfully represented but on the other hand it must be provided in a timely manner so that the same could be used for decision making. In this regards, relevance should be considered as superior to faithful representation as it is essential that information must be provided to the intended users when these are relevant. Reliable or faithfully representative information provided after the relevance has ended would defeat the purpose of financial reporting. Also, the objective of financial reporting is not to depict the true value of the firm but rather to provide estimates about the potential future value. Further, the management could provide suitable disclosures with regards to information which could highlight the inherent limitations in terms of faithful representation. In order to determine whether it is feasible or not, it is noteworthy that f aithful representation aims at error free financial reporting and does not imply fully accurate reporting. While 100% accuracy is not intrinsically feasible, but it is possible for the financial statements to be framed and reported in a manner such that there is no error and all the applicable standards, conventions and management judgements have ben correctly applied (IFRS Foundation, 2015, pp.27-32). Aiming for 100% accuracy in financial reporting is counterintuitive and not prescribed as part of faithful representation. Hence, faithful representation of financial information is very much possible in the future in accounting Accounting theory in the recent times has seen essentially theoretical approaches namely normative (1955-1970) and positive (1970 onwards). Normative accounting theory refers to a theory which does not have basis is observation but is rather prescriptive with regards to how things should be done. A positive accounting theory on the other hand is descriptive and tends to analyse and highlight how and why things are being done in their present form (Matthews Perera, 1996, pp. 57). One of the most common normative theories in relation to measurement is the Historical Cost Accounting (HCA). This implies that the various transactions be recorded and represented in the financial statements based on their historical cost only (Deegan, 2014, pp.164-165). There are many benefits associated with the use of HCA. Firstly, there is lack of bias in this method as the underlying values can be independently and objectively verified. Secondly, it tends to limit the role of personal judgements and en sure that the values are not disputable. Thirdly, it has high acceptability amongst various stakeholders which is why this system has continued for so long or else there would have been a change already. However, there are certain limitations of HCA which opens it to criticism and look for alternatives (ICAEW, 2006, pp.21-23). One of the criticisms levelled against HCA deals with the assumption that no consideration of inflation needs to be taken which is incorrect as there is gradual erosion of value of money. This leads to the transactions not being recorded at the historic cost. Another issue is in the form of overstated profits where the revenues are adjusted for inflation but the costs are measured at historical values. Thus, there is an underreporting of costs as adjustment for inflation is not permissible in HCA. Further, with regards to assets, the actual market value of the asset may be significantly in variation with the historical cost and hence the market value of the assets needs to be reported or else it presents an incorrect view. This problem becomes even graver in the wake of growing importance and value of intangible assets (Deegan, 2014, pp. 160-174). Recognising this, the HCA was modified to as to ensure that certain assets are not realised at their historical cost but at the current re alisable value so as to accommodate certain assets which were not compatible with HCA. An alternative to HCA emerged in the form of CPPA (Current Purchasing Power Accounting) which tends to take inflation into consideration and hence enables the HCA to do away with this limitation. The various advantages of HCA also apply to CPPA as the only difference is readjustment of values to take inflation into consideration which can be objectively determined. However, a major limitation of CPPA is that the general inflation is applied to all the items while the respective value of price change for each of these would be different. Owing to the difficulties involved with CPPA, CCA (Current Cost Accounting) entered into the frame. In this also, there is revision of values but the same is not driven by changes in general price index but by current cost or replacement cost. In this approach, assets tend to be represented at the replacement value and not the historical cost. However, concerns are raised about the objective determination of the realisable value of assets especially i n case of intangible assets. Also, verification becomes difficult in this case for the intended users (ICAEW, 2006, pp. 21-37). Yet another alternative to the constant price assumption of HCA is the Continuously Contemporary Accounting (CoCoA) which prescribes the monetary value is dynamic and hence it makes sense to report the various items in terms of cash equivalent as on date. Even though this model was easy to apply and also relevant for the information needs of the intended users, but still the users of this system were few as this represented a shift to exit price system. Additionally, this model was highly dependent on the ongoing market value of the asset which may be at stark contract with the estimated value by the firm internally. Finally, this paved way to the fair value accounting or FVA approach where the assets and liabilities were recorded at their market value and hence revaluation was done on a periodic basis so as to ensure that the true value is represented. However, there are issues with this system which are similar CPA which tend to make the investors apprehensive especially at a time when the risks associated with various instruments is not completely understood (ICAEW, 2006,pp. 21-37). The underlying criteria for success would be the number of users. In this regard, it may be concluded that fair value accounting has been fairly successful and the user base is on the increase. Further, MHCA has also been successful as the old HCA model has very little relevance considering the inability to recognise intangible assets. The others have had limited success and hence currently not much The building blocks of a conceptual framework are highlighted below (AASB, 2001, pp. 12). Scope subject of the discipline For defining this, consideration needs to be given to the reporting entity (subject) and the concept of financial reporting (scope). This is critical as the various concepts or principles need to directly or indirectly relate to the same so as to have relevance. Objectives It is imperative to keep the objectives in mind which essentially relate to why financial reporting needs to be done keeping in mind the various intended users and their underlying uses. Outlining the fundamentals Once the scope, subject and objectives have been linked, it is essential to set the fundamental principles that need to be adhered. These refer to the key qualitative characteristics that the financial statements must adhere to. Also the essential elements are defined which form the basis of reporting. Operational These tend to relate the operationalizing the key fundamentals by highlighting the key recognition and measurement criteria relating to the subject keeping in mind the fundamental principles and the final objectives to be met. Display Once the various financial information has been recognised and measured, then the same needs to be displayed in various formats that tend to be consistent with the above principles and need to be detailed so that the reporting entity have required guidelines. Policy of standard setting It is essential that finally there needs to be key concepts in relation to setting of standards which ensure that there is less ambiguity and more uniformity in reporting. Enforcement Finally, monitoring needs to be carried out in order to enhance the enforcement level. One of the key advantages associated with conceptual framework is that it leads to harmonisation of accounting standards which are followed in various geographies as the key concepts tend to be based on the framework while suitable customization may be done in wake of the local environment. Another key advantage is that the conceptual framework acts as guidance for the standard setters who continuously tend to ensure that the key principle highlighted is not violated by the current accounting standards and tend to bring suitable modifications in order to enhance conformity (AASB, 2001,pp. 5-6). However, there are certain criticisms of conceptual framework as well. One of the key criticisms is with regards to the definition of liabilities which is quite general and difficult to apply in specific cases. Further, in case of IASB conceptual framework, the terms used for the definition of both assets and liabilities seem very similar. Also, the recognition of assets and liabilities is based on probability which is intrinsically subjective. Besides, it is also argued that conceptual framework tends to lack specific principles with certain aspects which are increasingly becoming more important such as lease accounting. Further, some scholars question on the possibility of a true conceptual framework in a scenario where there is lack of consensus in relation to basic accounting elements definition. The incremental approach used for the conceptual framework has also come under criticism from various corners as it is biased towards historical conventions (Deegan, 2014, pp. 259-261). I tend to agree with most of these criticisms but at the same time considering the enormity of the task, I would consider that conceptual framework is a step in the right direction with its limitations. But, it is a step in the right direction as it leads to consensus building and harmonisation in the long run References Alexander, D; Britton, A. Jorissen, A. (2007). International Financial Reporting and Analysis, 3rd edn., Hong Kong: Thomson. Australian Accounting Standards Board [AASB]. (2001). The Nature and Purpose of Statements of Accounting Concepts (Policy Statement PS5). Retrieved from https://www.aasb.gov.au/admin/file/content102/c3/ACCPS5_07-01.pdf Deegan, C. (2014). Financial Accounting Theory (4th ed.). McGraw-Hill: Sydney IFRS Foundation.(2015). Exposure Draft ED/2015/3: Conceptual Framework for Financial Reporting, May 2015. Retrieved from https://www.ifrs.org/-/media/project/conceptual-framework/exposure-draft/published-documents/ed-conceptual-framework.pdf Institute of Chartered Accountants in England and Wales [ICAEW].(2006). Measurement in Financial Reporting: Information for better markets initiative. Retrieved from https://www.icaew.com/-/media/corporate/files/technical/financial-reporting/information-for-better-markets/ifbm/measurement-in-financial-reporting.ash International Accounting Standards Board [IASB].(2010). Conceptual Framework for Financial Reporting 2010. Retrieved from https://www.ifrs.org/News/Press-Releases/Documents/ConceptualFW2010vb.pdf Mathews, M. R. Perera, M. H. B. (1996). Theory construction in accounting. In Accounting theory and development, 3rd edn., Melbourne: Thomas Nelson. Development Current In Accounting Thought – Myassignmenthelp.Com Question: Discuss About The Development Current In Accounting Thought? Answer: Introducation The article written by Michael Cohn published in Accounting Today on September 11, 2017 highlights upon the expansion plans of Eide Bailly LLP, which is included under the leading 100 CPA firms located in Utah, a state in western part of the United States. Eide Bailly is looking forward to acquire a small CPA firm, named as Hawkins Advisors effectively on 30th October 2017 (Cohn, 2017). The main headquarter of Eide Bailly is located in Fargo, N.D. along with branches in Ogden, Utah and Lehi, Salt Lake City (Cohn, 2017). It was mentioned that after the completion of the deal, the company will result in making Eide Bailly the biggest CPA organization in Utah considering the total number of staff (Eide Bailly, 2017a). Additionally, financial terms with respect to the deal were not disclosed yet. Moreover, Eide Bailly has merged with other since last year including Langenhorst Self-Merritt CPAs P.S., Daines Goodwin Co, JW Advisors and Bryce Wisans CPA practice along with adding Rauch H ermanson Everroad Ltd. in their organization (Eide Bailly LLP, 2017). The objective of this study is to provide an in-depth theoretical understanding of the article present by Cohn (2017) for assisting the company to engage themselves efficiently in the upcoming future. Related Theories of Accounting The article review is briefly focused on the situation, which highlights merger and acquisition process considering the accounting principles along with standards. Merger and acquisition is an essential part of corporate finance, as it helps the business to grow successfully. Merger is a strategic tool helping two or more companies to combine and form a single large organization, where one company will gain the ultimate power and the other will lose its corporate existence (Kansal Chandani, n.d.). Multinational corporations are focusing on mergers and acquisitions up to higher levels, which will lead to achieving organizational growth. Mergers are often considered as a value maximizing initiative, which assits in increasing the shareholders wealth as well as financial synergy (Cartwright Cooper, 2014). Additionally, acquisition is the process, where a bigger organization takes complete control of the smaller organization. Hence, merger and acquisition refers to the integration of t wo or more organizations aligned with diverse cultures, values, forces and converts them into a single cohesive unit. Moreover, mergers can be of two different types including horizontal merger and vertical merger (Kansal Chandani, n.d.; Andrade, Mitchell Stafford, 2001). Horizontal merger can be defined as an involvement of organizations working in the same field, whereas vertical mergers are those where the field of works differs considering both the companies. Merger is a long process, which significantly requires extensive support from both the organizations for the proper development of business. There are few factors, which are necessary for maintaining the balance between the merged organizations due to the difference in cultures and will, as they can have potential impacts on the operations. Therefore, the factors influencing the organizations during mergers and acquisitions include system dynamics, person-focused change, structure-focused change, government policies along with profitability issues (Kansal Chandani, n.d.; Roundy, 2009). In addition, a merger cannot be successful, if only judged from a financial perspective. Active involvement of both the companies into one is necessary for smoother transition process of the business. Some of the additional challenges faced during the transition process are stress management, cultural management, HR restructuring, job insecurity, resistance towards change, redundancies, low motivation as well as talent drainage among others (Kansal Chandani, n.d.; Ferreira, Santos, de Almeida Reis, 2014). Furthermore, there are few reasons behind the failure of merger and acquisitions, which includes lack of proper communication, support along with lack of confidence on each other, frustration and confusion. It also includes forceful habit, loss of competency as well as fear of working with new set of individuals aligned with different behaviors. Therefore, it becomes necessary for the leaders to manage the situation along with bringing it to normal. Therefore, leaders can focus on overcoming the situation of resistance to change through planning and implementing strategies. Some of these strategies include clear vision, integration plan, employee involvement, customer focus and unders tanding the differences in culture and downsizing. These strategies will ensure successful implementation of the merger and acquisition processes (Kansal Chandani, n.d.; Roundy, 2009). Application of Theory Applying the theoretical concepts of merger and acquisition, it is clearly explainable that Eide Bailly, being a larger organization is acquiring the Hawkins advisors, which is a smaller in size. Here, it is evident that a horizontal merger will be taking place between Eide Bailly and Hawkins Advisors as both works under the field of accounting practice, commonly known as Certified Public Accounting (CPA) firm. Both the companies may have different cultures, but the field of work is same. Here the acquisition will not be forceful as Hawkins Advisors have agreed to the offered presented by Eide Bailly.Hawkins Advisors has mentioned that they will benefit by merging with Eide Bailly, as joining them will help in delivering world-class services for the existing businesses along with the in Utah. Eide Bailly will have to take essential steps to motivate the partners along with the staff of Hawkins Advisors for joining their company (Kansal Chandani, n.d.; Cohn, 2017). Moreover, it was mentioned that the viewpoint considering financial aspects is not important, as compared to their active involvement. Here, the acquisition will not provide financial benefit to Eide Bailly to achieve high level of profit, but it will definitely assist the company to become the leading CPA organization in Utah considering the amount of team members. At the current stage, Eide Bailly comprises of 169 partners along with members. The acquisition of Hawkins Advisors will bring additional 8 partners as well as 58 staff. Hence, the strategy of merging will be effective, only if Eide Bailly and their partners use their ability to manage the workforce along with motivating them. Merger will take time, but Eide Bailly need to capitalize the situation and start planning for the new workforce, who are the future assets of the organization (Kansal Chandani, n.d.; Cohn, 2017). Summary After analyzing the theoretical framework of merger and acquisition, the acquisition Hawkins Advisors can be viewed as a fruitful decision for Eide Bailly considering the similarities in culture and the field of work. Being a service industry, Eide bailly has provided quality services to the clients, as they primarily focus on customer satisfaction. Horizontal Merger between the two companies will bring additional human resources as well as innovative ideas along with opinions, which will help Eide Bailly to grow as the leading organization in Utah. This will help in enhancing the business in terms of providing world-class service along with maximization of profits. Conclusively, Eide Bailly should agree to the deal at a confirmed price with Hawkins Advisors as soon as possible, which will provide surety of the merger. Major Issues Covered in the Exposure Draft The article provided by FASB as on June 5, 2017, the key issue covered in the exposure draft of Financial Accounting Standards Board (FASB) is related to stock compensation. FASB issued this update as proposed by the companies to take an initiative for simplifying accounting activities. The key objective of the simplification initiative was improving as well as maintaining the effectiveness of the provided information to the financial statement users. This will help in the reduction of cost and respective complexities aligned during financial reporting (FASB, 2017). Various aspects were updated for the transactions with respect to share-based payment for acquisition of goods as well as services from the non-employees. Topic 718 of the compensation, specifically the stock compensation is the key focus of proposed update. The requirement of topic 718 was focused on the non-employee awards keeping the model of option pricing and input related to it, in addition to cost attribution as ex ception (PWC, 2017). Furthermore, the awards related to share-based payments for the equity-classified non-employees would be assessed on the grant date. Here, the definition of grant date would be changed in general, as the grantor and grantee agrees to a mutual understanding with respect to terms and conditions, considering awards of non-employee share-based payments. The transactions related to same will be amended and accordingly assessed through specific estimation of equity instruments fair value (FASB, 2017; PWC, 2017). Behavior of the Regulator Considering the Public Interest Theory Regulators are the advocates, who look after public interest and measures= the purpose for achieving certain desired results accordingly. This becomes impossible to attain, if the activity is kept aside depending upon the market. Adequate behaviors are necessary under Generally Accepted Accounting Principles (GAAP) for the amendments in transactions taking place through shared-based payments. The decision on amendments by the regulators of the accounting body FASB was taken based on the required changes by the public firms. The amendment in shared-based payments for the goods as well as services from the non-employees will help in earning benefit by selling any instrument. It will ensure the measurement of its value at a fair value estimated and the firm will be obligated for issuing it during the delivery or rendering of both goods and services in any condition. Additionally, the probability related to performance conditions will be satisfactory considering the conditions in transac tions related to share-based payments by the non-employees. Moreover, any non-public firm will be able switch from the measurement process of awards related to share-based payments. This is done by the liability-classified non-employees at its fair value to the intrinsic value (FASB, 2017; Gaffikin, 2005). Views Presented in the Comments Letters The comment letter number 14 by Ball Corporation responded in agreement of the amendments made by the FASB considering shared-based transactions. They agreed that the overall amendment will ensure reduction in both cost and complexity of the financial reporting due to their close alignment of non-employee with employee shared-based accounting with respect the stock compensation. Additionally, measurement of the issued equity instruments at its fair value on grant date is agreed. Probability related to performance conditions was asked to be reassessed periodically. Moreover, agreement in vested share-based payments, forfeiture guidance, accounting guidance was responded in the comment letter (Ball Corporation, 2017). The For instance, the comment letter number 18 of Alphabet Inc simply agreed upon the FASBs initiatives with respect to the simplification of requirements in the accounting processes of share-based payments. They believed that the amendment will reduce the overall complex ities along with the cost (Alphabet Inc, 2017). With respect to the comment letter 8 of FICPA, it disagrees on the amendments proposed by the FASB. This was considering shared-based payments as their committee members were uncertain regarding the reduction in cost and complexities, which was the intended goal of the board. They mentioned that the removal of fair value considering goods as well as services and determining the same on equity instrument by the organization itself, will be burdensome considering the cost along with complexities (FICPA, 2017). The fourth and the final comment letter number 17 of Pacira Pharmaceuticals Inc, agrees on the proposed amendments for simplification along with clarification in share-based payments accounting related to non-employees. Additionally, the firm responded that awards for employees as well as non-employees accounting based upon the performance should not be diversified. Equity award does not require any comparison on its grant for a no n-employees or employees. They believed that shared-based payments considering employees as well nonemployees should be similarly assessed. Moreover, separate disclosure is not necessary for the users considering their financial statements in shared-based payments (Pacira Pharmaceuticals Inc, 2017). Interpretation of the Comments Letters The comments letter mentioned in the above paragraph denotes that the agreement for amendment proposal of the FASB by three organizations including Ball Corporation, Alphabet Inc and Pacira Pharmaceuticals (Ball Corporation, 2017; Alphabet Inc, 2017; Pacira Pharmaceuticals Inc, 2017). The only firm disagreeing upon the decision was FICPA, which was against the exposure draft by FASB (FICPA, 2017). Agreement of three companies included the amendments proposed, considering the share-based payments of the goods as well as services from the non-employees will help in reducing the cost and complexities of the financial reporting leading to better results in the future. All the three companies agreed upon the decision responded the same answers respectively (Ball Corporation, 2017; Alphabet Inc, 2017; Pacira Pharmaceuticals Inc, 2017). However, FICPA believed that common practices in markets including public entity as well as non public firms for investors along with shareholders will excl ude expenses related to equity compensation. Additionally, limited focus will be placed on financial statement related to equity compensation, where footnote disclosures are quite voluminous. Therefore, FICPA and its committee members disagreed on the fact (FICPA, 2017). Theories of regulation Theory of Public interest is referred as the regulation initiated by the government considering the public demand as a whole for the purpose of amending any market practices, which are inequitable or inefficient for the organization (Gaffikin, 2005; Martins, 2009). With respect to the theories of private interest in concern, general people combine themselves into groups for pursuing their self-interests. Here, regulatory processes follow private interest rather than public interest and dominate the situation, where instances of wealth or power are considered for any amendment. Besides, the theory of regulatory capture is the situation, where authoritarian bodies act for publics interest and are enforced for providing benefits to different industries (Martins, 2009). After analyzing the entire study and the amendment proposed by FASB along with the comments letters from four different respondents, theory of public interest provides the best explanation of the amendments. The amendment proposed will help both non-employees as well as the organizations to reduce cost along with complexities and maximize their profits by transacting share-based payments. Hence, majority of the respondents in the comments letters agree to the decision of shared-based payments (FASB, 2017). References Alphabet Inc. (2017). Comment letter No. 18. Retrieved from https://www.fasb.org/cs/BlobServer?blobkey=idblobnocache=trueblobwhere=1175835051328blobheader=application%2Fpdfblobheadername2=Content-Lengthblobheadername1=Content-Dispositionblobheadervalue2=660622blobheadervalue1=filename%3DNESBP.ED.018.ALPHABET_INC._JOSH_PAUL_KELLY_HERELD.pdfblobcol=urldatablobtable=MungoBlobs Andrade, G., Mitchell, M. L., Stafford, E. (2001). New evidence and perspectives on mergers. Journal of Economic perspectives, 15(2), 103-120. Ball Corporation. (2017). Comment letter No. 14. Retrieved from https://www.fasb.org/cs/BlobServer?blobkey=idblobnocache=trueblobwhere=1175835049754blobheader=application%2Fpdfblobheadername2=Content-Lengthblobheadername1=Content-Dispositionblobheadervalue2=644511blobheadervalue1=filename%3DNESBP.ED.014.BALL_CORPORATION_SHAWN_M._BARKER.pdfblobcol=urldatablobtable=MungoBlobs Cartwright, S. Cooper, C. L. (2014). Management and acquisitions: The human factor. United Kingdom: Butterworth-Heinemann. Cohn, M. (2017). Eide Bailly to merge in Hawkins Advisors. Retrieved from https://www.accountingtoday.com/news/eide-bailly-to-merge-with-hawkins-advisors Eide Bailly LLP. (2017). Eide Bailly expands in Utah. Retrieved from https://www.eidebailly.com/insights/firm-news/2017/eide-bailly-expands-in-utah Eide Bailly LLP. (2017a). Inspired to be there for you. Retrieved from https://www.eidebailly.com/about-us/locations