New Zealand accounting standards - Assignment Example

?NEW ZEALAND ACCOUNTING STANDARDS PART A ANSWER International Accounting Standards Board (IASB) conducts public meetings or webcasts to ensure transparency in order to produce new or updated financial reporting standards. This procedure has been adopted to ensure transparency and to involve the opinion of the public. The procedure ensures constant engagement with the stakeholders like investors, analysts, regulators, business leaders, accounting standard-setters and the professional accountants and auditors at national and international levels (Smart, Bourke, & Awan, 2008). ANSWER 2a: External Reporting Board (XRB) is an independent crown entity developed under section 22 of the Financial Reporting Act 1993 (as amended in 2011). Main responsibilities of XRB are: Development and implementation of the overall strategy related to financial reporting standards, auditing and assurance standards. Responsible for preparing and issuing of accounting standards. Responsible for preparing and issuing of auditing and assurance standards (XBR, 2011). Other responsibilities of XRB include preparing and issuing of ethical and professional standards and providing guidelines for conduct. Liaising with organizations on national and international levels on matters that apply functions that are in correspondence with or share similar features with those presented in XRB (NZICA, 2011). ANSWER 2b: Initially, New Zealand Institute of Chartered Accountant (NZICA) was responsible for development and implementation of financial reporting standards. This role has now changed with the independence of External Reporting Board (XRB). With the change in financial reporting standard setup, NZICA has gained responsibility of playing an advocacy role as well as a commentator on the suggested and proposed changes in financial reporting setup. This has brought considerable changes in overall setup. In the new setup, it has provided the opportunity to meet the need of revising the standard financial statement settings in order to simplify the requirements along with retaining the information required by current users. With the changing role, NZICA has got an opportunity to initiate this development and prepare for a set of guidelines suitable for the needs of SMEs’ financial statements. It has been planned to achieve the same in the current year, i.e.2012. Under the Financial Reporting Act 1993 (FRA), the responsibilities for financial reporting standards setting have been divided between two bodies which are: New Zealand Institute of Chartered Accountants (NZICA) and the Accounting Standards Review Board (ASRB). Accounting Standards Review Board (ASRB) is also an independent crown entity. The mechanism has been changed and the new mechanism is as follows: 1. The Financial Reporting Standards Board (FRSB), which is a board of NZICA, will submit the draft standards to the Accounting Standards Review Board (ASRB) for consideration.   2. NZICA is responsible for setting up of auditing and assurance standards for its members. 3.  The Professional Standards Board (PSB), which is another board of NZICA, submits draft standards to NZICA’s Board for consideration and approval. 4. Standards approved from NZICA are then obligatory on members.   5. Non-members of NZICA can carry out statutory audits provided they belong to an overseas professional accounting body, providing that the Registrar of Companies has approved the individual or the professional accounting body to which they belong.   6. Hence, the standards approved by the NZICA Board do not form any binding in formal status in relation to overseas-qualified auditors who are not members of NZICA (NZICA 2010a). ANSWER 2c: On whole, it is expected that External Reporting Board (XRB) will provide better quality of financial reporting standards. It is expected because of the reason that the new financial reporting arrangement has recently been approved by Minister of Commerce of New Zealand and it has been considered as a significant milestone in the establishment of the new financial reporting arrangements in New Zealand. These standards will align rules with international standards than domestic ones; hence, it would result in increasing international acceptability. It also includes the tier strategy based on two-sector, four-tier structure with different accounting standards applying to each tier. It accounts separate and applicable standards that have been defined in detail for all four divisions. XRB is also looking into the matter of preparing and issuing of ethical and professional standards providing guidelines for conduct to professionals. Hence, it would help in ensuring the accounting standards that are suitable to the needs of each section, aligned with international standards and also in compliance with ethical conduct. XRB is expected to bring considerable positive improvement in the provision of quality of financial statement. PART B ANSWER 1a: Code of ethics provides guidelines to the accounting professionals to comply on matters pertaining to ethical standards that ensure the accounting practices are in the best interest of the public. It guides on attaining the highest standards (NZICA 2010b). Codes of ethics are the basic tenets of ethical and professional behavior and conduct. They provide guidelines to perform and achieve the highest level of professionalism (NZICA, 2006). ANSWER 1b: The five principles of code of ethics are: Integrity Objectivity and Independence Competence Quality Performance Professional Behavior. Integrity refers to the fair dealing with truthfulness. Accounting professionals are expected to maintain integrity as they belong to a group of professional recognized as trusted group. They are expected to maintain the independence from pressures of any kind or conflict of interest or prejudice or bias. Accounting professionals based on their specialization shall only undertake assignments in which they are capable of meeting the desired level of the best standards. They are expected to meet technical and professional requirements with due diligence. If these principles are applied appropriately, professionals would be able to meet all requirements of professional behavior (NZICA, 2006). ANSWER 1c: Conducting behavior according to the basic ethical standards is mandatory in every field. Accountants, alike, are expected to meet all the standards. However, maintaining ethical standards is not as easy as it looks. Full compliance with accounting standards is expected to question many transactions of the business, some of which are conducted overriding the given principles. However, finding the best possible way by applying all of them to the fullest possibility is a challenging task. It is important to meet the interest of business and at the same time practice ethical conduct. It will benefit accountant with credit of being true professional and as well as profession. In cases, where interests collide, professionals shall look for the minimum loss. ANSWER 2a: The method suggested by manger to record the portion of asset value as profit is not viable. It cannot be adopted as it does not comply with the standard financial reporting methods stated in International Accounting Standards. Possible alternate for recording this value of difference can be initially recording asset at the historical value of 100,000 which is the actual value at which asset is bought. After recording the same, Roger shall re-value the asset with capital appreciation technique. Capital appreciation is to revalue to assets to its market price (Alfredson et al, 2009). Application of capital appreciation rule will revalue the asset to 200,000 while the difference can be recorded as capital appreciation profit. ANSWER 2b: Assets are to be recorded on their historical value (Deegan & Samkin, 2011) and Roger is well aware of this accounting standard. However, Roger’s manager has asked him to record the transaction of the purchased asset at $2,000,000 which has been purchased for $1,000,000. However, the market value of the purchased asset is $2,000,000. So, considering the accounting standards, Roger should not record the asset at $2,000,000 but he should record the transaction at $1,000,000 and then apply the capital appreciation technique and then revalue the statement. The difference between the purchased price and the market value can be considered as the capital appreciation profit. ANSWER 2c: Considering the situation of being in place of Rogers, I would have suggested management to adopt an alternate technique to record asset according to the actual value and later using the capital appreciation technique to record the profit and meet the desired objective in a legal way. It will have dual benefits. First, the recorded profit would lend some support to the business which is having difficult time this current year. It will rescue business from a reaching condition where bank can stop its overdraft facility. The other benefit is to meet successfully the necessary accounting standards according to the way they have been defined. Hence, this would help in overcoming the challenge without collision of interest of business and accounting standards. References Alfredson, K., Leo, K., Picker, R., Pacter, P., Radford, J. & Wise, V. (2009). Applying International Financial Reporting Standards (4th Ed.). New York: John Wiley & Sons. Deegan, C., & Samkin, G. (2011). New Zealand Financial Accounting (5th Ed.). Auckland: McGraw-Hill. Gaffikin, M. (2008). Accounting Theory: Research, Regulation and Accounting Practice. Boston: Pearson Education. New Zealand Institute of Chartered Accountants. (2006). Code of Ethics. Retrieved October 10, 2012 from http://www.nzica.com/sitecore/content/NZICA/Resources%20and%20benefits/Resource%20Centre/Free%20Resources/~/media/NZICA/Docs/Resources%20and%20publications/Publications/Code%20of%20ethics%20-%20October%2020061.ashx NZICA. (2010a). A new Accounting Standards Framework for New Zealand. Retrieved October 11, 2012 from http://www.nzica.com/News/Archive/2012/June/A-new-Accounting-Standards-Framework-for-New-Zealand.aspx?p=1 NZICA. (2010b). Code of Ethics. Retrieved October 10, 2012 from http://www.nzica.com/sitecore/content/NZICA/Resources%20and%20benefits/Resource%20Centre/Free%20Resources/Code%20of%20Ethics NZICA. (2011). What is XBR?. Retrieved October 11, 2012 from http://www.nzica.com/News/Archive/2011/September/What-is-the-XRB.aspx?p=1 Smart, M., Bourke, D., & Awan, N. (2008). Financial Accounting: A New Zealand Perspective (2nd Ed.). Auckland: Pearson Education. XBR. (2011). About us. Retrieved October 10, 2012 from http://www.xrb.govt.nz/Site/about_us/default.aspx Read More