Corporate Reporting Theory and Practice - Essay Example

Corporate Reporting Theory and Practice Sessional work ID Corporate Reporting Theory and Practice Sessional Coursework 2014 Introduction In the accounting field, development of uniformity in management of accounting records is an essential part that has helped enhance the accounting language and standardize it on a global perspective. Through this, the development of accounting records and reports has been simplified and made easier for all accountants to understand and users make sense of the information provided. The globalization of business transactions has pushed for the need to develop a common language for all business personnel to understand. Management, developmental and measurement of assets and liabilities is an essential part of the financial reports. Creating uniformity in handling these items marks the fundamental point in the recent developments made to the International Accounting Reporting Standards (IARS). The role of the International Accounting Standards Board is to ensure that these developments are managed and all that results is vital to the accounting profession and the business world. The changes that this paper focuses on are the changes that were made and reviews collected as per the closed session of 14 January 2014 that aimed at collecting the comments that the global accounting bodies developed based on independent opinions that have instigated the contributions that reflect on the websites of the company. In seeking opinions of other professionals, the body aimed at developing standards that many other professionals find appropriate and applicable in their own situations and in different countries. The details of the paper provide a critical analysis of the developments and are as set out to improve the measurement of assets and liabilities. As defined in the discussion, assets and liabilities as per the current regulations have been based on the resources provided and the different obligations involved that prove of a relevance to the consumers of financial information. These two items are viewed as aspects that relate to inflows and outflows of financial resources connected to different obligations that the company handles. Based on these old standards, assets and liabilities are defined as below: An asset or a liability refers to any resources or obligations that benefit a user economically rather than mere inflows or outflows of resources. These items qualify as assets or liabilities because of their ability to generate inflows or outflows that pertain to economic benefits. The IASB proposes a different regard of assets and liabilities that has become the content of the current discussions. The board proposes “an asset as a present economic resource controlled by the entity based one historic past events. A liability represents a present obligation of an entity to transfer an economic resource as a result past events.” This gives assets and liabilities the economic aspect more than considering them as mere inflows and outflows of economic benefit. The IASB also defines “an economic resource as a right or rather a source of value that is a capable of producing economical benefits.” The consideration of an asset, a liability and an economic aspect, according to the board provides the entity with a fair position on defining these items (Discussion Paper, July 2013, p.7). The consideration of redefining assets and liabilities reflects just part of the changes that the board wants to make. Other changes pronounced in the discussion with regard to the conceptual framework include the revision of the statement different primary objectives of the framework, a revised and more enhanced guideline for the application of the new definitions of the assets and liabilities. Their recognition, derecognition, new ways to place claims on the aspects, presentations and the disclosures of different companies and different principals that help distinguish profits and losses that an entity makes from the other incomes comprehensive in nature. All these changes are aimed at improving the way accounts professionals handle the items involved and aims at improving the whole accounting process. The discussion on the roles that uncertainties play on the management of assets also featured. In defining and the recognition of assets, the need to involve and account for any uncertainties provides of the company or business entity to avoid any unregistered losses that may affect their entity. Measurement of assets requires the consideration of uncertainties that may occur and cause damages or losses to the entity. These losses are what create the need for uncertainties and through these, the company loses resources and the economic essence of the assets or liabilities may affect the company negatively. A critical analysis of the measurements relates the following results. The measurements on the definitions of assets For a public company, the definition of assets in relation to inflows and outflows does not provide an ideal state of defining assets and liabilities. The proposed definition that covers assets and liabilities as aspects of economic essence that an entity controls because of events occurred in the past provides a better definition of assets and liabilities. Past transactions relate to the different involvements that led to the possession of the assets and liabilities by the company. These aspects involve the items that many companies own and were purchased or occasioned in a sense that they become obligations that the entity has on others or others have on it. According to the description on comments given by Mr. Musoke, the inclusion of an obligation to the definition makes the whole definition of an asset or obligation complete. Many people have viewed the use of an economic aspect as a very broad definition that may leave many questions unanswered with regard to measuring an asset and a liability (Comment letters, July 2013, p.2). Primary purpose of the contextual framework Considering the conceptual framework, the changes stemmed much on the improvement of the framework to provide more guidance to accountants and other professionals in building different reports for different reasons in the field. The current framework that is considered does not provide reliable guidance to the profession. The guidance available on the application of the different provisions of the accounting body requires adjustment to ensure that the new revisions and provisions become part of the guidance that the changes provide (Discussion Paper: Conceptual framework, July 2013, p.6). The provisions on the contextual aspects relates to the explanation of the applicability that aims at eliminating confusion in the application of the standards. These include the aspect of fair value that may work easily for a financial asset but depreciation cost may prove vital for an asset like property and buildings compared to fair value. This guidance is providing for that. It is through initial recognition that the assets and liabilities of a company are registered (Ankarat, Mehta, Ghosh & Alkafaji, 2010, p. 232). Guidance on application for definitions of assets and liabilities The discussions on the guidance that the different definitions provided in the new proposed standards will provide is discussed in detail and aids professional make better judgments in this quest and in providing reports for different entities like the London based public company. The guidance provided in the accounting field requires the application of aspects that provide separate accounting for assets and liabilities (Epstein & Jermakowicz, 2010, p.516). Revised guide on the recognition of assets and liabilities The developed changes in the definition of assets also cover the changes in their recognition and consideration in the reporting aspects. Recognition of assets requires that the asset is based on the definitions provided in the standards and ensure that the company has the right treatment accorded to the assets to provide a better position in reporting. According to the literal recognition, an asset is normally recognized when the costs of acquisition, carrying, depreciation, timing impairment, retirement and disposal aspects all have featured. These provide the basic lines between which an asset is recognized (Bhattacharyya, 2006, p.340). A new guidance on the derecognition of assets and liabilities. Derecognition of assets for the first time has also featured in the standards discussed. The derecognition aspects relate to when an asset ceases to be recognized in reports of a company. Assets derecognition is a new concept that relates to ensuring the company registers only assets and or liabilities that provide economic sense to it. Basing on this development, assets or liabilities that no longer meet the recognition criteria is not to feature in the financials of a company. The public company needs to ensure that any assets that do not meet the recognition criteria are not included in the financials. The old standards IAS 39 provides for the derecognition of an asset or liability (Mirza, Holt & Orel, 2010). Evaluation of the proposed measurement bases and guidance’s as a way of reducing complexity and improving better representation of the company’s financials. The proposed measurements will provide more complexities to the profession especially in defining assets. Defining assets and liabilities as mere economic aspects that regard to past events is a broad definition that may not provide a specific composition of the assets that a company may hold. On another perspective, the derecognition of an asset may create an economic negative to the company. A public company’s derecognition of an asset or liability may require its detailed explanation to the different investors. The lack of this may picture unfair practices. The standards may consider having ways of including the asset or influencing the company in dealing with the asset in another manner that may relate to economic vitality compared to it’s derecognition. Many analysts consider the recognition of assets as a major aspect in accounting with its ability to explain and provide a better position for accounting information users in dealing with financial challenges and providing a clear position to the users of financial information (Naiko, 2012, p.2). The derecognition of an asset or liability from a financial statement raises more questions that are challenging if no proper provisions are developed to indicate the direction that the derecognized item takes. References Naiko, D. 2012. Elements of Financial Statements and the recognition Criteria for Assets and Liabilities. Retrieved from http://www.slideshare.net/sandeeprajnaiko/elements-of-financial-statements-the-recognition-criteria-for-assets-liabilities Bhattacharyya, A. K. 2006. Financial Accounting for Business Managers. PHI Learning Pvt Ltd. Mirza, A. A., Holt, G. & Orrell, M. 2010. International Financial Reporting Standards (IFRS) Workbook and Guide. John Wiley and Sons. Ankarat, N., Mehta, J. K. Ghosh, P. T. & Alkafaji, A. Y. 2010. Understanding IFRS Fundamentals: International Financial Reporting Standards. John Wiley and Sons. Epstein, B. J. & Jermakowicz, E. K. 2010. WILEY Interpretation and Application of International Financial Reporting Standards. John Wiley and Sons. Discussion Paper: Conceptual framework, July 2013. Snapshot: Review of the Conceptual Framework. Retrieved from http://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Discussion-Paper-July-2013/Documents/Snapshot-Discussion-Paper-Conceptual-Framework-July-2013.pdf Comment letters, July 2013. Comment Letters retrieved from http://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Discussion-Paper-July-2013/Pages/Comment-letters.aspx Discussion Paper, July 2013. A Review of the Conceptual Framework for Financial Reporting. Retrieved from http://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Discussion-Paper-July-2013/Documents/Discussion-Paper-Conceptual-Framework-July-2013.pdf Read More