StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Advantage of IFRS 3 to Users - Assignment Example

Cite this document
Summary
This assignment "The Advantages and Disadvantages of the IFRS" focuses on IFRS 3 that requires the revealing of information that enables users of financial reporting such as managers and investors to examine the nature and financial outcome of business amalgamation…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.4% of users find it useful
Advantage of IFRS 3 to Users
Read Text Preview

Extract of sample "Advantage of IFRS 3 to Users"

Case Study: IFRS 3 Evaluate, from the perspective of preparers and users, the advantages and disadvantages of the IFRS 3 requirement to apportion acquisition cost to identifiable intangibles Advantage of IFRS 3 to users IFRS 3 requires revealing of information that enables users of financial reporting such as managers and investors to examine the nature and financial outcome of business amalgamation that were affected by the acquisition, those affected by the preparation of balance sheet but prior to authorization of financial statement, and the commercial transactions affected in the previous period (Elliott & Elliott, 2013, p. 36). It requires disclosure of information that helps the users of financial statement of the entity to examine changes in the carrying sum of goodwill during the period. Non-amortization of good-will through IFRS 3 could make a business venture more appealing to the investors (Ankarath et al., 2010, p. 252). With greater accuracy, it is possible for the amortization of goodwill to forecast the effects of earnings on the business (Elliott & Elliott, 2013, p. 64). This can increase the quality and credibility of the financial information and audit report. Disadvantages to the users Disclosure of critical information as required by IFRS 3 for comparability and transparency could be detrimental to the company because it could lead to greater consolidation within and across the borders (Elliott & Elliott, 2013, p. 57). Impairment earnings will affect the valuation of the company based on its earnings. Increased amortization of assets based on current purchase accounting rules can make the business amalgamation seem less impressive. It is arduous to prognosticate the result because of comprehensive, frequent and rigorous impairment evaluation of the acquired assets using IFRS 3. Because most of the charges are expensed as they are incurred, the recognition and measurement requirements can be tough to establish earnings improvement as a result of the acquisition (Anders & Tommy, 2006, p. 21). Advantages to the preparers The preparers of the entity’s financial information will not be required to conduct laborious task of estimating the useful life of the goodwill or annual valuation of goodwill that results in increased demand for company’s information (Anders & Tommy, 2006, p. 27). Determining the value of assets is subjective thus it offers room for board members to give their opinions. Disadvantage to the preparers In order for the financial report to be meaningful the preparers of the report under IFSR 3 are supposed to be examine various identifiable assets at a time thus it requires much effort to value each asset separately and amortize goodwill. The subjective nature of the accounting standards under IFRS 3 could result in conflicts and disagreements among preparers of financial report (Anders & Tommy, 2006, p. 36). 2. Evaluate the advantages and disadvantages of the composition of Retail Plcs main board and audit committee and consider the impact of the CEO’s attendance at audit committee meetings. According to Accounting and Financial Management Subject Group (2014, p. 17), the Board of directors of Retail Plc. involves members of the executive and non-executive directors such as the chairperson. On the other hand, the audit committee comprised of two members with financial accounting knowledge. Although the UK Corporate Code requirements are that the board of directors and audit committee should be composed of both executive and non-executive members Retail Plc. has not yet complied with that obligation. Advantages The members of the audit committee assist each other in solving different matters related to accounting and ensure they adhere to accounting process (Anders & Tommy, 2006). Since non-executive members are impartial about the organization, they are in a better position to respond to the issues affecting the organization. They can give professional guidance to the audit committee that can be used in making crucial audit decision in the organization. Disadvantages The attendance of CEO in the board committee’s meeting can cause hindrance to a conclusion about fair and true value of the company’s assets. That may happen in case the CEO gives the different opinion that a conflict with the opinion of board members and through his influence he can have his idea adopted by others (Anders & Tommy, 2006). Also, with an audit committee composed of a fewer non-executive board members may result to delay in decision-making in case of varying opinions between the executive and non-executive members. For example, in Retail PLC the audit committee differed with CEO and external auditors about the method of valuation to be used for tangible assets (Accounting & Financial Management Subject Group, 2014, p. 18). 3. Terry, the audit committee chair, describes the audit committee as the place of last resort. What does he mean by this and discuss whether this view is justifiable. Terry believes that all matters were pertaining financial accounts should be settled by the managers and auditors in order to arrive at harmonious conclusion (Anders & Tommy, 2006). Auditor and managers should present a complete audit report to the audit committee for consent and not for decision. This is because there are technical accounting issues that require special attention and dedication of time by the auditors and managers and can only be analysed adequately when the two groups work together and involve experts where necessary (Accounting & Financial Management Subject Group, 2014). Presenting such issues to the audit committee can result in disagreement and wastage of time before they settle the issue. In the audit meeting the preparers of financial report should only present the findings and discuss the issues that arose during preparation of report and how they arrived at conclusion and how the outcome will influence the company’s performance. Therefore, these led to Terry’s conclusion that the audit committee is “the place of last resort.” 4. All three key parties refer to the importance of identifying and raising issues in a timely manner. Explain, with reference to the case, why they consider this to be so important. Timely and accurate financial report is crucial for decision-making by the users of that information (Elliott & Elliott, 2013). Since financial report is prepared periodically, the preparers of that information should identify and resolve all technical issues in time to ensure the report is available in time for decision making. During the acquisition process, the fair value assets and goodwill of the company should be identified in time since they are useful for decision making (Accounting & Financial Management Subject Group, 2014, p. 22). Ben believes that the essence of identifying issues in the financial report is to ensure the recommended changes are implemented for effective results. However, late detection of issues in the financial report is useless because there is not opportunity for making follow-up after the issues have been fixed. According to William, timely identification and fixing of issues will streamline the acquisition process and improve decision making while reducing conflicts. On the other hand, Terry observes that delay in identifying and fixing issues in the financial report may not help the users of that information because it will not reflect true and fair value of the company’s assets. However, early detection of issues in the financial report offers an opportunity for fixing those issues (Accounting & Financial Management Subject Group, 2014, p. 31). 5. A critical audit interaction occurred at the meeting with the CEO. Discuss the initial position taken, the evidence, negotiation limits, the areas of flexibility and compromise and the tactics used by William, Ben, and Andrew. William had perception that there is no essence of discussing the result of the financial report because such discussion creates the avenue for further arguments and conflicts of opinion. Asking questions would result to waste of time since it is not possible to achieve harmonious conclusion. He believed that the audit committee should focus on discussing other matters relevant for promoting company’s performance instead of dwelling on issues arising in financial report (Accounting & Financial Management Subject Group, 2014). As far as Terry was concerned fixing issues arising in the financial report was the most crucial thing and inevitable for the board members (Accounting & Financial Management Subject Group, 2014, p. 29). He requested his colleagues to address the issues in time before the report is presented to the audit committee in order to avoid conflict with the audit committee. He appreciated that human beings are prone to errors and instead of blaming those responsible for the mistakes identified in the report they should engage in correcting them since they will have to be fixed even after they are presented to the audit committee. Finally, Ben had the similar view with Terry any issues in the financial report should be addressed before the report is presented to the audit committee. Although he only spoke for the sake of maintaining his client, Ben hoped that others would solve the issues and believed it was waste of time to continue arguing with no hope of arriving at an agreement (Accounting & Financial Management Subject Group, 2014). 6. Evaluate the outcome of the interaction in terms of quality and ease of agreement and consider what the consequences of it are likely to be in future financial reporting decisions and relationships between the key parties? The engagement between executive and non-executive members had both positive and negative consequences. On a positive notion the discussion helped the board members to discuss various issues affecting the financial report and offer solution to those issues in order to improve the usefulness of the financial report to the users (Accounting & Financial Management Subject Group, 2014, p. 24). Through discussion, the members can identify issues and come up with a solution thus providing the committee with an opportunity for implementation and follow-up to improve performance. The board members can implement IFRS and set-up procedure for solving issues in the future in order to reduce flaws that may arise during the implementation process. It is worth noting that some issues might arise and limit the quick and effective implementation process of standards recommendations (Ankarath et al., 2010, p. 296). In some cases, the board members may not be keen on implementing and making follow-up of the recommendations to achieve the intended results particularly when the issues are not identified in time. Should that a situation arise, it will not be possible to achieve quality and credible financial report. Bibliography Accounting & Financial Management Subject Group, (2014). Advanced Financial Accounting Unit Handbook University of Portsmouth. Pp. 16-150. Anders, C. & Tommy, P. (May, 2006). IFRS 3, Enlightening the World of Acquisitions Jonkoping International Business School. Pp. 1-70. Retrieved on 9th November 2014 from http://www.diva-portal.org/smash/get/diva2:4111/FULLTEXT01.pdf Ankarath, N., Mehta, K. J. Ghosh, T. P. & Alkafaji, Y. A. (2010). Understanding IFRS Fundamentals: International Financial Reporting Standards. John Wiley & Sons. Pp. 1- 416. Elliott, B. & Elliott, J. (2013). Financial Accounting and Reporting. Pearson Education, Limited. Pp. 1-875. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(1. Evaluate, from the perspective of preparers and users, the Case Study, n.d.)
1. Evaluate, from the perspective of preparers and users, the Case Study. https://studentshare.org/finance-accounting/1853317-1-evaluate-from-the-perspective-of-preparers-and-users-the-advantages-and-disadvantages-of-the-ifrs-3-requirement-to-apportion-acquisition-cost-to-identifiable-intangibles-30-marks-2-evaluate-the-advantages-and-disadvantages-of-the-composition-of-r
(1. Evaluate, from the Perspective of Preparers and Users, the Case Study)
1. Evaluate, from the Perspective of Preparers and Users, the Case Study. https://studentshare.org/finance-accounting/1853317-1-evaluate-from-the-perspective-of-preparers-and-users-the-advantages-and-disadvantages-of-the-ifrs-3-requirement-to-apportion-acquisition-cost-to-identifiable-intangibles-30-marks-2-evaluate-the-advantages-and-disadvantages-of-the-composition-of-r.
“1. Evaluate, from the Perspective of Preparers and Users, the Case Study”. https://studentshare.org/finance-accounting/1853317-1-evaluate-from-the-perspective-of-preparers-and-users-the-advantages-and-disadvantages-of-the-ifrs-3-requirement-to-apportion-acquisition-cost-to-identifiable-intangibles-30-marks-2-evaluate-the-advantages-and-disadvantages-of-the-composition-of-r.
  • Cited: 0 times

CHECK THESE SAMPLES OF Advantage of IFRS 3 to Users

The Indonesian Financial Accounting Standards

Instructor Date Thought Activity My country – Indonesia has not adopted ifrs but instead has been following a process of gradual convergence to ifrs.... Since 2012 we have adopted those ifrs which were effective January 2009.... However, there are no plans to at this time to adopt ifrs fully and some of the standards that were effective in 2009 have since been revised and would therefore increase the gap between our revised standard (for the process of convergence) and the revised IFRSs....
6 Pages (1500 words) Essay

Applying International Financial Reporting Standards to the Public Sector FAQs

An obvious advantage of the adoption of ifrs by US companies is the enhanced comparability of their financial statements with the financial statements of companies operating worldwide.... ith ifrs gaining global acceptance, users of financial statements will benefit a lot....
1 Pages (250 words) Essay

Fair Value and Fair Presentation of Financial Statements

As per the requirements of ifrs 5, 'the assets that are held for sale are to measured at the lower of carrying amount and fair value fewer costs to sell' (IASB, n.... The author focuses on a fair value which refers to the unbiased estimated market value of an asset or a liability....
6 Pages (1500 words) Assignment

Potential Benefits of Adopting the IFRS in Australia

Australia is one among the nations that have adopted the ifrs.... The country has adopted the standards since the ifrs adoption move was encouraged by the 1995 European Commission's report considerations (Accounting Harmonization: New strategy with regard to global harmonization), however, it resulted from some more far reaching program for corporate reforming that was introduced by the government of Common Wealth under sponsorship of CLERP (The Cooperate law Sponsorship Program)....
9 Pages (2250 words) Coursework

Differences between Generally Accepted Accounting Principles and International Financial Reporting Standards

This paper highlights differences between Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (ifrs), in a detailed manner.... ifrs is a common language that is globally used for affairs related to business so that company accounts can become comparable and understandable across international boundaries.... Several nationally used accounting standards are gradually being replaced by ifrs.... General differences between GAAP and IFRSThe major differences between GAAP and ifrs can be discussed as follows (Shamrock, 2012): US GAAP IFRSMajor difference: Conceptual framework The conceptual framework under GAAP is a non-authoritative form of guidance, which is rarely referred to by ones who prepare financial statements....
9 Pages (2250 words) Essay

Advantages and Disadvantages of the IFRS 3 Requirement to Apportion Acquisition Cost to Identifiable Intangibles

The paper "advantages and disadvantages of the ifrs 3 Requirement to Apportion Acquisition Cost to Identifiable Intangibles" is a wonderful example of an assignment on finance and accounting.... The paper "advantages and disadvantages of the ifrs 3 Requirement to Apportion Acquisition Cost to Identifiable Intangibles" is a wonderful example of an assignment on finance and accounting.... International Financial Reporting Standards (ifrs) 103 is applicable in companies' assets during takeover or acquisition (Anonymous, Nd....
7 Pages (1750 words) Assignment

Comment Letter on a Study

The paper "Comment Letter on a Study" is an outstanding example of a Finance & Accounting case study.... The conceptual framework in accounting is aimed at describing the objectives, the concepts, and the general purposes of financial reporting.... The conceptual framework assists International Accounting Standards Board to develop accounting standards that are consistent....
18 Pages (4500 words) Case Study

Advantages and Disadvantages of International Financial Reporting Standards in Australia

This article evaluates these remarks by concentrating on the named advantages and disadvantages of the choice in the introduction to as well as instantly subsequent to the adoption year of 2005 in January.... Founded on this assessment it's likely to regard as, although in a quite subjective way, whether in reality the advantages of implementation to equal company and the workplace/career are expected to prevail over what seems not to be unimportant costs.... After the pronouncement in 2003 July that Australia will implement ifrs, more has been inscribed on the concern by critics in educational and business journals along with the economic journalists....
10 Pages (2500 words) Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us