Issues the Exposure Draft Is Dealing with - Assignment Example

Question This article by Reuters is concerned with accounting regulations, and ethics. It specifically talks about enactment of regulatory measures aimed at putting to a cap on monetary withdrawals, in the money back, based on a panic that was experienced during the collapse of the Lehman brothers (Reuters, 2015). The collapse of the Lehman brothers is attributed to a variety of factors, and amongst them includes unethical accounting procedures, that were being conducted by the management of Lehman brothers. This includes manipulating the accounting books and records for purposes of recording inaccurate information concerning the stability of the business organization. This is unethical accounting practice, majorly because in any accounting activity, it is the duty of the auditors, and accountants to provide an accurate recording of the financial statements of a business enterprise, which could be reliably used by investors for purposes of making an investment decision, and government agencies for purposes of taxation. It is therefore prudent to denote that it is unethical for any accountant to present information in a manner that would deceive the users of the information, and this is the major that the Lehman brothers was able to fall. This company was trying to run away from being accountable, and this majorly because of misappropriation of the funds of the company, or poor investment decisions, that had a negative impact on the value of the company. It is based on these facts, that investors were able to panic, leading to a mass withdrawal of money market funds, leading to a near collapse of the US stock exchange. This forced the US government to introduce a series of reforms in its money market funds, for purposes of putting a limit of withdrawals that can happen within a given period of time. It also forced the US to introduce accountancy reforms, that could force companies to use accounting standards that are easy to understand, and difficult for accounting managers to manipulate, so as they could provide an inaccurate information, concerning the financial health and condition of the company (Reuters, 2015). This is because they are able to solve the very From this article, we are able to learn that the European Union is seeking to introduce policies whose aim is to reform the money market fund, so that they may be able to provide a limit that people can withdraw because of the market panic. This would also involve initiating policies whose aim is to create standards that can be used for purposes of proper accounting procedures and reporting. From this article, we are able to learn that the money market funds in Europe are a trillion dollar industry, and hence there is a need of making this money safe. This means that, panic withdrawals are unsafe practice that can lead to the destruction of the European economy. From this article, Reuters (2015) explains that most companies normally use the money market funds, as sources of capital, and hence there is a need of protecting this source, against manipulation, and failure which can lead to the collapse of the economy. From this article, we are able to find out that Dublin is one of the major centres of money market funds that are fixed (Reuters, 2008). Therefore, the Irish government wants to make sure that regulations that are enacted by the EU would not lead to capital flight out of Europe. Capital flight is an aspect whereby investors are able to move their money or capital outside a particular region, in favour of another region. This is an aspect that can have a negative consequence to the economic performance of a country or a region. Therefore, the Central Bank of Ireland is right when it is concerned that the new accountancy and securities regulations may lead to the emergence of capital flight. One of the controversial proposals in this new regulation that are being enacted by the European Union is for a corporate treasure to have a fixed price (Reuters, 2008). This is controversial in the sense that corporate organizations would be unable to track the daily movement of the prices of these shares or financial treasures, which could be used for purposes of calculating taxes, and financial reporting. The urge of creating a high value for the financial treasures of companies such as Enron, and the Lehman brothers is one of the reasons that these companies were able to engage in unethical practices that involved manipulating their financial performance, for purposes of increasing the values of the shares, in order to attract a large number of investments, and raise capital from the stock market. However, enacting these changes has proven to be difficult because of resistance from corporate organization and other stakeholders in the money market industry. This is because of the speculative trade that normally occurs with the trading of corporate finances. From this article, we are able to know that these challenges and conflict of interests are some of the operational issues that affect (Reuters, 2015) the development and enactment of a new set of policies that can play a role in solving and addressing the concerns of money managers and corporate leaders, in relation to the reforms that the European Union seeks to introduce in the money market industry. Furthermore, these reforms are facing opposition from law makers, majorly because it would be affecting the key source of raising capital by banking organizations, companies, and government institutions. Furthermore, they fear that imposing a capital buffer in Europe, would kill the money market industry, and hence it would not be beneficial to the economy. Furthermore, Reuters (2015) explains that it was difficult for the US to develop similar laws, because of an intense lobbying from the private sector, government agency, and politicians. This made the country to come up with different versions of the capital regulations that did not impose a cap on the amount of money market industry. This is a concern because of different regimes that are in place in regard to the regulation of the financial sector. For instance, the existence of different accounting standards in the world is not good, because they establish different regulations and financial reporting that makes it difficult for efficient recording of financial statements. Examples include the IASB and the FASB. Hence there is a need of introducing one financial and regulatory standard that is applicable in Europe and United States, as it would help in ensuring that there is efficiency in financial reporting. Question Two: a. Issues the exposure draft is dealing with These comments are dealing with the initiative to amend IAS 1, and this is based on making it effective in disclosing financial statements and records. The major objectives of these proposals and amendments, is for purposes of exploring opportunities that exists in financial reporting, and applying these opportunities in IFRS for purposes of simplifying and improving the manner which accountants and auditors can disclose financial statements and records. Furthermore, this amendment normally focuses on the clarification in the manner which accountants and auditors can provide financial reporting, and this is as opposed to making significant changes to the existing rules and methods of financial reporting as contained in IAS 1. Furthermore, the proposed amendment in this draft initiative is aimed at responding to the interpretation of the words that are contained in the IAS 1. One of the comments of this draft proposal emanates from Abdul Islam (IFRS, 2014). Islam supports these proposals, as they are contained in the draft exposure of IAS 1. In this letter, he is concerned with the clarifications that are contained in the draft proposal whose main intention is to help the producers of financial statements to use judgements, and insight, when preparing financial statements, so that they could reflect the specific needs of their business organizations, or models. In as much as the banking organization is supporting the adoption of these changes, it also wishes that other accounting bodies are involved in these changes, and an overall accounting framework is developed, that could be used for purposes of developing an accounting framework that is universal. Another comment is from Cynthia Sanchez Medina, who is an independent accountant found in Peru (IFRS, 2014). In this article, Cynthia Medina agrees with the proposed changes, whose aim was to promote the recording of items which are not similar, separately. Medina gives an example of a company responsible for manufacturing metal estructures, and she denotes that these new standards advocate for the treatment of the payments given to suppliers separately, from that of its administrative officials. This breakdown of units is an efficient method of financial reporting majorly because it identifies various units and their impact in the organization. Another comment emanates from Dr. Claes Norberg, who is the director of accountancy at the Swedish Enterprise Accountancy Group (IFRS, 2014). Dr. Norberg supports majority of the issues and proposals contained in the exposure draft of IAS 1. However, their only objection is on how communications about significant accounting policies are done. Norberg believes that the focus of financial reporting should be on areas that are unique to the business organization. This is necessary, because currently, the information contained in financial reports is too large. David Chopping writing on behalf of Moore Stephens LLP argues that they are supportive of some of the provisions of the draft changes, and others are not good (IFRS, 2014). They are opposed to the amendments which require the disclosure of sub-totals, in accounting records. b. If there is an agreement on the comments by the authors. Almost all these authors agree that these draft proposals would play a role in improving the manner which the disclosure of accounting information occurs. For instance, they all agree that these draft proposals would be effective in the identification of important units, of production and providing financial reports of these specific units, as opposed to providing a report on the entire units of production, without the identification of specific units of production. This is useful basically because it helps in the easy identification of the most important factors of production, and classifying them. Claes Norberg and David Chopping both agree on the usefulness of the changes imposed by the proposed changes in the IAS 1. However, their major point of concern is in regard to the proposed changes in the manner which financial experts would communicate some important issues about the company. Dr Norberg argues that the changes should factor in, and they should promote the reporting of unique activities of the business organization. This is as opposed to financial reporting of an entire set of business activities which may be too large. However, this is an aspect that David Chopping argues against, and they explain that there is no need of concentrating on specific units, that are important for the company. They call these units as sub-totals, and they advocate for the voluminous reporting of financial information. c. Theories that explain the comment letter. The theory that best explains the comment letters is the capture theory. This is a theoretical framework that explains that a given industry can have the capability of benefitting from specific regulations that are enacted within the industry, if it manages to capture the regulating agency (Rankin et al, 2012). This means that the people or the managers operating within the given industry have an influential role in the policies that the regulating agencies within the particular industry are able to play. This normally occurs if there is a political influence by the major stakeholders in the industry, to the institution initiating policies, or the regulating authority is heavily dependent on the technical knowledge (Riahi-Belkaoui, 2005). In this case, IAS is heavily dependent on the knowledge and skills that emanates from financial experts; hence they have a role to play in influencing the policies that the organization is able to create. This is the major reason why the organization is able to seek for comments, from these professionals, on the draft proposals for the changes in IAS 1. References: IFRS. (2014, March 1). Comment Letter. Retrieved May 4, 2015, from http://www.ifrs.org/Current-Projects/IASB-Projects/Amendments-to-IAS-1/ED-March- 2014/Pages/Comment-letters.aspx Rankin, A., Stanton, P., Ferlauto, K., McGowon, S., Tilling, M. (2012) Contemporary Issues in Accounting. Australia: John Wiley and Sons. Reuters. (2015, February 12). EU Should look at Tax, Accounting to Snap Money Market Impasse-Irish Bank Official. Retrieved May 3, 2015, from http://www.nytimes.com/reuters/2015/02/12/business/12reuters-europe- moneymarketfund.html?_r = 0 Top of Form Riahi-Belkaoui, A. (2005). Accounting theory. London: Thomson. Read More