Question;

In an essay between 1000 and 1500 words (+/- 5%), students are to answer the following:

If the standard-setting process should achieve better information for decision making, what criteria do you think would identify better information for users of financial statements and why? Discuss in the context of International Financial Reporting Standards (IFRS) and shareholders as the primary external user of financial statements.

Where possible relevant examples should be provided with appropriate references. (In-text and end-text references are required.) There are many possible responses to this question and students need to ensure they discuss the points they think are the most important to ensure that the word limit is adhered to.

Required Format;

  • Use the word count in Microsoft Office and write the number of words at the end of the essay.
  • Essays should be typed using Microsoft Word with a size 11 or 12 font and using minimum 1.5 line spacing (no single spaced submissions). Left and right page margins should be at least 2 cm.
  • Chicago referencing style is required for in-text and end-text referencing.

Answer;

Introduction

Many organizations take initiative of preparing financial statements namely balance sheet, income statements, and statement of cash flows. The financial statements are highly relevant in the sense that the provide performance, and financial position of an entity.[1] The information entailed in the statements form a basis of economic decisions that many large corporate businesses use. Recently, the International Financial Reporting Standards provided the standard setting processes to invoke global financial reporting standards. Share holders are usually keen on evaluating financial reports of companies that they pool their resources.[2] The paper will examine the most appropriate criteria that the enactment of the standard setting would provide better information to shareholders.

Overview of the Standard Setting

The IASB is obliged to develop high quality standards for financial reporting with a primary aim of addressing for providing better quality financial report to users.[3] Therefore, the IASB intended to address problem regarding financial reporting through setting an agenda. The agenda had five main objectives; provide relevance report to users, deal with issue of constraints, providing available guidance, increasing convergence, and develop quality of the IFRS.

The IASB worked for the interest of stakeholders by decision to assess issues against identified criteria such as correcting, clarification, timely completion, and sufficiency.  Article look of the criteria indicates that IFRS intended to introduce amendments on IASB projects mainly with a primary objective of improving quality of financial reporting. The criteria would improve quality by providing guidelines of correcting unintended oversights, conflicts, and consequences.

Since January 2005, Australia adopted the International Financial Reporting Standards guidelines one of the strategic framework of AASB Program.[4] In other words, issues related to IASB framework currently included in the work program of AASB. Upon adopting the IFRS program, Australian stakeholders have an opportunity of advising the IASB on issues related to international standard-setter.

Overview of the Criteria

Among the four proposed criteria by the IFRS, timely completion, sufficiency, and clarification would be the highest deal in terms of providing shareholders with better information. Providing timely completion financial reporting is highly essential to gain the confidence of shareholders despite the fact that shareholders lay a minor role in running a corporate business. Occasionally, shareholders develop keen interest monitoring the performance of the company and takes obligation on voting for board of directors. Therefore, the IFRS would be sure of making a significant progress on achieving interest of shareholders by including the criteria to its standard setting process.[5]

In essence, shareholders would be interested to receive timely financial information of the company that they pool their resources to make a sound decision on the progress of the company. If a company resolves to deliver, the financial report lately shareholders would become suspicious of insider dealings[6] or any other financial misconduct that may accrue such a company. Additionally the criteria would be ideal to include in the standard setting process since it would give shareholders ample time to assess critically the financial progress of financial statements before the next trading period starts. Denying shareholders timely delivery of financial report indicates that a company is no longer willing to share information regarding financial prospect of the company. Therefore, shareholders will o longer be sure when to they would be deemed to receive their dividends or even assess the profitability of the company just after the end a particular trading period. Equally, shareholder would fail to make timely decision on the cash flow of the company after the completion of a particular trading period.

The criteria of sufficiency would play a critical role in maintaining shareholder’s confidence toward a company.[7] The criteria would specify that companies should consider indicting that released financial statements are audited accordingly. The main objective of the sufficiency indicates ultimate evidence of auditing.

A critical evaluation of the results of the audited financial statement would guide shareholders determine whether the company presented the financial reports fairly.[8] The audited report will indicate whether the company’s auditor included applicable conformity by presenting the entire relevant audit evidence.[9] Therefore, the criteria of sufficient will compel auditors to produce a comprehensive audit report that include a number of financial disclosures that shareholders should know. For instance, the criteria would compel the company auditor to release the results of the analytical procedure included during the process of overview of the financial statements. Auditors would also be obliged to include misstatements that would have accumulated during the process of auditing including uncorrected misstatements.

Thirdly, the criteria would guide shareholders to evaluate qualitative aspects of accounting principles of the company.[10] Moreover, shareholders would be in a comfortable position to identify whether the company accountant allegedly engaged in material misstatement of the company’s financial report. In other words, shareholders would wish to gain comprehensive knowledge on whether the company that pool their resources engaged in fraud risk. Therefore, the IFRS would highly consider implementing the sufficiency critter when implementing the standard-setting process. Australian shareholders will be sure of evaluating comprehensive and reliable financial reports released by their respective companies.

The IFRS intended to implement the criteria of clarification of financial statement in the international standard setting. The IASB insist that the criteria would provide comparative information for opening statement of a company’s financial position. The criterion requires companies to make retrospective restatements o dates of opening financial position statement.

The criteria of clarification would enhance how shareholders evaluate comparative information as explained by the IASB.  The criterion defines how entities would comply with changes in accounting estimates and accounting policies. Thus, shareholders would be sure of evaluating financial statements that will be free of errors through implementing the criteria.  Other words, the criterion would guide companies on providing high quality financial reports that shareholders would assess to monitor the corporate governance of the company they invest.

Furthermore, the criteria will guide shareholders in understanding why some errors happen to be included n the financial statements of company. This way, Australian shareholders would gain confidence over released financial reports.

Conclusion

The paper has focused on examining how the IFRS is willing to invoke the standard –setting process. Australia adopted the formwork of the IFRs that provides guidelines on presenting financial reports. The IFRS intended to introduce the program though IASB that provided the plan using four proposed criteria namely correctly, clarifying, sufficiency of reports ad timely basis. The paper has identified clarifying, sufficiency, and timely basis as essential criteria that would be beneficial to Australian shareholders. The clarification criterion indicates that shareholders would appreciate the effort of the IFRS in maintaining situation where entities incur errors when preparing financial statements. The timely basis criteria would create a stable relationship between shareholders and entities since entities would be creating confidence to shareholders by releasing financial reports on time. The sufficiency criterion indicates that shareholders would be sure of obtaining fraud free financial reports if the IFRS would implement the criterion in the international standard setting.

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