...Changes to Accounting Standards for Leases Who is likely to be affected? Businesses which are lessees or lessors of assets and account for lease transactions using a leasing accounting standard which changes on or after 1 January 2011. General description of the measure Current accounting standards are International Accounting Standards (IAS) and UK Generally Accepted Accounting Practice (UK GAAP). Changes to the IAS lease accounting standard are expected during 2011, and changes to UK GAAP might follow in 2013. Legislation will be introduced in Finance Bill 2011 to ensure continuity of tax treatment for lease transactions for businesses which begin to account for the transactions under new accounting standards, expected to be introduced from 2011. The measure will require tax profits and losses to continue to be calculated as if the changes to lease accounting standards had not taken place. Policy objective The measure will ensure that existing tax rules that rely on accounting classifications of leases as operating or finance leases, and the accounting treatment of lease transactions, continue to operate in the way they currently do. The objectives are to: • • ensure that lessors and lessees will be neither disadvantaged nor advantaged by the proposed accounting changes; remove uncertainty for businesses about the future tax treatment of leasing contracts, arising from uncertainty about future lease accounting standards and their interaction with current tax rules;...
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...NiCE Working Paper 09-108 April 2009 Quality of Financial Reporting: measuring qualitative characteristics Ferdy van Beest Geert Braam Suzanne Boelens Nijmegen Center for Economics (NiCE) Institute for Management Research Radboud University Nijmegen P.O. Box 9108, 6500 HK Nijmegen, The Netherlands http://www.ru.nl/nice/workingpapers 1 Abstract We construct a compound measurement tool to comprehensively assess the quality of financial reporting in terms of the underlying fundamental qualitative characteristics (i.e. relevance and faithful representation) and the enhancing qualitative characteristics (i.e. understandability, comparability, verifiability and timeliness) as defined in ‘An improved Conceptual Framework for Financial Reporting’ of the FASB and the IASB (2008). The operationalization of these qualitative characteristics results in a 21-item index. Using 231 annual reports from companies listed at US, UK, and Dutch stock markets in 2005 and 2007, we test our compound measurement tool on internal validity, inter-rater reliability (Krippendorff’s alpha) and internal consistency (Cronbach’s alpha). Our findings suggest that the measurement tool used in this study is a valid and reliable approach to assess the quality of financial reports. The measurement tool contributes to improving the quality assessment of financial reporting information, fulfilling a request from both the FASB and the IASB (2008) to make the qualitative characteristics operationally...
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...Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Easy 28. The primary focus for financial accounting information is to provide information useful for: A. Option A B. Option B C. Option C D. Option D AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Easy 29. Which of the following is not true about net operating cash flow? A. It is the difference between cash receipts and cash disbursements from providing goods and services. B. It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows. C. Over short periods of time, it may not be indicative of long-run cash-generating ability. D. It is easy to understand and all information required to measure it is factual. AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Medium 30. Which of the following groups is not among financial intermediaries? A. Mutual fund managers B. Financial analysts C. CPAs D. Credit rating organizations AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Medium 31. Which of the following was the first private...
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...of this essay is to discuss financial reporting is both a reflection and creator of our perception of social reality and is consistently evolving. By means of research of these source collections, relevant evidence is selected, evaluated and organized into three key areas: the Carbon tax legislation represents a creation of a new social reality and the impact on sustainability in business. The carbon tax would be represented in the financial reports. To introduce the particular company and legislation impacts on that company. The Framework shows that the financial reporting is present relevant and reliable information. Some experts considered that the insufficient information on financial reporting impact on social reality. Thus, the Sustainability reporting occurs to fix up the fanatical reporting gaps. Introduction Financial reporting is both a reflection and creator of our perception of social reality and consistently evolving. Currently, accounting system is not only focus on the data of how much company earns, it also shift towards to social responsibility. As the dramatic of pollutions, especially that of the developing nations is extremely harmful not only to the surrounding environment, but also to the inhabitants of that country as well. Thus, financial reporting take concern on such problems and create out Sustainability reporting which help to reduce the pollutions. This essay is to discuss the both reflection and creator of financial reporting in reality social...
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...Proposed Revision for Revenue Recognition Xin Yan Introduction Since 2002, the International Accounting Standard Board (IASB or collectively the boards) and the Financial Accounting Standards Board of US (FASB or collectively the boards) have been working together on a project to revise and converge IFRS and US GAAP on revenue. Consequently, the Boards have jointly issued two exposure drafts outlining proposed changes. The latest one was published in November 2011 with public comments received in March 2012. If adopted, it will substitute all revenue standards prescribed by IFRS including IAS 11 Construction Contracts and IAS 18 Revenue and relevant interpretations and most of the revenue recognition requirements and related guidance in US GAAP. This paper, first of all, will provide a brief background of the joint project. Then it will highlight proposed changes and its implications in key areas. Finally, it will discuss effective date, early adoption and transition of the new standards and offer some alternative view. Background While the definition of revenue in IFRS seems clear, revenue requirements in IAS 11 and IAS 18 actually could be problematic to be applied to complicated transactions. Additionally, some application guidance on critical issues such as revenue for multiple element agreements is quite limited. Therefore a number of entities have established their IFRS accounting guidelines by resorting to parts of US GAAP. However, US GAAP consists...
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...Cathy D. Brown Professor: Kenneth Lavery Course: BUS 557 Financial Accounting May 19, 2013 ABSTRACT The paper will describe my business as an Entrepreneur. The business I choose would be run as a sole proprietorship business owned and controlled by one man (myself) even though many other persons will work for me. By choosing to run my business as a sole proprietor I may use a trade name or business name other than my legal name. I will justify the legal form of being a sole proprietor and its advantages over other forms. As an entrepreneur and a sole proprietor, I can declare my business income on my personal income tax form, rather than having to file a separate tax form, (as you would have to do if you chose the corporate form of business ownership). The roles of the executive management team will be to orients staff and oversees their training. In addition, they schedule staff work hours, making sure that peak dining hours are covered. I will address whether or not I will use a board of directors and /or a board of advisors and why. Under develop the rudiments of a financial plan my financial requirements for the venture, will including the amounts needed for cash flow and profitability. A crucial part of any restaurant business plan is to estimate their...
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...Comprehensive Annual Financial Report Briefing: Each year the Los Angeles County Office of Education issues a Comprehensive Annual Financial Report (CAFR). The most recent report as the 2012 that was created by Alexander Cherniss, Ed.D., Chief Business Officer, fiscal year ending June 30, 2012. Presently no boundary changes during the fiscal year. The purpose of this paper is to provide an overview of government accounting and reporting. Governmental Accounting and Reporting Budgeting and accounting are predominantly vital for a government body. Any person with the competence to make decisions relating to the prevailing body should possess the essential understanding of budgeting and accounting. “The Governmental Accounting Standards Board (GASB) sets the accounting and financial reporting standards for state and local governments, whereas the Financial Accounting Standards Board (FASB) sets these standards in for-profit business” (Granof &Wardlow, 2011). Governmental purpose and missions differ from those of a for-profit business. For-profit business is vastly measured by increasing profits and shareholder worth. Economic metrics are based exclusively on revenue and net income margins, where there may not be as measurable for governmental financial reporting. Government financial report cannot be always measured in monetary trends but more on a service oriented and focus cannot always be measured in dollars and cents and tends to be based more so on service...
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...accounting department at his aunt's software company. While going over some financial statements Nick notices what he believes are revenue recognition issues. Since Nick believes that Lee Marchetti the Chief Financial Officer (CFO) of O'Brien Software is an honest man, he decides to have a discussion with him about what he believes are revenue recognition issues. Mr. Marchetti explains to Nick that accounting is not an exact science and that it involves a lot of judgment calls and that O'Brien Software's "deferrals and estimates are well documented and in accordance with the Securities and Exchange Commission (SEC) rules" (Conservative Recognition or Cookie Jar Reserves, Carpenter p. 3). After speaking with Mr. Marchetti, Nick decided to still speak with his aunt Amelia about his concerns. Amelia expressed to Nick that she was not very good when it came to accounting matters but she was educated when it came to recognizing revenue and that she believed being conservative was better than overstating. However, she asked Nick if he thought she should mention what he found to the audit committee. Issues/Questions One question that should be addressed surrounds why the CEO Amelia is not aware of certain financial aspects of her business. The Sarbanes-Oxley Act requires the chief executive officer (CEO) and the chief financial officer (CFO) of public companies to certify the quarterly and annual financial statements submitted to the SEC (Arens, Beasley, & Elder, 2012). The...
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...accounting procedures and therefore is not involved in the company’s accounting branch. In general the company seems to function with an air of honesty and integrity. Although the company is family owned, all of the business decisions are made with the consent of the audit committee of the board of directors. Furthermore, Lee Marchetti, the company’s CFO keeps a tight eye on all the financial activity of the company and is recognized as being a trustworthy individual who can ensure that the company’s controls are watertight. The situation is like this: While reviewing some of the company’s software revenue recognition data Nick got the feeling that the estimates were too conservative based on what the company was actually bringing in. He felt that it was possible that the company was creating “cookie jar” reserves to inflate earnings when times weren’t so good. This was especially worrisome considering that the company is about to come out with BrainWave, the company’s newest software. If investors got the sense that they were being misled it could have a detrimental effect on the company’s financial situation. Nick knew that since his aunt didn’t know much about the accounting situation it would be wise to talk to Lee about the potential problem. Nick met with...
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...IFRS and US GAAP: similarities and differences IFRS readiness series October 2012 Table of contents The heart of the matter 2 US financial reporting will change significantly within the next several years An in-depth discussion 4 Examining the implications IFRS affects US businesses in multiple ways What this means for your business 6 Anticipate and manage the change What companies can and should do now October 2012 The heart of the matter US financial reporting will continue to change over the next several years Although US companies will not when, and how IFRS might be be permitted to use International incorporated into the US financial Financial Reporting Standards (IFRS) reporting system. for US public filings in the foreseeable • In May 2011, the SEC’s Office of future, IFRS has been affecting US the Chief Accountant published a companies for some time, primarily Staff Paper exploring one possible through engaging in cross-border method to incorporate IFRS merger-and-acquisition (M&A) into the US financial reporting activity, meeting the reporting needs system, involving an active of non-US stakeholders, and assisting Financial Accounting Standards with or monitoring of the IFRS Board (FASB) incorporating IFRS requirements of non-US subsidiaries. into US GAAP over an extended US companies are also becoming period of time (the “endorsement” increasingly aware of IFRS, as key method). Under this method, the aspects of US generally...
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...‘representational faithfulness’. Provide a brief description of the meaning of these two characteristics. Do you think faithful representation is more important than relevance for accounting information? [ 3+3=6 marks] [Word limit 300] Suggested solution: The fundamental qualitative characteristics identified in the New Zealand Framework are ‘relevance’ and ‘faithful representation’. Relevance is a fundamental qualitative characteristic of financial reporting. Under the IASB Conceptual Framework, information is regarded as relevant if it is considered capable of making a difference to a decision being made by users of the financial statements. There are two main aspects to relevance. For information to be relevant it should have both predictive value and confirmatory value (or feedback value), the latter referring to information’s utility in confirming or correcting earlier expectations. The other primary qualitative characteristic is ‘faithful representation’. According to the IASB Conceptual Framework, to be useful, financial information must not only represent relevant phenomena but must also faithfully represent the phenomena that it purports to represent. According to paragraph QC 12 of the IASB Conceptual Framework: To be a perfectly faithful representation, a depiction would have three characteristics. It would be complete, neutral and free from error. Of course, perfection is seldom, if ever, achievable. The Board’s objective is to maximise those qualities to the...
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...BAO 3309 Advanced Financial Accounting Semester 2 2013 BAO3309 Advanced Financial Accounting: Research Assignment INDIVIDUAL ASSIGNMENT – 20% (Due date: no later than 5pm on Wednesday 18 September 2013) This assignment weighs 20% of the total grade of this subject. It must be handed in before the due date and meet all the submission requirement for successful completion of the subject Research topic: Convergence of international financial reporting standards 1. Your essay needs to address the following questions: A. Critically review literature on arguments for and against global convergence of international financial reporting standards (IFRS) B. Identify two listed companies: one from Australian Securities Exchange (ASX) and the other from New York Stock Exchange (NYSE); and analyse the accounting policy statement in their annual reports for the reporting year 2012 C. Discuss if your findings of Question 2 support (or reject) the convergence of IFRS. 2. Submission requirement 1. In-text references and a reference list are required to evidence your review of literature (see Appendix 1 for a list of academic journals) 2. Style: Use the following reference style (adapted from The Journal of International Accounting’s Author’s Information) for your assignment a. References list: references should be arranged first alphabetically and then further sorted chronologically if necessary. More than one reference from the same author(s) in the same year must be identified by the letters...
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...reasoning for financial reporting harmonisation…………………………….………………………………..3 3. Approaches to harmonisation………………………………………………………………………..…………………………..4 4. Obstacles in harmonisation………………………………………………….……………………………………………………..6 5. The convergence between IASB and FASB today and the Changes within the IASB towards achieving their goal ……………………………………………………………………………………………………………………7 Conclusion ………………………………………………………………………………………………………………………………………………8 References & bibliography………………………………………………………………….…………………………………………………..9 1. Harmonisation – what it means Harmonisation is the process which aims to converge the accounting practices around the world and to increase the compatibility between countries in regards to financial statements. However, we must keep in mind that this process does not target uniformity in the accounting practice, but to reduce the differences over time. Standardising the accounting practices around the world comes as a boomerang effect of capitalisation. We have companies that trade in different countries and thus they must oblige with each of the accounting practices of every country where the company produces financial statements. This leads to the situation where you have a company reporting a shareholders’ equity of just over $15 million under the UK regulations, while in accordance with the US accounting rules the same company reports a shareholders’ equity value of $32 million, a difference of over 100% between the two financial statements...
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...For the past five years, Chevron has been continuously ranked as one of America’s five largest corporations. Chevron’s headquarters is in San Ramon, California (Fox, 2012). It is engaged in every aspect of the oil, gas, and geothermal energy industries, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. Chevron was originally known as Pacific Coast Oil Company in 1979, where they made their oil discovery in Pico Canyon north of Los Angeles, California (2012). Since its origination, it has blossomed and generated large amounts of revenue ever since. The International Financial Reporting Standards would be beneficial for Chevron. However, since this company has been in existence for a decade and have foundational methods and ways of their accounting and financial systems such as GAAP already implemented, it is hard for Chevron to adjust and...
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...Exposure Draft: Revenue Recognition (Topic 605): Revenue from Contracts with Customers The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have publishing this exposure draft as revenue is a vital number that financial statement users use to value a company’s performance. Both Boards require improvements in their revenue recognition requirements, therefore joined forces to refine the principles for revenue recognition. The goal of the FASB and the IASB is to “develop a common” revenue recognition principle that would: 1. Strengthen the current revenue recognition procedure; 2. Enhance revenue recognition procedures throughout organizations; and 3. Provide a simplified method of preparing financial statements. The proposal would affect all organizations that “enter into contracts to provide goods and services” (Financial Accounting Standards Board, June 2010) which they would normally provide. The following questions will be addressed to clarify our position on the Exposure Draft: Question 1: Paragraphs 12 – 19 (see Exhibit A) propose a principle (price interdependence) to help an entity determine whether to: a.) Combine two or more contracts and account for them as a single contract; b.) Segment a single contract and account for it as two or more contracts; and c.) Account for a contract modification as a separate contract or as part of the original contract. Do we agree with that principle...
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