Review of Current Accounting Issues

Question: Discuss about theReview of Current Accounting Issues. Answer: Introduction The article selected for the purpose of this question is Dick Smith Collapse raises more questions for Accounting Profession, by Alex Malley, published in The Sydney Morning Herald on 22nd July 2016. As the Australian Securities and Investments Commission, administrators, and receivers work across the wrecked collapse of Dick Smith, there is an increased clarity in the fact that there is a need for confronting the accounting profession (Malley, 2016). There are several reasons for the failure of the company. Some factors are role played by rebates played by suppliers, their impact on the purchasing decisions of management, and their ability of masking the figures of earning. In the financial year 2014 to 2015, there was reporting of 72 million dollars as earnings before amortization, depreciation, tax and interest. With the exclusion of advertising subsidies and rebates, there was an adjustment in this figure with the loss of 119 million dollars. The auditors considered signing off o n the accounts of Dick Smith in the year 2015 for August. The key consequence for treating the accountancy of rebates is one of the key reasons for the collapse of Dick Smith, and no doubt, will be considered for further questions (Malley, 2016). In this year itself, Target was also spotted for the way its team of accounting had been focusing on the treatment of rebates that further lead towards inflated earning. The investigation of Wesfarmers resulted in the departure of several staff members from the business. This specific issue is being faced all across the globe. As a significant example, in Britain, Tesco was warned in the year 2014 about issues for treating accountancy of rebates in the year 2014 after the general counsel was contacted by the whistle-blower of the company. Tesco had flagged first to be an overstatement about the initial half profits but it had been found for overstating the performance for the past three years of financial accounting. The case of Tesco is still being investigated by the Financial Reporting Council and the Serious Fraud Office. Each and every liability is assumed and asset is acquired in the combination of business and there is a requirement of retrospective application in providing no justification about the IFRS (Hamberg et al., 2011). In addition, an improvement in the consistency of each and every procedures utilized in the accountancy for combinations of business such as international consistency. These are extremely helpful in alleviating key con cern that the competitive position of an entity holds as potential bidder are significantly influenced by the variations involved in the accountancy of business combinations (Glaum et al., 2013). Consistency across the procedures of accounting can also result in the reduction of costs for preparing the financial statement, specifically across businesses conducting international operations. Moreover, this kind of consistency will result in enhancing the scope of comparison for information. This will further provide a better understanding about the resulting information of finance and reducing the costs borne by users for the analysis of information. These problems in interpreting accounting standard tend to be arising in various entities under consideration of several jurisdictions. These are well understood and known in the framework of International Financial Reporting Standards (Hamberg et al., 2011). The ubiquitousness related to the issue and the seamless subjectivity in the global accounting standard to ensure application of transparency and consistency is within the scope of providing some comfort to 3,300 former employees of Dick Smith in New Zealand and Australia, or the investors under consideration for the loss of money. For the part of professionalism, across the higher level, the Independent Audit Regulators of International Forum has been flagging the quality of auditing as an issue. However, there is yet a lack of satisfaction among the body of IFIAR sufficient for the profession of audit in understanding and addressing challenges in the quality of audit (Malley, 2016). A new standard of accounting provides clarif ication for the recognition of revenue. This will be duly effective from the year 2018. In theoretical terms, there is a need for addressing certain issues in concern with the treatment of rebates. However, there is sole reliability upon the continuously introducing new standards of accounting under the key requirement. The profession of accountancy has key bounds with the code of ethics holding the requirement for acts of accountants within the public interest, and this is inclusive of a good reason. The code focuses on providing support based on principles for the professional while ensuring navigation across the complex environments of business. This is crucial for making decisions to treat inventory and revenue while being in compliance with strictly applied law and standard. This also involves compliance with the spirit for seeking achievement. Yet the failure of each company holds the potential of undermining the constant urge of a profession that an approach based on principles, instead of focusing more upon regulation. There is no denial in the fact that increment in the regulation eventually achieves a tip point in which there is shift in the focus of audit to comply at the cost of exercising the professional judgment. The profession of accounting is considerably apt for bringing expertise and value to the society and business at a broader context, while occupying a trust positioning across the community. Under the entrustment with a specific social licence comes in alignment with high expectations and responsibility for the sake of profession, while there is a need for having higher expectations. The like-for-like sales of retail at Dick Smith fell at a sharp rate after less than a year of the floating context of 2013 that triggers a number of events with key contribution in collapsing the ownership of 400 million dollars to the creditors. A public examination across the demise of Dick Smith heard the sales of same store retail by 7.5 per cent within a period of 15 weeks (Malley, 2016). The sales growth in same store was 1.7 per cent at the inaugural yearly meeting of the retailer later in the period. Irrespective of the dropping sales, the senior management and board of Dick Smith continued with the strategy to open up new stores, purchase more stock, borrow more money for overcoming pressures of cash flow, pay dividends with the lack of cash, and maximize the rebates of supplier for boosting profits (Buschhter Striegel, 2011). The officers and directors have been breaching the duties by the failure in appropriate systems of reporting and placement of controls, inflation of earnings for meeting the expectations of market by the deliberate purchases of more stocks, book rebates under the suppliers in terms of profits, and disguising upon weak sales with private commercial and label sales of low margin. The receivers have been focused for the establishment of fact if former executives and directors hold the key liability and if there can be any specific claims against the insurance policies of the officers and the directors of the company (Glaum et al., 2013). A business combination can be referred to as a transaction or an additional event within which control is obtained by the acquirer across one or more number of business organizations. There is accounting of transaction or anything related as a combination of business only in the case if the assumed liabilities and the acquired assets consists of a busin ess. This tends to be providing guidance for the identification of the fact if the assumed liabilities and the acquired assets are not constituting a business organization. The accountability of acquiring an asset is set out in the draft at paragraphs C3-C5. High secrecy and delays are standards procedure of operations with respect to insolvency. Different investors have been spending the money of Dick Smith for obtaining an extension of six months from the Federal Court. There had been a further delay in the second meeting of creditors. Seasons will be passing across the gift card holders (Hamberg et al., 2011). No information has been disclosed in front of the beleaguered gift card holders, shareholders, suppliers and other creditors. Time is taken in the achievement of right outcome with the increasing value of fees. On 30th November 2015, the company made an announcement of writing down 60 million dollars worth inventory. Failure has been faced by the company also due to the issue of inventory and this issue can be traced back from the time when Dick Smith was not floating across the ASX. As a contrasting view, the annual reports of Woolies considered recording their subsidiary inventories at 246 million dollars of book value. Also, these inventories are inclusive of the business of Dick Smith. As per the Anchorage, the inventories were worth the value of 58 million dollars in recording the expense of acquisition worth 312 million dollars. If the number of Woolworths is correct, however, then the inventories of Anchorage was worth at least 66 million dollars (Malley, 2016). On the basis of the figures of Woolworths though, there was an upward revaluation worth 14 million dollars. The financial report of Woolworths also depicts that the restructuring costs and asset write-downs of Dick Smith was worth 420 million as of 30th June, 2012. The exposure draft focuses on proposing amendments to the business combinations of IFRS 3. The proposal is inclusive of a draft standard developed by the boards in their very first major project in collaboration. The key objective focuses on the development of a single standard of maintaining high quality in accounting for combinations of business to be utilized for the purpose of both, cross border and domestic financial reporting. The standard proposed will consider the replacement of current requirement in the IFRS 3 Business Combinations by IASB and the Statement 141 Business Combinations by FASB. The key intention of the Board in the development of this Exposure Draft was for reflecting a number of changes regarding decisions in the project of Business Combinations by the time it reaches the second phrase (Buschhter Striegel, 2011). And hence, there is no consideration of all of these specific requirements as specified in IAS 27. The proposal of changes to IAS 27 showed primary concern with accountancy for the decrease and increase in interests of ownership across the subsidiaries after obtaining some control. There is also a required to account the subsidiaries in terms of loss of control. Introduction of Major Issues in the New Standards In the draft, the IFRS is considering the improvement of financial reporting by the requirement of applying acquisition method to more combinations of business. These include the ones only having involvement in mutual entities, and those under the achievement of contract alone. The boards hold the belief that the application of single method in accountancy to each and every combination of business will lead towards more transparent and comparable financial statement. This holds the requirement for acquirer in recognizing the acquired business maintaining fair values at the date of acquisition with restricted exceptions (Hamberg et al., 2011). The boards holds the conclusion to require in recognizing the acquire and the assumed liabilities, and the acquired assets maintaining fair value. The date of acquisition results in improving the reliability and relevance of financial data. The scenario is even true in combinations of business within which the control is obtained across the busi ness with less acquiring of 100 per cent of interests of equity within the achievement of business combinations or acquire within the stages. Reliability and relevance are key attributes making information of finance more significant across the users. This draft will be retaining each and every fundamental requirement in the past version of IFRS focused on method of acquisition in accounting to be utilized for each and every business and for the identification of acquirer in the business combination. The profession of accountancy has key bounds with the code of ethics holding the requirement for acts of accountants within the public interest, and this is inclusive of a good reason. The code focuses on providing support based on principles for the professional while ensuring navigation across the complex environments of business (Malley, 2016). This is crucial for making decisions to treat inventory and revenue while being in compliance with strictly applied law and standard. This al so involves compliance with the spirit for seeking achievement. Yet the failure of each company holds the potential of undermining the constant urge of a profession that an approach based on principles, instead of focusing more upon regulation. There is no denial in the fact that increment in the regulation eventually achieves a tip point in which there is shift in the focus of audit to comply at the cost of exercising the professional judgment (Glaum et al., 2013). The profession of accounting is considerably apt for bringing expertise and value to the society and business at a broader context, while occupying a trust positioning across the community. Under the entrustment with a specific social licence comes in alignment with high expectations and responsibility for the sake of profession, while there is a need for having higher expectations. General Consensus or Disagreement Between the Commenting Parties The boards strive upon issuing the draft with the crucial requirements in filling up a crucial need and for which there is imposition of costs in applying it (Hamberg et al., 2011). This is in comparison with each and every other alternative being provided with justification as per the crucial advantages of the information as a result. It was concluded by the boards that this will be making a number of improvements in reporting finance that is beneficial to the creditors, the investors and addition users of financial statements. The boards are supporting this claim for reducing the costs in application of the standard draft. The key requirement is of specific liabilities and assets for the continuous recognition and measurement with respect to the current IFRS instead of valuing it at fair value. The key requirements are for prospectively applying the provision instead of retrospectively applying it. It has been acknowledged by the boards that these two steps will result in diminishi ng certain advantages for the improvement of reporting presented in the draft. However, it was concluded that the related costs and complexities due to the imposed requirement of fair value measurement. Each and every liability is assumed and asset is acquired in the combination of business and there is a requirement of retrospective application in providing no justification about the IFRS. In addition, an improvement in the consistency of each and every procedures utilized in the accountancy for combinations of business such as international consistency (Glaum et al., 2013). These are extremely helpful in alleviating key concern that the competitive position of an entity holds as potential bidder are significantly influenced by the variations involved in the accountancy of business combinations. Consistency across the procedures of accounting can also result in the reduction of costs for preparing the financial statement, specifically across businesses conducting international operations. Moreover, this kind of consistency will result in enhancing the scope of comparison for information. This will further provide a better understanding about the resulting information of finance and reducing the costs borne by users for the analysis of information. Consistency across the procedures of accounting can also result in the reduction of costs for preparing the financial statement, specifically across businesses conducting international operations. Moreover, this kind of consistency will result in enhancing the scope of comparison for information (Buschhter Striegel, 2011). This will further provide a better understanding about the resulting information of finance and reducing the costs borne by users for the analysis of information. Key Assumptions of Public Interest, Capture Theories and Private Interest A business combination can be referred to as a transaction or an additional event within which control is obtained by the acquirer across one or more number of business organizations. There is accounting of transaction or anything related as a combination of business only in the case if the assumed liabilities and the acquired assets consists of a business. This tends to be providing guidance for the identification of the fact if the assumed liabilities and the acquired assets are not constituting a business organization. The accountability of acquiring an asset is set out in the draft at paragraphs C3-C5. In the combination of business, the acquirer may consider acquiring the equity based interests across the organization. The acquirer will also consider acquiring all or some of the assets of entity constituting the business. Control might be obtained by the acquirer over an acquiree in the following ways (Glaum et al., 2013): By the transfer of cash equivalents, cash or additional assets that include net assets in constituting the business By the issue of equity based interests By the provision of more than one specific category of consideration By coming in a contract alone Without the transfer of any specific consideration Without the involvement of acquired in the transaction In the measurement of fair value for the acquiree, the acquirer can consider measurement of fair value related to the acquiree on the whole, when considering the date of acquisition. Mostly, business combinations are exchange transactions at arms length within which unrelated, knowledgeable willing exchange of parties are the same as value. Hence, in the lack of evidence, the payment of exchange price through the acquirer on the date of acquisition in presuming the fair value at that date for the interest of acquirer within the acquiree. In certain combinations of business, either there is no transfer of consideration in the date of acquisition or the indication of evidence. There is no transfer of consideration on the basis of measuring the fair value on that date across the interest of acquirer within the acquiree. In these combinations of business, the acquirer will consider the measurement of fair value on the date within the interest of acquiree to utilize other techniques of va luation. There is provision of extra guidance for the performance of measurement at fair value within the Paragraphs A8-A26 (Hamberg et al., 2011). The transfer of consideration may be inclusive of liabilities or assets across the acquirer in order to carry the values different in comparison with fair value at the date of acquisition. As in this particular case, the acquirer will have to consider the re- measurement of the transferred liabilities or assets with the fair values and there is recognition of losses or gains in the loss or profit. However, if there is transfer of liabilities or assets to the acquiree, and there lies a combined entity after combining the business. References Buschhter, M., Striegel, A. (2011). IFRS 3Business Combinations. InKommentar Internationale Rechnungslegung IFRS(pp. 137-205). Gabler. Glaum, M., Schmidt, P., Street, D. L., Vogel, S. (2013). Compliance with IFRS 3-and IAS 36-required disclosures across 17 European countries: company-and country-level determinants.Accounting and business research,43(3), 163-204. Hamberg, M., Paananen, M., Novak, J. (2011). The adoption of IFRS 3: The effects of managerial discretion and stock market reactions.European Accounting Review,20(2), 263-288. Malley, A. (2016). Dick Smith collapse raises more questions for accounting profession. The Sydney Morning Herald. Accessed from: https://www.smh.com.au/business/retail/dick-smith-collapse-raises-more-questions-for-accounting-profession-20160721-gqagz5.html