Question

QUESTION ONE:

In 2004, the IASB and FASB signed a MoU (Memorandum of Understanding) to achieve convergence of their Conceptual Frameworks.

Required:

Discuss to what extent you believe that a Conceptual Framework is needed. Critically discuss the efforts made by international regulators to amend the contents and elements of this Framework in order to enhance its usefulness.

QUESTION 2

The European Commission has in its latest update issued on 13 December 2016 stated the following: “Large public-interest entities (listed companies, banks, insurance undertakings and other companies that are so designated by Member   States) with more than 500 employees should disclose in their management report relevant and useful information on their policies, main risks and outcomes relating to at least:

• environmental matters,
• social and employee aspects,
• respect for human rights,
• anti-corruption and bribery issues,
• diversity in their board of directors.

There is significant flexibility for companies to disclose relevant information (including reporting in a separate report), as well as they may rely on international, European or national guidelines (e.g. the UN Global Compact, the OECD Guidelines for Multinational Enterprises, ISO 26000, etc.).”

Required:

With reference to the above EC extract, discuss to what extent you believe that it is important for firms to provide information on non-financial performance. Explain how such information could be disclosed in public-interest entities’ annual reports.

QUESTION 3

‘IAS19, Employee Benefits, was introduced to improve the quality of reporting for companies who sponsored defined benefit pension schemes. However, the unintended consequences of the introduction of IAS 19 may have a significant impact on both future pensioners and for the State.’

Required:

Discuss to what extent you agree with the above comments.

QUESTION 4

‘IFRS 9, Financial Instruments, which will replace IAS 39, Financial Instruments: Recognition and Measurement, is effective for periods beginning on or after 1 January 2018…[and] will lead to significant changes in the accounting for financial instruments.’

Barclays plc, Annual report 2015, p261.

Required:

Discuss to what extent you believe that these ‘significant changes’ will result in improvements in the transparency and usefulness of the financial statements of banks and other financial institutions.

QUESTION 5‘This article has considered how [Social and Environmental Accounting] SEA is perceived and constructed within three very different frames of reference. It has highlighted the tensions and contradictions among the various social actors that have an interest in this field. In doing so we hope that we have provided a more complete picture than accounts that focus on a single frame of reference. SEA is an interpretively complex field. These competing perspectives – business case, stakeholder accountability and critical theory – have important implications for the social realities we construct, embed or seek to change’ (Brown & Fraser, 2006).

Brown, J., & Fraser, M. (2006). Approaches and perspectives in social and environmental accounting: an overview of the conceptual landscape. Business Strategy and the Environment, 15(2), 103-117.

Required:

As stated in the above quote, Brown and Fraser (2006) identify three perspectives on Social and Environmental Accounting. You are required to critically evaluate the key assumptions of the three case studies presented, and discuss their differences providing relevant ‘real-life’ examples.

QUESTION 6‘The [IASBs] due process procedures were not the objective, transparent, and representative measures they are claimed to be. Rather, the due process provided a forum within which powerful and self-interested constituents and constituent coalitions could contribute to and capture the standard-setting process in order to secure favourable regulation …’ (Cortese et al., 2010. 85)

Cortese, C. L., Irvine, H. J., & Kaidonis, M. A. (2010). Powerful players: How constituents captured the setting of IFRS 6, an accounting standard for the extractive industries. Accounting Forum, 34, 2, pp. 76-88.

Required:

In light of the above quote, critically evaluate the role of the IASB, considering the issues and benefits of their processes.

QUESTION 7

‘It is 25 years since LCP started publishing the analysis of FTSE 100 pension disclosures. Much has changed since then. In 1993, virtually all FTSE 100 companies offered final salary pensions to their new hires; now not a single one does. For some companies, the financial position of the pension scheme vitally affects the health of the company.’

LCP 2018, p2. LCP, Accounting for Pensions - Spring 2018.

Required:

Discuss to what extent you believe that the introduction of IAS19, Employee Benefits, has been responsible for the decline and abolition of the defined benefit schemes of many companies.

QUESTION 8

The IASB has based IFRS9, Financial Instruments, on a mixed model approach. This model requires companies to normally report equity-based and debt-based financial instruments under different methods.

Required:

Carefully explain the aims of IFRS9 and discuss the nature and application of the classification ‘tests’ involved in applying this ‘mixed-model’ reporting.

[In your answer you should also discuss whether adoption of a ‘single model’ approach would usefully simplify the reporting of financial instruments.]

QUESTION 9

Benston, Bromwich and Wagenhofer (2006) argued that as the SEC moves towards a principles-based approach a major ‘…the shortcoming is the dismissal of a true-and-fair override that we argue is a necessary requirement for any standard-setting approach’.

Required

Discuss the extent to which the true and fair override is necessary for standard-setting and financial reporting.

QUESTION 10

Bengtsson (2011) argued that “the global financial crisis contributed to a Repoliticization of accounting standard-setting… since the crisis, a rebalancing of power has occurred, where political actors have gained influence at the expense of other stakeholders”.

Required:

Discuss the influence that the Global Financial Crisis had on the IASB and the extent to which you agree that there has been a rebalancing of power since the crisis.

QUESTION 11

‘… accounting played a part in the pension change [from a defined benefit to a defined contribution scheme]. For example, the way pensions were accounted for (by)…IAS 19 (Accounting for Employee Benefits), leading to particular disclosures in the balance sheet, motivated the change. Companies were concerned about the impact of the liabilities disclosed on the face of the balance sheet arising from pension deficits and the image this portrayed of financial stability’. p34.

[Josiah, J. et al (2014), Corporate Reporting Implication in Migrating from Defined Benefit to Defined Contribution Pension Schemes: A Focus on the UK. Accounting Forum, 38(1) 18-37.]

Required:

Discuss to what extent you believe that accounting regulators are responsible for many organisations changing their provision of employee pensions from defined benefit to defined contribution schemes. In addition, explain what you consider may be the financial and social implications of this move to defined contribution schemes for employees on retirement.

QUESTION 12

IFRS 9, Financial instruments, which became applicable on 1^st January 2018 is based on a ‘mixed measurement’ model for the reporting of both equity-based and debt-based assets and liabilities.

Required:

1. Discuss what you understand by this ‘mixed measurement model’ and explain the nature of the two tests that assist in determining the reporting of different categories of financial assets and liabilities.
2. Explain how and why IFRS9 has introduced changes to the reporting of companies’ ‘own credit adjustments’ (debt valuation adjustments) for financial liabilities.

Answer 1

Question one

Ans.

One of the joint IASB/FASB projects, begun in 2004, aimed to develop an improved, common conceptual framework. In late 2010, convergence as put on hold. In December 2012, the IASB reactivated the conceptual framework as an IASB project. More and more countries are adopting IFRS, the differences between IFRS and US GAAP will be minimized.
Differences remain between IFRS and US GAAP that affect the framework and general financial reporting requirements.
For analysis of financial statements created under different frameworks, reconciliation schedules and disclosures regarding the significant differences between the reporting bases were formerly available to a greater extent.
The underlying center was to accomplish the combination of the structures and improve specific parts of the system managing targets, subjective attributes, components and their acknowledgment, and estimation. A December 2004 discussion paper presented the broad differences between the two frameworks. The contrasts among IFRS and US GAAP that influence the system and general budgetary detailing necessities have been diminished by the understanding by the IASB and FASB on the reason and extent of the Conceptual Framework (2010), the goal of broadly useful money related announcing, and subjective qualities of valuable monetary data.

For instance, the SEC used to require compromise for remote private backers that didn't get ready fiscal reports as per US GAAP. The SEC no longer requires compromise for remote private guarantors that set up their monetary reports in consistence with IFRS. Such compromises can uncover extra data identified with the more critical parts of the budget summaries.
In the absence of a reconciliation, users of financial statements must be prepared to consider how the use of different reporting standards potentially impact financial reports. This can have important implications for comparing the performance of companies and security valuation.