Question

In: Accounting

Makgadikgadi is a small developing country which currently has no accounting standards and in which a...

Makgadikgadi is a small developing country which currently has no accounting standards and in which a new professional accounting body was recently created.

Makgadikgadi’s government has asked the new professional accounting body to prepare a report setting out the country's options for developing and implementing a set of high quality financial reporting standards.

Required:

As an advisor to the professional accounting body, outline THREE options open to Makgadikgadi for the development of financial reporting standards. Identify any advantages or disadvantages for each option. [9 Marks]

Solutions

Expert Solution

The three main options to choose from when selecting the accounting standards are:

1. International Financial Reporting Standards (IFRS)

2. Non-GAAP reporting

3. Accounting Standards for Private Enterprises (ASPE)

IFRS

Advantages

It would create a single set of accounting standards around the world.

It would reduce the time, effort, and expense of preparing multiple reports.

It would make it easier to monitor and control subsidiaries from foreign countries

It would offer more flexibility in the accounting practices.

It would make it easier for all companies to do business in foreign countries.

Disadvantages

It would increase the cost of implementation for small businesses.

It would require global consistency in auditing and enforcement.

It would require changes at the educational level as well.

It would still require global acceptance to be useful.

Non-GAAP Reporting

Advantages

More predictive and high quality information as it excludes the effects of unusual or one-time items.

More relevant information especially in respect of clarity and predictability.

More comparability via excluding non-recurring items.

Disadvantages

Lack of consistency in including/excluding various items.

Lack of comparability across companies because there are no standard definitions.

Investors sometimes pay more attention to non-GAAP measures than to audited GAAP figures

ASPE

Advantages

Many of the standards in ASPE provide options for companies that are meant to be simpler to implement.

ASPE are intended to be principles-based standards and often provide a choice of accounting treatments.

Disadvantages

ASPE is not a static framework and is expected to continue to evolve line with current reporting needs.

Due to the reduced reporting needs of a private enterprise, only these organizations are allowed to use the ASPE when drafting financial statements.

ekkarill92 answered 11 months ago

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