Accounting Theory:
ASSESSMENT
Word Limit: 1500-2000 words.
Task Case Study: Critical analysis of a given accounting case.
The Accounting Review
Accounting and Business Research
Part A
The European Commission made the following statement in a press release issued in 2002:
"European Commission (EC) has welcomed the Council's adoption, in a single reading, of the Regulation requiring listed companies, including banks and insurance companies, to prepare their consolidated accounts in accordance with the International Accounting Standards (IAS) from 2005 onwards, The Regulation will help eliminate barriers to cross-border trading in securities by ensuring that company accounts throughout the European Union (EU) are more reliable and transparent and that they can be more easily compared. This will in turn increase market efficiency and reduce cost of raising capital for companies, ultimately improving competitiveness and helping boost growth."
Required:
You are required to evaluate the above statement. In particular you should consider:
(a) That it is argued that the process of the regulation of financial accounting is ‘political' in nature? Do you agree or disagree? Explain your answer.
(b) Whether the adoption of Internal Financial Reporting Standards (IFRS) in different countries, with different overview and enforcement mechanisms, necessarily leads to generation of financial information that is more 'reliable' and 'comparable'.
(c) Identify and explain the perceived benefits that flow from the decision that a country will adopt the International Financial Reporting Standards (IFRS).
(d) Identify and explain the perceived disadvantages that flow from the decision a country will adopt the International Financial Reporting Standards (IFRS).
Part B
Assume that the government has become concerned that existing disclosure regulation tends to fixate on the financial performance of organisation but fails to address other aspects of corporate performance, including failure to provide information about corporate social and environmental impacts as well as about various initiatives and investments an organisation has undertaken to improve its social and environmental performance. As such, the government has decided to introduce legislation that will require business corporations to provide information about the social and environmental impacts of their operations, as well as the social and environmental initiatives undertaken by the corporations.
Required:
You are required to do the following:
(a) Explain from a ‘public interest theory perspective' the rationale for the government introducing the legislation and how the government will ultimately assess whether any proposed legislation should actually be introduced.
(b) Predict from a ‘capture theory perspective' the types of constituents that will benefit in the long run from any social and environmental disclosure legislation.
(c) Predict from an ‘economic interest group perspective' whether any potential legislation to be introduced will lead to an increase in the accountability of corporations in relation to their social and environmental performance despite any implications that this increased corporate accountability might have for the financial success of large but heavily polluting organisations.