Ch 15 Chapter 15 Decision-Making Models and Knouledge Management 295 6. Analyzin
ID: 2396967 • Letter: C
Question
Ch 15 Chapter 15 Decision-Making Models and Knouledge Management 295 6. Analyzing current issues in accounting. Consider the list of current and classic issues in accounting presented below (or others specified by your instructor). With your instructor's help and guidance, form a team of students to investigate one of the issues. Use the Steps for Better Thinking to analyze the issue and prepare a short oral report for the class. a. What are the obstacles associated with adopting International Financial Reporting Standards? b. Should the provisions of the Sarbanes-Oxley Act be extended to nonpublic corporations? c. Will principles-based accounting become the norm for U.S. GAAP? d. Has the 150-hour requirement for becoming a CPA been a success? e. What systems documentation techniques should be taught in AIS courses? f. Has the conceptual framework of accounting fulfilled its purpose? g. What issues should managers consider with regard to corporate governance? h. Should social and environmental reporting be mandatory? i. How, if at all, should fair-value accounting be implemented? ACquisition decision using SBT n ie an in-home pet care company based in St.Explanation / Answer
a) Obstacles Assosited with Adoptation of IFRS
The purpose of this study was to address the main factors that would influence the adoption of International Financial Reporting Standards (IFRS) as obstacles. In doing so, the study was based on an academic and theoretical literatures regarding the factors that believed to affect the process of adopting IFRS.
1) Religion - Religion is a cultural obstacle to the adoption of IFRS in some countries and some institutions. Its importance is the same across national boundaries and also has a vital influence on the way business is recorded and conducted. According to Hamid et al., “the incompatibility of many Western accounting practices with Islamic principles requires explanation.” This comment shows that some of IFRS are incompatible with Islamic „sharia? (law). This is incompatibility needs further research to explain. IFRS was released by Western countries through IASB in 2001. Islam does not determine only the religious practices such as prayer, but it determines even the commercial transactions which the Muslims must deal with in their lives. According to Lewis 2001 cited in, that based on the Sharia, Islam has a crucial role, in regulating business, and in how accounting should be undertaken finance and banking ought to be organized. For example, Islamic law prevents the payment of interest, but this is not taken into account in IFRS. Also, Islamic economic and financial principles have a direct influence on accounting policies and practices. These principles, most importantly, contain the institution of "Zakat", the prohibition of "riba" (financial interest), and the institution of an interest-free economic system.
2) Language - Language is a cultural obstacle to the adoption of IFRS in some countries. Language is a cultural element that barely differs from many countries around the world. Of course, this difference affects the culture of human beings, especially, when they deal at an international using another language. The official working language of the IASB, and the language in which IFRS is published, is English. Then, some countries which need to translate IFRS to understand them before adoption sometimes face some obstacles to do that. This is because of the difficulty of translation of certain concepts. According to Tsakumis et al., “translation of IFRS into various languages poses another threat to accounting comparability”. And also according to Evans and Zeff, harmonization and standardisation of financial reporting will be severely hampered because of poor translation. This evidence indicates that the process of translating the international standards is not an easy process. This is because the process sometimes differs from person to person so they will get different results that hinder the comparison of financial statements that is the basis of the application of standards.
3) Technical Skills and Expertise -Technical skill and expertise are cultural obstacles to the adoption of IFRS in some countries and some institutions. A significant challenge for the accounting profession is the availability of professionals with sufficient education and experience. According to Sylwia and Steve, “audit professionals will need to demonstrate sufficient knowledge of IFRS in order to render an opinion on IFRS financial statements”. Those who support auditors, such as information system consultants and taxation experts, need to demonstrate that their understanding of IFRS is good enough to provide audit Support. The lack of a sufficient experience of professional accountants in USA is one of the biggest challenges that facing the transition to the adoption of IFRS there. This is because of lack of accounting judgment of accountants in USA.
b) Sarbanes-Oxley Act to non-public corporations
Yes. Sarbanes-Oxley Act's Provisions should be extended to non-public corporations. As it forces top management to be transparent and employees to be responsible for their acts whilst protecting whistleblowers.
In addition to the provisions that are directly applicable to private as well as public companies, there are many provisions in the Act that apply by their terms only to public companies but that establish good practices of corporate governance that private companies may wish to adopt, in full or in part:
Board of director independence. Major stock exchanges require at least a majority of independent directors on the board of public companies listed on those exchanges. Any private company considering going public will need to make arrangements for a majority of independent directors. Other private companies should also review their board composition to ensure that there is sufficient outside participation to permit the board to be viewed with integrity. Finding qualified independent directors can be time-consuming, so the process needs to be started well in advance.
Independent audit committees. Public companies are required to have an independent audit committee, with increasingly stringent requirements for independence. Private companies should consider establishing audit committees consisting solely of independent directors. Venture capital investors may wish to note that NASDAQ has proposed a rule that a director would not be independent for purposes of serving on the audit committee if he or she owns or controls 20% or more of the company's stock. Visitation rights, rather than or in addition to board participation, should be included in venture capital financing agreements.
Audit committee charter. An audit committee should have a written charter that specifies its role and responsibilities. Private companies should consider documenting what functions are delegated to the audit committee and what rights the committee possesses. In the absence of an audit committee, private company boards are advised to have a corporate compliance plan for the entire board that includes many of the provisions typically included in an audit committee charter.
c) Principle Based Accounting become norms for GAAP ?
The International Financial Reporting Standards, or IFRS, employ more principles-based accounting, while the U.S.' Generally Accepted Accounting Principles, or GAAP, have more rule-based standards.
The respective accounting standards for leases highlights the difference between accounting principles and accounting rules. To determine whether a transaction is a capital lease, GAAP requires accountants to perform a complex evaluation regarding the present value of the minimum lease payments, the length of the lease and other lease details. IFRS, in contrast, simply states that a capital lease occurs when the risks and rewards of ownership transfer to the lessee.
Advantages
Flexibility
Principles-based accounting is more flexible than rule-based accounting. The Institute of Chartered Accountants of New England and Wales -- ICAEW for short -- points out that principles are better suited to help accountants respond to rapid changes in a business environment. It can take the FASB years or even decades to amend accounting rules. In contrast, an accounting principle or idea can be applied to new types of transactions or financial instruments immediately.
Encourages Professional Judgment
ICAEW notes that rules-based accounting is mechanical and only encourages accountants to look at the letter of the law. Accounting principles require accountants to look deeper into the substance of the transaction. This promotes sound professional judgment in the profession and instills more of a sense of responsibility in the accountant.
Disadvantages
Decreased Comparability
If principles are used rather than rules, accounting information may start to become less consistent. Raymond Thompson, Ph.D., a certified management accountant, points out that it's possible for two accountants to look at the same data and come to completely different conclusions about what the data mean. Two companies with the same assets, in this case, could present them differently on the balance sheet.
Compliance Is More Difficult
Complying with accounting principles is more complex, expensive and time-consuming. If companies are required to constantly interpret principles, they need accounting staff with vast experience and an expert understanding of accounting frameworks. Work that was previously done by a lower-level accountant has to be handled by a higher-level accountant, and more time may be needed to come to a conclusion.
Enforcement Is More Difficult
Companies and accounting firms are constantly accused of misstating financial information, but asking judges and juries with no financial experience to interpret accounting principles during enforcement cases may be a bad idea. Sue Anderson, program director for CPE Link, points out that it's hard enough for courts to come to a conclusion based on explicit accounting rules and it would be even worse with accounting principles.
So Principle Based Accounting can become norms for GAAP, as it is more flexible and with GAAP it will become easy to enforce.
4) 150 hour requirment for becoming a CPA been a sucess?
No. as far as i can see it doesn't make any impact as of now.
what explanation was given when the credit hours were moved up to 150? I understand that the IDEA behind the requirement, if I remember correctly, was to give the CPA an extra year of school to round out his/her business education… I mean pass rates essentially stayed the same after the credit hour requirement was changed, right? So now you have highly educated people (with education of ~5 years) taking and flunking the exams in equal measures – that either doesn't reflect well on the quality/helpfulness of the extra year (in which case it is as people say, just a purposely created barrier to entry) or the relevance of the CPA exam, or it means the exam has increased in difficulty.
-Probably a combination of all of the above!
Also Studying REG is sort of pointless for audit folks.
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