The article working in public interest; The IRFS foundation and the IASB by Michel Prada and Hans Hoogervorst. The article is in line with the consideration of two theories of accounting. The two theories of accounting in line with this article; the theory of accounting regulation and the theory of accounting ethics.
The theory of accounting regulation and the article
The theory of accounting regulation involves two important aspects that are furthers subdivided into other subsections. The two broader aspect of the theory are types of regulation and the purpose of regulation. The two are in line with the article that is to be compared, as explained below;
The private theory of regulation
The theory works are applied in the article by the IRFS foundation. This theory is explained as. All the activities that an organization does. All these activities are aimed towards making the organization better. These, therefore, means that these activities are aimed towards achieving the interest of the company. In the article the IRFS foundation on the first page. The organization has strong private features that produce policy. By saying that is an acknowledgment of using the theory of privacy where the interest of the organization is put first. The article though does not open up so much on the privatization so much. However, they further open by acknowledging that there is privatization. In the second page of the first paragraph, the article states that; IRFS foundation have significant private characteristics, they are not self-regulatory bodies. These show the theory of regulation under the private theory.
The theory of public interest, this theory acknowledges the type of regulation in an organization where the interest of the customers come first (Hines, 1989). The theory emphasizes in involving the public in most of the key decisions that are made during the policy-making of a company. They also include measures that are taken by accountants, in general, to ensure public trust is earned. This kind of theory is the main focus of the article. The, therefore, its various articles show various ways in which the interest of the public has been put first as a method of regulation (Cortese, 2013).
The article on page 2 shows how the organization involves the public in decision making. They do that through creating public portals. The public portals then allow for people to comment on a new policy that they want to implement. They do the public comment after a duration of five years. These methods welcome all the feedback from anyone who is interested in commenting. Through so doing the public are able to take part in the policy making of the foundation. In the same page, they acknowledge that the comments are not taken for granted but are seriously considered. These are seen as the foundation even relates back to the comments. They ask for clarification in cases that are not clear. The foundation even acknowledges that they will strive to change if the comments quite so.
The article also applies the theory of public interest as a theory of regulation through the building of public trust. Making the public trust the institution by doing things openly. The article on page 3 says that the IRFS strengthen their accountability as a foundation for bridging the information gap between the capital providers and the people entrusted with the capital. These set standards provide information that holds the public together and the stakeholders. Through this policy, the public interest is built between the public through creating the trust. The management is held very accountable to the public. When they become accountable with the finances of the public trust is then built to the public automatically.
The article also reflects on the theory of public interest. The public interest is also seen when an organization welcomes a public regulator. A public institution that allows for public regulators to assess the way the company works is a sign of allowing public participation. Through so doing the company, therefore, uses the theory of regulation in the public interest. According to the article, on page 1 acknowledges that the IRFS foundation welcomes the public regulation board. The use of IASB as a regulator by the IRFS is a one way of involving the public. The article acknowledges that IASB is a board that if they found anything that needs regulation they put it to the public for scrutiny. At times they involve the public, through involving the public there interest are considered.
Lastly, the accounting regulation uses, the use of the last element. The last element involves the institution putting both public interest and institutional interest together due to the government and market policies (Hoogervorst & Prada, 2015). The articles agree that the IRFS uses these type of theory according to the article. The theory is known as the captive theory. In page one of the article, IRFS is seen as using government policies to make their rules. In page one, the article recognizes that in making policies, though it is a private entity, the government officials are involved in the making of various decisions. Their involvement is part of the public interest regulation. In page four the article acknowledges looking at the audience as a marketing strategy. This is the involvement of the audience in regulating the market, is a form of using the captive theory of regulation.
These forms three theories of accounting regulations have been used in the article as analyzed. The other theory used is the theory of ethics. The theory ethics for accounting involve all the actions that ensure accountability and responsibility of the managers and the accountants of a particular institution. Accounting ethics demand that the audit companies do not be close to the accounting group for fear of hiding accountability misguidance. These audit groups are supposed to maintain a professional relationship with the accounting managers. In the article, pg. 9. The article talks about preventing any full members of the IASB having any relationships of side activities or functions that might pose a conflict of interest. This rule coincides with the ethics laws that regulate accountant.
From the above observation, the article is in line with the accounting and ethics regulation theories.
2.Issues addressed by the comment letters and the exposure draft
The exposure draft used is from the IRFS and the IASB that are addressing up to eight issues of concern. The exposure draft is referred to as the conceptual framework for the financial report. The framework has eight concepts that are important, which it has addressed and has asked for responses to comment letters (Draft, 2015). The eight issues discussed are
The draft explains that the purpose of creating the framework is to assist develop standards that are based on consistent concepts. Assist prepare accounting policies that are standard to help the preparers in remaining consistent. Lastly, it is developed to assist all the interested parties to interpret the standards. The draft also proposes the use of the general purpose financial report (Draft, 2015). By use of the general purpose financial report, there are objectives, usefulness, and limitations that come with it. The main reason for developing the framework is so that; the reporting organization knows the best way to present its financial reports to any stakeholders. The stakeholders might include investors, creditors and any other organization that might seek to want the same. This will assist the stakeholders in making a crucial financial decision. The general function financial reports are essential in claiming all the resources and changes that the reporting organization must have undergone. The conceptual framework should include economic resources, financial reports, and their importance in establishing the entity to a better place.
The second concept is about a characteristic of the financial information that is essential. The first characteristics are the need for the financial information to be relevant and a true reflection of the financial breakdown of the institution (Godfrey, Hodgson, Tarca, Hamilton & Holmes, 2010). The draft further gives method in which the financial information can be made relevant and truthful. The main method that could be useful in making the information truthful according to the draft is by the use of natural depiction. Natural depictions any financial representation that has no bias since it has been retrieved from the financial raw data. Faithfulness, on the other hand, does not mean accurate by the way it is but also means free from error. In conclusion, the information from the financial reports should pass the test of comparability, verifiability, timeliness, and understandability (Draft, 2015).
The third is the role of financial statement to the financial reports. The statements help in knowing the correct amount of information to deliver the report. In terms of liabilities, assets and other important elements. These elements in chapter three of the draft will then accumulate to form the financial report. They include all the elements but simply converted to monetary forms.
The fourth part of the draft basically looks at the definition of the elements identified in part three of the draft. The elements include; liabilities, assets, income, and expenses.
The fifth part discusses ways of recognition and derecognition of the earlier identified elements in an organization. Recognition involves assessing the element to ensure that it qualifies to be part of the statement. This done through conversion of the elements into monetary terms (Draft, 2015).
The six-part of the draft involves how to correctly measure the assets, liabilities, equity, income, and expenses. Measurement involves finding the historical values of the element and comparing it to the current value. The measurement part helps to quantify the elements. When they are quantified it is easier to compare them to another element. They are compared against each other (Draft, 2015).
The seventh part discusses the presentations they used and other relevant information about the framework. It introduces factors such as classification. This is the sorting of elements into groups of similarities and differences. Aggregation is also introduced. Aggregation is putting together members of the same group. This is done so that the elements of the same kind are converted to a financial level.
The last part of the draft is about capital and its maintenance. After the elements are converted into monetary terms. The terms are converted into capital. The capital is the exact amount that the net worth of the entity. The draft then deduces ways that can help maintain the capital so that it does not fall but moves further forward.
Comment letters about the exposure draft
The groups in the letter have mixed opinions about the issues discussed in the exposure draft. Some of the issues are agreed upon while others do not as discussed below;
The University of Melbourne group is in agreement that the conceptual framework is important. It forms the basis of which they teach and research financial reporting and auditing. The university agrees that the framework is wide enough for evaluation.
The G100 are in agreement with the concept being one that combines the IRFS and the IASB agenda. They believe this will provide the necessary discipline and accountability.
The AASB group are in disagreement with the draft. As much as they agree that the framework is part of diverse opinion they however disagree. They feel the framework does not in itself endorse current methods and practices. For example, they feel that the framework should address current issues example how to manage political differences and set conceptual standards. The AASB feel they should take time to reevaluate the proposal.
The ANZ bank group also do not agree to some issues addressed by the conceptual financial framework in the draft. They first recognize that the two groups IRFS and IASB are not in good terms to draw a proposal draft. Hence the group feels they are competing for the current market. In their recommendation they say, we strongly advise that the two groups reorganize.
From the above explanation, it is therefore identifiable that the ANZ and AASB groups are against the proposal of the exposure draft while the Melbourne University group and the GAA group are in agreement with the proposal.
Among the three theories of regulation the one that explains the letters
The theory of private interest explains the comment letters.
The letter by AASB and ANZ are in disagreement with the exposure draft. The issues they raise are from the entity of their organizations. The AASB group complains of the draft not addressing, management issues of the entities. ANZ also feels that the draft is not addressing company issues. They have difficulty in considering the companies liability. They propose that the obligation of the company and cannot be determined by the customers who make the public (Deegan, 2014).
The other two comment letters though they agree that the draft should be implemented. They argue that certain adjustments should be made to us to make the draft apply to the entities. This argument justifies that the comment letter put private interest first.
Cortese, C. L. (2013). Politicisation of the international accounting standard setting process: evidence from the extractive industries.
Deegan, C. (2014). Financial accounting theory. McGraw-Hill Education Australia.
Draft, I. E. (2015). Conceptual Framework for Financial Reporting. 2015-05-01)[2015-07-20]. https://kjs. mof. gov. cn/zhengwuxinxi/gongzuotongzhi/201506 P.
Godfrey, J., Hodgson, A., Tarca, A., Hamilton, J., & Holmes, S. (2010). Measurement theory. In Accounting theory (7th ed.)(pp. 133-160). Milton, Qld. : John Wiley.
Hines, R. D. (1989). Financial accounting knowledge, conceptual framework projects and the social construction of the accounting profession. Accounting, Auditing & Accountability Journal, 2(2).
Hoogervorst, H. A. N. S., & Prada, M. I. C. H. E. L. (2015). Working in the public interest: The IFRS foundation and the IASB