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In 2006 the Australian Government established an inquiry into corporate social responsibilities with the aim of deciding whether the Corporations Act should be amended so as to specifically include particular social and environmental responsibilities within the Act. At the completion of the inquiry it was decided that no specific regulations would be added to the legislation, and that instead, ‘market forces’ would be relied upon to encourage companies to do the ‘right thing’ (that is, the view was expressed that if companies did not look after the environment, or did not act in a socially responsible manner, then people would not want to consume the organisations’ products, and people would not want to invest in the organisation, work for them, and so forth. Because companies were aware of such market forces they would do the ‘right thing’ even in the absence of legislation).

You are required to explain the decision of the government that no specific regulation be introduced from the perspective of:

(a)Public Interest Theory
(b)Capture Theory
(c)Economic Interest Group Theory of regulation

Assessment Task Part C
The US Financial Accounting Standards Board does not allow revaluation of non-current assets to fair value, but it does make it compulsory to account for the impairment costs associated with non-current assets as per FASB Statement No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets.

What implications do you think these rules have for the relevance and representational faithfulness of US corporate financial statements?

Assessment Task Part D
Many organisations elect not to measure their property, plant and equipment at fair value, but rather, prefer to use the ‘cost model’. This will provide lower total assets and lower measures, such as net asset backing per share.


You are required to answer the following questions:

(a)What might motivate directors not to revalue the property, plant and equipment?
(b)What are some of the effects the decision not to revalue might have on the firm’s financial statements?
(c)Would the decision not to revalue adversely affect the wealth of the shareholders?

The Public Interest Theory

With the help of financial statements like Income and Expenditure account, balance sheet, cash flow statement the important information can be assessed that might help the investors and stakeholders to make decision for the type of investments and upto the time period the investements can be made. It might so happen, that is really recorded in the financial statements may not be helpful at all, for the individuals and also may not be of utility to the investors for decision making purposes (Bizfluent, 2017). It is important to advice the users of financial statements to give them appropriate suggestions so that they can efficiently plan their spending in the market and earn high return. Some financial and non financial information that is necessary for being a part of the books to help them deciding in an easy manner. Some of the requirements for these tyoe of information shall include:

  1. Clarity:The contents and information present in the financial statements has to be clear, transparent and should not result in any misconception in the thinking of the investors. It should be meaningful and shall have one meaning and the investors finds it easier to make out the information in an easy manner. It should not be false, inaacurate, incorrect, meaningless, useless, insensible. We know that investors , are those person that have the basic knowledge of accounts, financial, and tax, and also contains the business managing quality and ability to go through the financial statements (Defond & Lennox, 2017). If the data that is recorded in the financial statements are inaccurate, the invester would not be capable to draw conclusion from the information stated and decide to invest or not. If either part of the financial statements has data that is complex, then it shall be supported by the appropriate notes and disclosures to avoid uncertainity and misunderstanding.
  2. Appropriateness: The information given shall be pertinent to the end user and should be adding worth while in making decision. It should not be mentioned for the purpose of disclosure and should not be unclear and needless as it objects the only objective of the conceptual framework of accounting. The users of the financial statements should be conscious of the knowledge that the huge and much quantity of information only consists of the quality without adding worth. The information sought should be relevant as when required and need not be doubtful. It shall reflect true and fair view and shall be helpful for decision making for the investors. Hence, it should be clear, accurate, unquestionable and the user should be capable to discover out correct and exact inferences out of the same(Bae, 2017).
  3. Reliability: It is known that the financial statements cannot be entirely free from misstatements, errors, etc, still the same can be decreased to show the correct value to the individuals. However, the focus should be such that the drafted reports and statements, shall be such that it seems reliable and correct. It should not be uncertain and false. Whille preparing the financial reports, all the personal interest and profirts should not be be prejudicial to the interest of the company and drafted with honesty. The investors assume all the quantifiable information to be correct and reliable in the books, and appropriate explanation and disclosure should be supported in this regard.
  4. Parity: It is in the present day context that many investors trust and make decision based on the financial information reflected from the annual reports. It is necessary to make the information at par for separate companies in the same sector or within units. The constitution and format of the financial statements shall be drafted in a way that it helps the investors to perform trend analysis, variance analysis and analytical procedures as opposed to the target organisations. The very useful impact of this action is that it helps the investors to understand that if the company is in constant status or it is in growth status(Bromwich & Scapens, 2016).

Based on the above observation and the qualities of the financial statements, it can be concluded  that the current IFRS business reporting practice do not comply with it. This is infact because of the disclosure and reporting requirement under IFRS is constant and not flexible, most of which has no meaning in the requirement of investor. Further, the reporting and recording of accounts being difficult and tough, it draws an understanding of good yeild and requires an expert to oversee and know the same exactly. In short, the general user will not be able to draw resolutions on the basis of the it (Belton, 2017). Therefore, the views in case study are not at par with the ideas that the financial statements meet the real motives of finance.

The Public Interest Theory: The name of the theory reflects that this is for the general individual profit and prosperity of the people at large. Its primary aim is to solve all the stated problems for the general person and show ways in which the shortcomings in the financial statements can be removed. Public interest theory primary objective is to solve the problems of the internal and external investors in the organisations. Internal investors here consists of parties like the workers, the vendors and the suppliers, the investors, etc (Alexander, 2016), and the external investors consists of the banking companies, the income tax authority and the government, etc. The theory is based on the presumption that the market is not perfect and is in government control but in practical sense, this is different and businesses may give the chances of undertaking resolution that agrees the general requirement and the object of the organisation. Hence, it can be said that the public interest theory has not be proved in the above case where the government did not laid different laws and rules. In case the government authorities would have taken into account the disclosure of social and environmental attributes to be serious and huge at the time of reporting, they would have come up with few set standard in this regard.

Capture Theory

Capture Theory: The theory is for the reason of applying laws and is on the basis of tie up between the government, the industry and businesses and the regulatory agencies. The market consists of all the above regulatories and all the decisions are taken considering them into attention. As per this theory, the regulators of the law are mandated to make the laws and regulations thinking in mind the needs and aims of all the above stated target groups. The theory is introduced by the idea that some modifications can be taken to tally the need of all the parties having affect by it. The decision of the government by not making any rules and regulations reflects that this theory has not been applied. Further, where the government has not drafted any rules and laws in this connection then altering it or making modifications to it becomes of no use (Visinescu, et al., 2017).

Economic interest theory and regulation: This theory is drafted by the idea that the laws and regulations come into effect by the forces of the demand and supply. In most cases, government and the regulatory agencies hold the supply side, and the general individuals hold the demand part of it. By this model, the laws and the code of conduct are drafted by the industry and it is applied to the entire region and all the organisations. In this scenaria, the government provides chances to all the organisations to decide and there is no external forces forbidding it. Therefore, if the government has decided to not to make any other legislation for disclosure of social and enrionmental duties to be taken up by the organisations, it requires to impose that it has been taken into consideration in the interest of the common people. The firms and organisations, those who fulfils the needs of common people will absolutely prosper (Vieira, et al., 2017).

At the time when we come across the differences among the IFRS and the local GAPP, the biggest issue that is being noticed is seen in the setoff in the assets’s revaluation. This topic is actually is very complicated and debatable, since the revaluation of assets is allowed in the IFRS standards but not under the local GAAPs. The decision of revaluaing the assets is dependent on the ground that how much impactful it is, and how much transparency and accuracy it reveals in the financial statements if we take this into consideration. Generally, entire shakeholders and special regards is for the investors, since now they are interested in having knowledge regarding the true and fair value of the assets incorporated In the balance sheet. Therefore from the perception of the management, it is now stated in the financial statements to agree to the requirements of IFRS and the data based on conceptuality, yet the significance herewith is relating to the disclosure requirements that should be true and relevant in the notes to accounts  (Dichev, 2017). This is because that it is actually complex to arrive at the appropriate value with the number of calculations and assumptions are known and is dependent on person to person basis. The realizable value is the estimation of the present value of future estimated cashflows and it goes on changing due to the dependent variables like the uncertainity involved, remaining life of the asset, the efficiency of the assets, etc. If we consider the overall complexities and problems, we note that IFRS aims to avoid the revaluation of non current assets. Further, the impairment charges is to be considered accurately and adjusted the same in the value of non current assets, as it can be accurately recorded and is easier to compute. Hence, it can be stated that the presented rules aims at satisfying the need and importance with regards to the financial statements (Das, 2017). They aim to make the financial statement better with regards to overall presentation that companies can apply and follow and make it easier for the users of the financial statements to use and follow it for better results in future.

The assets of the organisation are revalued in the finance reports, which is generally performed on the basis of the expansion of the organisation and the quantum of assets.

  1. The way in which the assets are revalued are being in argument by many companies. However, there are still many companies, who do follow this valuation, and many of them do not opt for valuation of the same. In true sense, incase the revaluation of assets have been performed, it impacts the financial statements and leads to alteration in books of accounts overall. When the companies do revaluation of fixed assets, it has a clear affect on tax liability, the decreament (for what we called as depreciation) and the retained earnings (Farmer, 2018). Further, it might be impactful on the share price and may lead the share price to fall. It thereafter becomes much tough as because it needs much disclosure requirements to state the grounds of the decreament in the value of shares in the notes to accounts. While performing revaluation of assets, the overall carrying value is adjusted in such a way, that the entire asset class is recorded at fair values. Since, this adjustment does not shows any impact on cash flows, it therefore needs alternative ways that includes holding discussion of complex problems with somebody highly qualified and professional. However, the same engages spending of money for consultion the professional, and shows outfolow of monentary cash. Still as a result, the calculated balance may not agree with the market value in the books. Hence, since curtailing of the entire thing as stated above, requires a lot of effort, it is complex, , therefore the management often decides to avoid the revaluation of fixed assets like, furniture and fixtures, plants and equipments, assets, etc.
  2. Annual report is a broader concept, and the financial statements are a small part of it and it proves a true fact to the stakeholders along with many other shareholders that the financial statements are reflecting true and fair view in the books of accounts. The also proves that the income and expenditure statements (P/L Account) and the balance sheet states accurate balances that are supported with the help of proper calculations and notes to accounts. Further, if the assets are recorded at their historical cost less depreciation other than their faor values, it may lead to incorrect view and may not be accurate. It may so happen that the values might be different from the current market price. This leads in recording the information in the annual report wrongly, in the books of accounts(Heminway, 2017). As the necessary feature is that the equity is constantly maintained at the fair value and in many scenarios the assets are not entered at market values. It will show incorrect data to the financers and shall result in inappropriate calculation of the debt equity ratio.
  3. The resolution of revaluation of assets to be made or not is dependent on the internal alongwith external parameters. It the management wishes not to perform the revaluation of the assets then it actually depicts an incorrect view of the financial statements and the balances of the accounts but definitely its impact on the investors value cannot be calculated. It has no inflowing or outflowing of cash, also it does not has any impact on the earning capability of the organisation(Goldmann, 2016). Also, atlast it might increase the retained profit at the time when the amount in the revaluation account is increased or decreased and might reflect an impact on the shareholders’ wealth, yet the market does not responds on such ups and downs and hence, there is no storing or decreasing of value involved in this.


Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.

Bae, S., 2017. The Association Between Corporate Tax Avoidance And Audit Efforts: Evidence From Korea. Journal of Applied Business Research, 33(1), pp. 153-172.

Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.

Bizfluent, 2017. Advantages & Disadvantages of Internal Control. [Online] Available at:[Accessed 07 december 2017].

Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management Accounting Research, Volume 31, pp. 1-9.

Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science Studies, 2(2), pp. 10-17.

Defond, M. & Lennox, C., 2017. Do PCAOB Inspections Improve the Quality of Internal Control Audits?. Journal of Accounting Research, 55(3), pp. 591-627.

Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), pp. 617-632.

Farmer, Y., 2018. Ethical Decision Making and Reputation Management in Public Relations. Journal of Media Ethics, pp. 1-12.

Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, Volume 4, pp. 103-112.

Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, pp. 1-35.

Vieira, R., O’Dwyer, B. & Schneider, R., 2017. Aligning Strategy and Performance Management Systems. SAGE Journals, 30(1).

Visinescu, L., Jones, M. & Sidorova, A., 2017. Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), pp. 58-66.

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