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i) Critically discuss whether the financial accounting and reporting should be regulated or manager should be allowed to disclose financial accounting information voluntarily. 

ii) Do your own research and critically explain how the Australian Accounting Standards Board take part in the global accounting standard setting process (i.e. in setting IFRS). Why is the IFRS set by the International Accounting Standards Board (IASB) not compulsory for the member countries of IASB? 

IFRS and Uniformity in Financial Reporting

The role of regulating financial accounting and reporting has been tasked to IFRS and it ensures that the source of information for the economics market is well prepared and presented. The reporting standards ensure that this information is useful to both internal and external stakeholders of an organization. Due to these reasons, there is a great need for information asymmetry and compatibility, which would otherwise be given up once the managers are given the freedom to provide financial reports voluntarily.

In addition, managers might not have the access to all the information relating to the various aspects of the organization, and in such a case, they would provide misleading information. The information that concerns all these aspects would otherwise assist in comparing the organization performance and help the users of the information make thorough deductions (Amiram, Bozanic and Rouen, 2014).

Financial accounting and reporting, regulators consider the positions of all the users of the financial information. This is to say the regulators act on behalf of the shareholders, creditors, employees as well as the government. The regulators provide guidelines on what to be included in the financial report as well as how it is to be presented. In such a case if the managers were to disclose this information, they would do so by presenting it in a way that they deemed necessary thus lacking uniformity of financial reports. Apart from providing uniformity, financial regulation helps to minimize fraud and creative accounting.

However, this is not to mean that all the financial reports in all countries are the same. Despite that, the stakeholders, that is, the employees, equity investors, the government and auditors, rely on the asymmetry of the financial reports to understand and interpret them (Bellandi, 2015). Different countries have different ways of accounting and presenting the financial records. If this is the case, if the managers were allowed to account and present the financial information there would be an economic chaos due to lack of uniformity. This would lead to a lack of investment as well as poor performance in organizations.

Having regulations that ensure that the financial accounting and reporting is conducted in line with regulations, ensures that there is a symmetry between the regulators and some user groups. These regulations also require that apart from the preparation and presentation of the financial report to the stakeholders, independent auditing should be conducted to examine the financial statements and report the findings to the shareholders. If the managers were allowed to prepare the financial records voluntarily, the process of auditing would lack a specific goal and would fail to identify any irregularities relating to the financial records as well as the organization. Moreover, the law ensures that certain key items of interest have been disclosed to the user, which otherwise managers would consider hiding (Ebarry, 2018).

Overall, there is a law that requires managers to provide financial reports to the stakeholders, however, the regulatory standards, provides detailed rules concerning how items and transactions are to be accounted. Lack of these rules would mean that managers provide reports based on what they deem useful and appealing while omitting useful information. This would lead to a lack of consistency as well as lack performance measurement.

Regulators and Financial Report Standards

The Australian accounting standards board is tasked with the duty of developing and maintaining reporting standards applicable in public and private sector. The board is a government agency, which also plays a role in the development of the global financial reporting standards as well as facilitates the participation of the Australian’s in the globe in relation to standard setting. Apart from contributing to the global accounting standards, AASB also borrows some pages in the internal Financial Reporting Standards(IFRS) in accordance with the Financial Reporting Council (FRC)(Cheung, Evans and Wright, 2014).

The economy in the recent times operates across borders and at a global scale. These transactions are expected to swell as more and more business takes place across borders. More investors are seeking to diversify their investments in various countries. However, such diversification was impossible in the past as many countries maintained their own set of accounting standards. In order, for the investors to understand what the statements represented they had to incur a huge cost for patchwork.

It is due to such complexity that the International Financial Reporting Standards were introduced to provide uniformity in the accounting practice. The Australian Accounting Standards Board has largely assisted the (IFRS) since the International Fanatical Reporting Standards are only a written document until the rules are implemented. The AASB has been at the forefront to ensure that the IFRS regulations have been incorporated into the Australian accounting regulations. According to the research conducted by the Australian Accounting Standards Board, Australian companies and other capital market participants seem to have improved for investors and forecast accuracy (Halí?, 2014). This improvement included the relevance of financial reports, compatibility of financial reporting practices. Moreover, there has been a drop in the number of organizations that are involved in earnings management because of adopting the IFRS regulations.

A deeper analysis identifies that the AASB has implemented the following in recognizing revenues, according to the IFRS revenues should be recognized once the company transfers the control of services or goods to the client in exchange for the amount entitled to the exchange. The regulation goes ahead to provide a five step process in recognition of revenues. These steps involve the identification of contract, identification of performance obligation determination of the transaction price allocation of the transaction price and recognition of revenue (Evans and He, 2016).

The International Accounting Standards Board is a private organization that is tasked with the role of developing and approving international financial standards.  This body operates under IFRS and therefore provides global standards of accounting that are adopted by various countries. Despite the fact that the IAS operates on a global platform and it is adopted in various countries, the technical matters are overseen by the IFRS. IFRS standards borrow a lot from the AASB however, not all member countries of IAS have adopted the AASB standards. The reason behind this is because the AASB standards are developed in Australia and therefore most of them are customized to serve financial accounting and reporting in Australia, which might not be compatible in IAS member countries(Henry and Bhuiyan, 2013).

AASB's Role in Developing Global Reporting Standards

Listed companies operate on funds brought on board by the investors who in return own a piece of the company in the form of shares. This being the case, there is a need for having proper disclosure of the company's equity to the investors. To achieve this obligation, companies adhere to the following items of equity, 

Outstanding shares, which are the number of shares owned by the company and are an integral part of the shareholder's equity. These are the number of shares that have been sold to the shareholders and have not been repurchased by the company (Jana and Jitka, 2014).

Additional capital is another item of equity, which includes shareholders equity, and the amount of money paid for shares above the required par value.

Retained earnings are another item, which is derived when a company decides to retain its earnings rather than pay out dividends to the shareholders. Retained earnings also include the shareholder's equity.

Treasury stock is also included among the items of equity. This includes the amount of stock that has been repurchased by the company from the shareholders.

In this paper, four companies of interest whereby the four items will be analyzed to understand their performance as well as how well they have adhered to the accounting standards. The four companies include Airxpanders, Inc, Adherium limited, Admedus and

Allegra Orthopaedics Limited. All these listed companies operate in the Health Care Equipment & Services sector and therefore they provide a uniform level for analysis of their financial statements.

The first company in the list will be Air expanders. Looking at the issued and outstanding shares of air expanders in 2015 stood at 125,509,868, same as in 2014, in December 2015 there were no issued or outstanding shares declared as the company had bought back the shares. In December 2016 also the company never issued shares to the public between the year 2015-2016 which means that there were issued or outstanding shares to be declared. In 2017, also the company never floated any shares in the market and therefore there was nothing to disclose(Jubb, Haswell and Langfield-Smith, 2015).

Moving on to additional capital, in 2014 the company’s additional capital stood at AUD 33,425 with the additional issuance of stock for cash at AUD 25,055 exercise of warrants to purchase normal stock. On top of this, there was the conversion of bridge notes payable and accrued interest at AUD 5,026 and conversion of warrants to purchase preferred stock AUD 123 and stock-based compensation of 211. This totaled up to AUD 63,880 by the end of 31st December 2015. In the financial year 2015-2016, the more additional capital was acquired from the issuance of common stock at AUD 14,150, exercise the stock option of AUD 11 and stock-based compensation of AUD 377. This brought a total of AUD 78,418 year-end of 2016. 2017 saw the additional stock increase more as there was more issuance of common stock at AUD 32,633, exercise stock options at AUD 60 stock-based compensation AUD 707 and issuance of warrants to purchase at AUD227, this bought a total of 112,045 by year end of 2017 December 31st.

Benefits of Adopting Global Accounting Standards

Retained earnings of the company, the company has failed to disclose any retained earnings despite the regulatory requirement that requires companies to retain 10% of the net profit as retained earnings. The reason for this would be that the company has used the earnings to repurchase the outstanding shares or paid the whole amount as dividends(Kim and Im, 2017).

Treasury stock, the company states in its financial statement that it has never paid dividends on its treasury securities and it has no plan to do so. The company based on the risk-free interest rate on the US treasury zero coupons effective at the time of grant that corresponds to the coupon.

The next company to whose item of equity is to be analyzed is the Adherium limited whose outstanding shares at the end of the financial year June 2013-2014 stood at 64,915,225, in 2014-2015 was at 102585566 and 2015 – 2016 stood at 119,606,316. In the year 2016-2017 June, the outstanding shares were at 169,431,030. A keen look at these shares indicates that the company has been increasing the number of shares after every year. As opposed to the first company that repurchased its stocks, Adherium issued more shares to acquire more development funds (Zeff, 2014).

Capital has not been cited in any of the four user’s financial statements, which is understandable. The reason as to why the company failed to indicate any additional capital is due to the reason that capital was raised through the sale of stocks, which as seen have been increasing throughout the years.

Retained earnings, according to the company’s financial statements are nowhere to be found, this is not normal according to the IFRS. In addition, the company has not declared any treasury stock in the financial statements

Admedus is another company operating in the same sector. This company’s outstanding shares have not been declared in their financial statements despite providing a guideline in the notes to the consolidated financial statement. The note dictates that in order to calculate basic earnings per share average number of outstanding shares must be included. Additional capital has also not been disclosed. However, the company has disclosed additional shares they bought in the subsidiary of 2,400,000 worth.

The company’s retained earnings in 2016-2017 ranged at $ 277,885 while in 2015 -206 they were not declared. However, they provided a directive that requires all gains or losses because of disposal of property and equipment is taken into the retained profits account. The same was the case for 2014-2015 and 2013-204.

Treasury stock has not been disclosed in any of Admedus four year financial report.

The other company that will be analysed is  Allegra Orthopaedics Limited, which has failed to declare any outstanding shares or additional capital in any of its statements. Moreover, there is no a retained earnings recorded or treasury stock. This company has hidden crucial information that is required by the stakeholders

According to the analysis conducted on the four companies, Adherium limited debt equity position stands at an average ratio of 0.11 while Airxpanders, Inc debt equity position is at an average of 1.22. Admedus debt equity position averages at 0.64 and that of the Allegra Orthopaedics Limited are at 0.2. According to the analysis, only the three companies out of four are safe and one is in a risky position due to debt. Airxpanders seem to fund most of its growth with a lot of debt, which can lead to failure in meeting obligations. On the other hand,

Adherium limited is underutilizing its leverage in building assets for the shareholders. Admedus sticks to the international financial standards as it has adhered to the 0.6 debt to equity ratio. Moreover, it shows the efficiency in creating assets using shareholders’ equity as the advantage(Davis and Stone, 2014).


According to this paper, financial regulations are not only useful to guard the interests of the shareholders. Regulations can also be used to help a company assess its performance as well as make decisions. It is also clear in this paper that not all countries have adopted the regulations provided by AASB despite its contribution to IFRS.


AASB’. Australian Accounting Review, 16(39), pp.60-61.

Amiram, D., Bozanic, Z. and Rouen, E. (2014). Financial Statement Irregularities: Evidence from the Distributional Properties of Financial Statement Numbers. SSRN Electronic Journal.

Bellandi, F. (2015). The Handbook to IFRS Transition and to IFRS U.S. GAAP Dual Reporting. 1st ed. Hoboken: John Wiley & Sons, pp.34-69.

Cheung, E., Evans, E. and Wright, S. (2014). The adoption of IFRS in Australia: The case of AASB 138 (IAS 38) Intangible Assets. Australian Accounting Review, 18(3), pp.248-256.

Davis, E. and Stone, M. (2014). Corporate financial structure and financial stability. Journal of Financial Stability, 1(1), pp.65-91.

Ebarry (2018). Conceptual Framework for Financial Reporting 2018. [online] Available at: [Accessed 26 Sep. 2018].

Halí?, Z. (2014). Accounting System and Financial Performance Measurements. European Financial and Accounting Journal, 2011(3), pp.38-65.

He, L., Evans, E. and He, R. (2016). The Impact of AASB 8Operating Segmentson Analysts’ Earnings Forecasts: Australian Evidence. Australian Accounting Review, 26(4), pp.330-340.

Henry, D. and Bhuiyan, M. (2013). Real Earnings Management (REM) and Accrual Earnings Management (AEM) Around Seasoned Equity Offerings (SEOs) in Australia and Subsequent Operating Earnings Performance. SSRN Electronic Journal.

Jana, H. and Jitka, Z. (2014). Comparison of Approaches to Financial Reporting of Non-current Assets According to the IFRS for SMEs and IAS/IFRS. Procedia Engineering, 69, pp.696-703.

Jubb, P., Haswell, S. and Langfield-Smith, I. (2015). Company accounting. South Melbourne, Vic.: Cengage Learning, pp.90-203.

Kim, J. and Im, C. (2017). Reported Profits And Effective Tax Rate Following Accounting Standards Changes Analysis Of Consolidated Financial Statements And Separate Financial Statements. Journal of Applied Business Research (JABR), 33(6), p.1171.

Mates, D. (2016). Considerations Concerning the Just Value of the Financial Instruments According to the IAS 32 and IAS 39. SSRN Electronic Journal.

Palmer, P. (2015). Disclosure of the impacts of adopting equivalents of IFRS in Australia under AASB 1047: its extent, quality, and relationship to corporate characteristics. pp.2009-356.

Schiebel, A. (2016). To What Extent Would the Proposed IFRS for Small and Medium-Sized Entities ('IFRS for SMEs') be Independent of the Full IFRS System?. SSRN Electronic Journal.

Tan, P., Lim, C. and Lee, P. (2016). Advanced financial accounting. Singapore: McGraw-Hill.

ZEFF, S. (2014). A Comment on Brown's ‘The Financial Milieu of the IASB and

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