Difference Between Rule Based Approach In Accounting

With reference to the measurement of tangible non-current assets, critically evaluate whether financial statements prepared using IFRS’s provide useful information. Use specific examples from the annual reports of FTSE 100 companies to illustrate your points.

The purpose of this research report is to understand of two important concepts from the Conceptual Framework for Financial Reporting----the objective of general purpose financial reporting and qualitative characteristics of useful financial information. In this report, Myer Holdings Ltd is as an example to describe these two concepts. This report includes the analysis on whether the disclosure of PPE from Myer Holdings Ltd meets the requirements of AASB 116, especially the requirements of objective

IFRS is form with a mission to be achieved which is produce a transparency, accountability and efficiency to the financial market around the world (Anon., 2016).

Rule based accounting standards are difference from principle based standards in that rule based standards are just that – rules. For instance, the Internal Revenue code is rule based. There are things you can do and things you can’t. When rules are broken,

The concepts in the conceptual framework are being created in an orderly manner which makes the financial reporting consistent and logical. There is also increased comparability of standards from company to company or from year to year. The conceptual framework also ensures that there is consistency internally in the accounting standards. In addition the framework also establishes precise definitions that facilitate discussion of accounting issues and it also helps preparers and auditors in resolving financial problems in the absence of an accounting standard. Since a theory of accounting that can be applied on specific problems is provided in the conceptual framework, the volume of accounting standards is

4.3 The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users such as suppliers, customers, government agencies or financial institutions in making economic decisions, for instance, whether to grant a loan or to give credit to the company. At the financial year end the Finance Director at IWL prepares the following financial statements:

These principles facilitates the accountants to understand the financial activities from company to company and from country to country. The key role of IFRS is to maintain satiability and transparency in whole financial world because of several reasons. First, it helps the investors both individuals and businesses examine the actual financial condition of the company in which they want to invest. Second, make educated and smart decision about the investment.

Directly or indirectly, financial reporting measurements of performance and financial position affect almost everyone. They help to determine whether a business is regarded as a failure or a success, whether its employees earn a bonus, whether they keep their jobs, what dividends investors receive, and how much tax the business pays.

With complete notion and awareness of how each country has their set of rules, “the goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements” (Rouse, 2011). This view is meant to provide general guidelines, as well as international comparisons through conventional and edifying means. To bring broader and vivid objectives, IFRS replaced IAS, the older standards, in order to bring a more comprehensive and simplified accounting procedures.

Every business has to prepare its financial statements for its investors and making its business decisions. Company’s financial conditions are of major concern to the investors and creditors. As capital providers they rely on the financial statement for safety and profitability of their investments. They are also interested in knowing where and for what purpose their money is being used. Financial statements present the financial health of the entity.

As a result these people want to know about the organization in details in which they are going to invest. In this regards financial statement or financial records are useful instruments for providing those information to the stakeholders. Usefulness of financial statements for stakeholders is discussed below:

Since the core objective of financial reporting is to provide useful information to report users for making and reviewing resource allocation decisions (Deegan, 2012), it is of paramount importance that these statements are faithfully represented and relevant. The absence of either characteristic will cripple the decision making process.

First of all, regarding the financial report preparation, the supporters to the principle-based accounting point out that the rules-based accounting contains numerous bright-line tests, numerous exceptions, large volumes of implementation guidance, excessive detail, which leads to complexity and uncertainty about the application of standard (Securities and Exchange Commission, 2003). In addition, according to Maines et al (2003), the principle-based standards, if implemented properly, can increase the usefulness of financial statement “by focusing on the primary characteristics of relevance and reliability”, which cannot be found in the rules-based accounting standards. However, the rules-based accounting has many unambiguous benefits. The first one is that the rules-based accounting is clear and less confusing for accountants. The clear rules provide

The role of financial reporting is to document the activities of a business in terms of its capital, its transactions and financial movements. This information is then provided to the users who can benefit from it, including owners, managers, and shareholders etc. This allows users to make decisions concerning the business. However, in the real world, it is difficult to establish what exactly should be documented and what information can actually affect a user’s decision. The conceptual framework published by the International Accounting Standards Board (IASB) aims to set out the fundamental concepts in the preparation and presentation of financial statements (IFRS 2014). This essay will attempt to analyse the specific concept of prudence found in the qualitative characteristics chapter of the conceptual framework. Prudence has been omitted from the conceptual framework in recent years, and this essay will attempt to establish whether it is needed or not.

This topic forms most of Section A (and has an influence on Section B) of the syllabus for Paper F7, Financial Reporting. A conceptual framework is important to the understanding of the many principles and concepts that underpin International Financial Reporting Standards (IFRS) and is an often-neglected part of candidates’ studies. Questions from these areas regularly appear in Paper F7 exams – usually as Question 4 – and I often comment in my examiner’s report that they are the least well-answered question in the exam paper; the questions also have a high incidence of candidates not attempting them