Question

Major requirements:

1. Undertake a review of literature to develop and present your arguments, with examples, explaining how corporate crises/failures in every era lead to improved accounting regulations/standards for financial reporting in the subsequent periods.
2. Critically evaluate, with appropriate examples, how accounting standard setting in the past came through a complex political process in global context.
3. Carefully read the annual report of the selected ASX company and then identify the accounting standards complied with while preparing financial statements. Introduce each of these accounting standards.
4. Based on a review of literature, critically evaluate the accounting standard for fair value accounting.

Answer 1

Accounting and Financial reporting is not as same as General Science, i.e. there cannot be always a cause and effect relationship. This leads to the infinite possibilities caused by the million combinations of circumstances that can occurr in the financial and social arena, hence making it absolutely impossible for any authority to draft policies that can curb with the upcoming crises or developments, which makes it more evolutionary and a build as you go castle.

Economic crises, business failures, fraudulent companies and individuals, etc. fair to say that the judicial system by itself has evolved overtime to consider and reconsider how it looks at social and financial issues. From a crisis there will be resolution that would fix any loophole in the prevailing law or even pass new bills to consider the new arrangement that has emerged. For example, data protection laws came after privacy threats from certain service providers failing to secure their client's data and critical information. IT started its journey after the invention of the internet, copyright laws, trademarks, patents all were evolved only after the iminent chaos was recognised after a problem arose.

In 2008, and American Investment bank collapsed and it sparked a woldwide economic downturn which had the Europe worst affected. The factors to cause fo this crisis has been varied but particularly they were foccused due to the irresponsible behavior of banks, mailnly excessive risk-taking. After such crisis, lawmakers and politicians strived to ensure that a crisis of such magnitude shall never happen again. Since 2008, there were a lot of changes and improvements in the laws that governed banking and financial reporting, The European Commission established supervisory bodies to oversee new regulations and ensured that the banking sector was held properly accountable. In 2011, the UK, Germany and France had imposed levies on banking entities to remarkably discourage aggressive risk taking in future.

The political process of the adoption of IAS’s and harmonising these standards with the AAS’s has had far reaching impacts. This may be due to the influences of the government, boards, corporations and regulatory bodies involved in dominating the process, which can be seen through a brief look at the history of the actions taken by each of these parties to change the accounting world. There are visible benefits to the parties who influenced the changes in both economical and social ways. Along with benefits for some parties comes disadvantages to those who lost their influential power. The make up of the Boards gives rise to questions as to what the goals of the boards are both in the near future as well as in the long run. Through the creation and dissolution of various bodies and commitees, legislative bills, rules and laws the eventual result was the adoption of the IASB's standards in 2005. This process proved to be more of a politically influenced and intended move since the government wanted to retain its power and saw this as its opportunity.The Treasury readily took on the responsibility, the ASX’s relationship with the Liberal Party enabled it to wield great influence and thus push out competing exchanges. The large companies had their influence through the ASX and other groups lobbied for their position in this arena.
Admittedly, there are non-political influences that have a role in the factors for adopting IAS’s such as globalization. Yes, this has been put into the non-political box because although it can be viewed as political, globalization is also an evolution of international trade with the assistance of technological advancement.