Question

QUESTION 2 a) Do you agree with a ‘one size fits all’ approach to financial reporting, that is, that all countries should adopt the same accounting standards and conceptual framework?

Required: Explain your answer by discussing the arguments in favour of and against the harmonisation of accounting standards.             (12 marks)



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b) One of the issues covered by IFRS 9 Financial Instruments (revised July 2014) is the classification and measurement of financial assets. The three possible measurement bases identified by the standard are: • Amortised cost. • Fair value through other comprehensive income. • Fair value through profit or loss.

Required: Explain how IFRS 9 requires entities to select the appropriate measurement basis for a financial asset. You should include any options available to entities regarding classification in your explanation. Note: You are NOT required to define financial asset

Answer 1

a) Adopting same accounting standards for all the countries have some points I'm their favour which are discussed below :

• Comparisons can be done easily between the various firms and industries over the world and would also benefit an investor as it would be easy to judge as to where to invest.

• The financial statements and reports prepared would be very reliable for everyone and would require no any additional work as all would have same accounting standards.

• There would also be no need to making a separate consolidated financial statements as using same accounting standards would not require any thing such like that.

So, these were in favour of having same accounting standards. Now let's move in its against :

• There will be no flexibility for the accountants as they would be urged to use the same standards in accounting.

• There are chances that some accountants would not be familiar with the common standards set for the accounting. They would feel or difficult to perform in the way desired.

• Every country has their certain way and their own law implied to their country that would not fir properly to the same set of standards and could create complications.

• Small Businesses would suffer a lot as they would be having less number of employees and incur less profit still have to gothrough the same accounting standards which would be a huge burden carrying on small businesses.

So, these are the reasons why they should not be the same across countries.

b) The financial assets are classified for appropriate measurement basis by the type of entity's business model and the contractual cash flow characteristics of assets.

• Amortised cost classify the assets on the basis of those business model which are in condition of holding assets such that they are able to collect the required cash flows which are contractual. Also, these cash flows must be having a date specified on the payments made on principal with interest.

• Fair value through other comprehensive income classified assets for the business model that specified meeting its aim by collection of contractual cash flows or if it sells its financial assets.

• Fair value through profit and loss contains all those financial assets which are not considered in the above two classification basis.

Thus, these are the ways to classify and options present for classifying.