Student Name: Yasin Yousouf Bahemia

Student ID: J15020141

Degree Title: MBA in Global Financial Services

Level: PG

Module: International Accounting Perspectives

Module code: M012LON
Seminar Tutor: Dr. Ramakrishnan Suppiah

Assignment title: Accounting Coursework 1

Date of submission: 5 March 2016

Word Count 2247 (Excluding Reference, Appendix and Table)

I, Yasin Bahemia, confirm that this submission is my own work and I accept all
responsibility for any copyright infringement that may occur as a result of this
submission.
Contents
Evaluate the purpose and context of international Financial Reporting......................................1
Description of role and purpose of stock exchange...................................................................1
User Needs Framework.................................................................................................................1
Objectives of Financial Reporting.................................................................................................2
Purpose of Financial Statements..................................................................................................2
Limitations........................................................................................................................................3
Explain the role of the IASB in setting and enforcing global accounting standards...................5
Responsibilities of the IASB (International Accounting Standard Board)................................5
Explain the role of the FASB in setting and enforcing global accounting standards.................7
Responsibilities of the FASB (Financial Accounting Standard Board)....................................7
The FASB’S Standard-Setting Process.......................................................................................7
Evaluate your company’s financial statements adherence to GAAP...........................................9
The going concern concept...........................................................................................................9
The Accrual Concept......................................................................................................................9
Qualitative Characteristics...........................................................................................................10
REFERENCES:.................................................................................................................................12
APPENDICES:..................................................................................................................................14
Evaluate the purpose and context of international Financial Reporting

Description of role and purpose of stock exchange

Stock Exchanges have been said to have many roles in economy and it is very important as
it affects the financial market and so it has an effect on the economy as a whole. For
companies, it can help in raising of capital as they might want to sell shares to the public
(Rabia 2009). When doing that, the company is raising level of capital and at the same time
the public knows that they can sell the shares at any time if they are in need of money. Also
the government can use an alternative to increase in tax, so it can issue bond on the stock
exchange market in order to raise funds to execute some infrastructure projects (Rabia
2009).

Why Stock Markets need to be regulated?

“We regulate finance over and above the way we regulate other industries because finance
exhibits market failures that can have devastating consequences”

It is important for stock markets to be regulated as it will have an impact on investors,

companies and the workforce itself. Licensing requirement is one of main tool to regulate the
stock market as it will help brokers, advisers and dealers to enter and exit the market without
any complications and also dealings between clients and companies will be done fairly and
in an ethical way (Elliott and Carvajal 2007). Also the information provided by the stock
market should be precise and at the appropriate time so that investors can make a decision
based on the correct information. All of these will have an effect in terms of credibility of the
stock market and that is why a good regulated stock market will be efficient as the market
will be truthful (Elliott and Carvajal 2007).

User Needs Framework.

A user needs framework is important as it will help companies in accounting tasks even if
they are in different countries. IASC board in April 1989 had approved the IASB framework
to be published in July 1989 and in April 2001, it was accepted and adopted by IASB.
Following some omission, in September 2010, the IASB decided to revise the general
purpose of financial reporting and the use of the information inside it (Dunn 2010).

A user needs framework is necessary as it defines the objective of financial report, it

indicates the purpose for information and also categorise and define the elements of the
financial report and also the concepts of capital and capital maintenance (Dunn 2010).
Potential investors, lenders and creditors will look at the financial report of a company in

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making decision whether they will invest or lend money to the company. Creditors will also
look for information if it is safe to provide credit to the company. They are the main users of
the financial report and the general financial reports are directed to them (Dunn 2010).

Objectives of Financial Reporting

Internal business and economic decision for a company comes from the information that are
given in the financial reporting. Objective of financial reporting for external use is usually for
general purpose and stakeholders will use that information to analyse the future of a
company (White et al. 1998). Also it is a way for the management team to communicate to
stakeholders indicating the future of a company. According to SFAC (Statement of Financial
Accounting Concepts), the main objective of Financial Reporting is to provide information
that are understandable and relevant for people who have a fair and reasonable
understanding of business and economic activities; that is for present and future investors,
creditors and other users in the company itself so that it is taken into consideration when
strategic decisions are made (White et al. 1998).

Purpose of Financial Statements

Financial Statements provide useful information to a wide range of users (Accounting-

simplified.com 2015).

Managers  In order to make business strategy and

manage the business affairs, the managers
will have a look at the financial statement of
the company.
Shareholders They will use the financial statement
regarding whether it is risky to invest more
and make a decision about their current
investment.
Suppliers  Creditors will have to look if it is suitable to
provide goods on credit to the company and
also if they will be repaid the previous credit
they have provided.
Employees  They will be interested to see if there will be
any future increase in salary and concern
about job security.
Governments  Government will be interested to know
companies financial situation and also
whether they have declared the good

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 amount of tax.
Competitors They will want to analyse the rival
companies so that they know what
strategies to develop in order to compete
with its competitors.

Limitations

In his book “Effective financial reporting and auditing: importance and limitations”, Higson
(2009) explained the limitations of using financial statement.

Different It can be said that there are several accounting policies and there is no
accounting leading accounting bodies that have been able to set up a global
policies and standards. IFRS and GAAP are often used but they have their
frameworks differences and it is difficult to compare financial statements from
different geographical areas as they can be using two different
accounting standards.

Professional The preparation of financial statement also depends on the people

judgment preparing it and therefore there might be a difference in interpretation
of accounting standards and this will result in the application also to be
different. Different financial statement will have different interpretation
and it can be difficult to compare them.

Use of historical The use of historical cost of an asset create some problems for users
cost of financial statement as it fails to take into consideration the change in
price levels of assets for a certain period of time. By disclosing the
assets less than their realisable value and also not taking into
consideration the opportunity cost of using those assets, the
significance of the financial statement is being questioned

Fraud and error Fraud and error are both possibilities when a financial statement is
prepared and this can damage the credibility and reliability of the
information provided. Errors can happen without the accountant
noticing it but there is also deliberate manipulation of information. This
mean that information in the financial statement is deliberately changed
in order to show that the goal and target was achieved. This is called
‘window dressing’ and it has happened in the recent past and has
become famous with the Enron Scandal.

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Explain the role of the IASB in setting and enforcing global accounting standards

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Responsibilities of the IASB (International Accounting Standard Board)

IFRS Foundation ensures that a globally accepted financial reporting is developed and it
should be of high quality, understandable by everyone and which will fit in all countries. In
order to do so an independent standard-setting board (IASB) was created in order to have
an overview on the standards and the team are lead with diversity which means that most
region around the world are being represented (Foley 2012).

IASB was developed as an independent private sector body to ensure the development and
acceptance of International Financial Reporting Standards (IFRSs). According to Foley
(2012), it was formed in 2001 in order to replace International Accounting Standards
Committee (IASs) which have been setting up accounting standards since 1973. IASB
adopted all accounting standards and laws set up by the IAS. IASB decided though that all
new standards will be called International Financial Reporting Standards (IFRs) instead of
International accounting standards and IFRS foundation oversee the operation of IASB and
also reviews its effectiveness which in very important when implementing new accounting
standard (Foley 2012).

The IASB has a responsibility in developing and delivering international accounting

standards and the proposed draft will have to be reviewed by the IFRS before it is completed
and released. Moreover while developing the project, a draft should be made available for
the public to comments about the amendments which is being brought forward (Iasplus.com
n.d.). The reviewing of comment will be made by the IASB committee member and they
have to determine if changes are required or not. IASB have other commitment as in
developing major projects, they have to make sure that it is worth it and also will be accepted
by the IRFS committee and that is the reason they usually employ specialist advisory group
to help them in their task (Iasplus.com n.d.). For the benefits of the projects, there are
procedures that are not required but should be considered seriously. For clarification and
transparency, public hearings should be held and discussion papers and exposure drafts are
to be distributed in order to know the opinion of the public and bring amendments if
necessary. “The IASB engages closely with stakeholders around the world, including
investors, analysts, regulators, business leaders, accounting standard-setters and the
accountancy profession” (Foley 2012). Moreover field trips are to be considered as IASB
must ensure that the proposed standards that will be developed will both work in developed
countries and emerging countries as the purpose is to facilitate accounting standards for all
countries.

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Other responsibilities are that its members which are currently 16 full-time members have
the responsibility to develop and publish the final accepted IFRSs which also include IFRS
for SMEs and also IFRS interpretations committee will draft IFRS interpretation which the
members will have to approve for the publication (Foley 2012).

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Explain the role of the FASB in setting and enforcing global accounting standards

Responsibilities of the FASB (Financial Accounting Standard Board)

“The FASB was created to stand apart from partisanship and momentary shifts in public
opinion precisely because the value of accounting standards comes in the consistency of
their application over time and circumstance” (Levitt 2009)

During the 19th and 20th centuries when US was having difficulty in implementing an effective
accounting standards which would be perceived as reliable and would provide information
and financial data to the capital markets participants, the FASB was introduced
(Accountingfoundation.org n.d.). By the 1970, market participants which involves investors,
companies and government decided that it is the time fort the US to have an independent
and commanding body in order to resolve the situation (Tran 2012). In 1973, the FASB
which is a private entity and a non-profit organisation was introduced in order to set financial
accounting standards which can be recognised as U.S. Generally Accepted Accounting
Principles (U.S. GAAP) (Tran 2012).

Establishing and improving financial accounting reporting standards is the mission of the
FASB and this will facilitate and help investors and other users of financial reports by
providing crucial information which was not accessible before. To achieve the mission, FASB
takes into consideration all stakeholders and encourages them to speak out their mind and
then they have to review and analyse all the views in an objective way (Tran 2012). The
Financial Accounting Foundation (FAF) Board of Trustees have the responsibility to make
sure that FASB is being effective and independent, so they also have to accept the
accounting standards which is being developed before it is published (Tran 2012).

The FASB’S Standard-Setting Process

The FASB process in setting up standard have been proven to be independent and the
standard has several steps which have to be respected. As it will be seen later, the process
are meant to bring changes if necessary when all viewpoints are collected and analysed
(Accountingfoundation.org n.d.).

According to accounting foundation, the process of implementing a new standard might differ
between projects, the following steps are how FASB usually functions.

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THE FASB’S CURRENT PRIORITIES

FASB members are confident changes will occur over times but the main mission will
remains constant. The work to be done is to keep accounting standards in trend with
economic and business changes happening; this will ensure that financial reports will always
reflect current realities happening around the world (Accountingfoundation.org n.d.).

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Evaluate your company’s financial statements adherence to GAAP

The going concern concept

When an entity or company is going to carry business in the foreseeable future and so it can
be said that Guinness Anchor Berhad has prepared its financial statement on a going
concern basis (accaglobal 2014). Foreseeable future usually means for a period of 12
months since it was reported and published. It is assumed with the financial statement that
the entity has neither the intention, nor the need to close down and liquidate in the
foreseeable future (accaglobal 2014).

Regarding Guinness Anchor Berhad, the objectives are to maintain a strong capital base
and this will ensure that the group will be able to continue as a going concern entity (see
Appendix 1). This will increase the confidence of investors, creditors and the market as
whole which will encourage future investment and development for the business. In order to
continue the going concern concept, the board of directors takes a close look at the return
on capital but also monitors the amount of dividend to be distributed to the owners of the
company (GAB 2015). There has been no change in the way capital management has been
managed from previous years and also in the level of equity is always balanced (GAB 2015).
Also future plans and investment that are being considered shows also that the company is
planning to go on in the future and intend to develop itself.

The Accrual Concept

The meaning of accrual is considered to be anything that is due for example money which is
yet to be received or paid at the end of an accounting period (Mroczkowski et al. 2011).
Revenues are recognised when they become receivable even though cash for the goods or
services have been received or not. It is the same concept for expenses as they are
recognised when they become payable whether the cash have been paid or not
(Mroczkowski et al. 2011). It can be concluded that both of the transactions will be recorded
according to the accounting period in which they are in. Regarding Revenue, the accrual
concept make the difference between the accrual receipt of cash and the time receipt of
cash and regarding expenses, payment of the actual payment of cash and the obligation to
pay the expenses (Mroczkowski et al. 2011).

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It can be seen that GAB has been using the accrual concept as it has both debtors and
creditors (GAB 2015). This means that the group is still owed money but the transaction
have been recorded regarding debtors and regarding creditors the group still need to pay
them even they already recorded the transaction. Also it is a sign the GAB is planning not
planning to close down in the future as it has kept debtors that owe the company and
creditors to be paid later. Also according to the notes in the financial statement, it can be
found that there are accrued expenses and it can be seen that most of the accrued
expenses are for promotion expenses (see Appendix 2).

Qualitative Characteristics

According to Accounting Concepts SAC 2 “Objective of General Purpose Financial

Reporting” recognises the objective of general purpose financial reporting so that to make
the information that are being disclosed to be valuable for users in order to be able to make
decisions about the allocation of resources (AASB 1990). According to Australian
Accounting Standard Board, another objective will be that it is a way for the management
and accountant to show the financial position of the company. Moreover in order to meet the
objectives and be transparent, there are certain qualitative characteristics that should be met
and it can be seen that GAB has been respecting the characteristics (AASB 1990).

Comparability One of the characteristics is comparability. This mean that users of

financial information should be able at any time to distinguish and find
similarities and difference between each transaction and the effects
that they have on each other. Also, they should be able to compare
one company’s financial statement from different years or even
compare financial statements from different companies.
Relevance This mean that the quality of financial information which has been
disclosed should help users of in decision making and also in the
allocation of resources. The information should help users to compare
the past, analyse the present and predict the future events and also it
should help to confirm that the strategy of the company is being well
executed and effective
Reliability This mean that the information that is disclosed should be reliable that
is can be trusted by the users. It should not be biased or contain errors
of transactions or events that can change the whole outcome of the
results. It is important that auditors are appointed so that users of

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 financial information are convinced that the information given are
trustworthy
Understandabilit This mean that the information that are presented should be easy to
y be understand and that users are able to identify the meanings even
information given from the notes in the financial report.
It can be seen that from the notes given to the users that Guinness Anchor Berhad have
been able to make use of all the qualitative characteristics. From Appendix 6, 7 and 8, it can
be seen that details notes are given for inventories, dividends, receivables and prepayments.
The company have also disclosed others notes in order to be relevant and reliable. Also in
order to be able to make a full comparison between different years or different companies,
GAB have disclosed information as much as possible. The Annual Report was clear and
easy to understand and also it can be said to have been audited before published.

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REFERENCES:

AASB, (1990) ‘Qualitative Characteristics Of Financial Information’. Statement of Accounting

Concepts [online] available from <http://www.aasb.gov.au/admin/file/content102/c3/SAC3_8-
90_2001V.pdf> [4 February 2016]

Accaglobal, (2014) TECHNICAL FACTSHEET 187 : GOING CONCERN [online] available

from <http://www.accaglobal.com/content/dam/ACCA_Global/Technical/finrep/Technical
%20Factsheet%20187ii%20-%20Going%20concern%20(2).pdf> [4 February 2016]

Accountingfoundation.org, (n.d.) What We Do: FASB [online] available from

<http://www.accountingfoundation.org/jsp/Foundation/Page/FAFSectionPage&cid=13510275
41293> [4 February 2016]

Accounting-simplified.com, (2015) Purpose Of Financial Statements And Users Of Financial

Statements [online] available from <http://accounting-simplified.com/purpose-of-financial-
statements.html> [6 February 2016]

Dunn, J. (2010) ‘Financial Reporting And Analysis’. Hoboken, N.J.: Wiley

Elliott, J. and Carvajal, A. (2007) "Strengths And Weaknesses In Securities Market

Regulation: A Global Analysis". IMF Working Papers 07 (259), 1

Foley, C. (2012) The Role Of The IFRS Foundation, Monitoring Board, IASB, IFRS Advisory
And The IFRS Interpretations Committee [online] available from
<http://www.cpaireland.ie/docs/default-source/Students/exam-related-articles-2014/f2-fin-
acc-cpa-article-dec-13---role-of-iasb.pdf?sfvrsn=2> [7 February 2016]

GAB, (2015). Guiness Anchor Berhad Annual Report. [Online] available from
<http://gab.listedcompany.com/misc/ar/ar2015.pdf> [12 February 2016]

Higson, A. (2009) ‘Effective Financial Reporting And Auditing: Importance And Limitations’.

QFinance - The Ultimate Resource, Qatar Financial Centre Authority and Bloomsbury
Publishing (2009), 284-286

Iasplus.com, (n.d.) Responsibilities Of The IASB [online] available from

<http://www.iasplus.com/en/resources/ifrsf/history/resource21> [4 February 2016]

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Levitt, A. (2009) Arthur Levitt - Changing Rules Undercuts Investor Confidence [online]
available from <http://www.washingtonpost.com/wp-
dyn/content/article/2009/03/25/AR2009032502805.html> [4 February 2016]

Mroczkowski, N., Fleay, D. and Poustie, N. (2011) Accounting. South Melbourne, Vic.:

Cengage Learning Australia

Rabia, M. (2009) Stock Exchange Its Functions And Operations [online] available from

<https://www.scribd.com/doc/24016453/Stock-exchange-its-functions-and-operations> [16
February 2016]

Tran, L. (2012) The Role Of The FASB And The IASB In Establishing Fair Value
Measurements [online] available from
<http://www.willamette.com/insights_journal/12/winter_2012_2.pdf> [5 February 2016]

White, G., Sondhi, A. and Fried, D. (1998) ‘The Analysis And Use Of Financial Statements’.
New York: Wiley

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APPENDICES:

Appendix 1:

Appendix 2:

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Appendix 3:

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Appendix 4:

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Appendix 5:

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Appendix 6:

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Appendix 7:

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Appendix 8:

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