QUESTION 1
A.
The main objective of International Accounting Standards Boards (IASB) is to achieve
international convergence with International Financial Reporting Standards (IFRS)
(Doupnik et al., 2020). Discuss TWO (2) arguments for and TWO (2) arguments
against international convergence of financial reporting standards.
Answer:
1. Arguments for Convergence
•
Facilitate better comparability of financial statements to make sure the
evaluation of potential investments in foreign securities will be easier.
•
Reduce financial reporting costs. Cross-listing would allow access to less
expensive capital by reducing the cost of preparing worldwide consolidated
financial statements.
2. Arguments against Convergence
•
Significant differences in existing standards
There will be differences of the standard that exist between countries which
affect the political cost of eliminating the differences will be enormous.
•
May cause standards overload
The businesses need to comply with a set of standards not relevant to them.
The international capital market will force those companies that can benefit
from accessing the market to provide the required accounting information
without convergence.
B. The Securities Exchange and Commission of the U.S. had removed the requirement
that foreign issuers using IFRS reconcile the financial statements to U.S. GAAP.
Elaborate THREE (3) possible reasons that lead to the withdrawal of this requirement.
Answer:
1. Improving the accounting standard to have high quality, comparability,
transparency, and full disclosure
2. To encourage the development of IFRS as a uniform global standard, not a
divergent set of standards applied differently in every nation.
3. Consistency of application of IFRS will help US investors who own foreign
securities to have better comparability.
C.
The following are extract of notes to the financial statements of ZTC Bhd for the
financial year ended on 31 December 2021:
7. Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of raw
materials, consumable stores, replacement parts and trading inventories represents
cost of purchase plus incidental costs, and in the case of other inventories, includes
cost of materials, direct labour, other direct costs and related production overheads
based on normal operating capacity. Net realisable value is the estimated selling
price in the ordinary course of business, less cost to completion and selling
expenses.
13. Impairment of Assets
An impairment loss is recognised for the amount by which the carrying amount of the
non-financial asset exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell and value-in-use. Impairment loss on
non-financial assets is charged to profit or loss. Except for goodwill, assets that were
previously impaired are reviewed for possible reversal of the impairment at the end
of each reporting period.
REQUIRED:
Explain the difference in accounting treatment for inventories and impairment of assets
between IFRS and U.S. GAAP.
Answer:
IFRS
Inventories
U.S GAAP
• Carry out at the lower cost or • Carry out at the lower cost or
net realizable value
market value.
• Forbid of using the last in, • May use weighted-average cost
first out (LIFO) method
method; first in, first out (FIFO);
and last in, first out (LIFO)
Impairment
of Assets
• Impairment
intangibles
losses
assets
for • Prohibits the reversal of all
other
impairment losses
than goodwill and for fixed • The impairment loss to be
assets can be reversed.
recognized is the difference
• Impairment losses are the
between the carrying amount
difference
between
the
and the fair value.
carrying amount and the
recoverable amount.
D.
Opponents of international accounting convergence argue it might be appropriate for
countries with different environment to have different accounting standards. Discuss
TWO (2) obstacles to international convergence of financial reporting.
Answer:
1. Complicated nature of specific standards in fair value measurement. The fair value
measurement needs to have the subjectivity and volatility in financial statement
which lead the business to hire the valuation professionals to measure the fair
value and any increasing cost in financial report.
2. Insufficient guidance on first-time application of standards. Since the standards
were new to the businesses, there will be lack of training facilities and study
courses in application of the new standards.