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Important Concept of Contemporary Accounting and its Factors

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Contemporary Accounting

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Introduction

Taxation is the one of the domain ton which business firms give due importance in their business. In the current report detail discussion is carried out on the true and fair concept of the accounting and in this regard the reason due to which it is prepared is discussed in detail in the report. Along with this, mentioned concept in respect to Australia is discussed in the report. In the report, extent to which Australia regulatory system support financial reporting is also discussed in detail. At end of the report, conclusion section is prepared.

Part 1

History Of The Tfv And Its Purpose

True and fair view of the accounting records is the one of the main accounting concept that was developed in the UK in 1844. As per this concept it was mandatory for the business firms to prepare accounting records in the systematic way. By doing so it was ensured that accounting statements were prepared in the systematic way and are reflecting true financial position of the business firm. Fair view of the accounting records reflects the actual condition of the business firm.

Earlier, it happened that business firms were not reflecting their actual condition and business performance. Due to this reason stakeholders that have business interest in the firm does not get true financial position overview of the business firm (Kaplan and Atkinson, 2015). It was created in the UK in the 1844 under the UK joint stock companies act of 1844 under which there was requirement for the business firms to ensure that full and fair balance sheet is presented in the ordinary meeting of shareholders.

In the Australia true and fair concept was introduced in the Victorian company’s act 1955 and it was the first act that follow 1947 UK amendment. There are number of historical purpose of the True and fair view concept. There were number of reasons due to which true and fair concept was bring in the nation. In the partnership business it was observed that there is a mutual friendship relationship among the partners. All of them have equal right to participate in the decision making process of the business firm. It is usually observed that among all partners some have high level of knowledge and some have little knowledge of the business.

Due to this reason specific partner have dominance over other and influence other dictions. Such kind of influential partners in order to protect their own interests usually prepare or modify financial statements of the business firm. By preparing true and fair concept main aim was to ensure that accountability of all partners will be secured in the systematic way in the business. There will be trust and goodwill in the business which will have positive impact on the business firm. It can be said that true and fair view concept or law ensure that business firms will not be able to cheat others and in the company or partnership business there will be no one that will use business or operate business to secure its own interests (Kieso, Weygandt and Warfield, 2010).

There is a famous case of the Mine Adventures of England which in the eightieth century was running in heavy debt. There was a law of act of relief of the creditors and proprietors under which there was a law that makes it mandatory to senior officers like governor, deputy governor and Directors to make actually a true state of the firm financial condition. Under this law there were Directors that were authorized to appoint any accountant that was honest and can bring any discrepancy in the books of accounts in the light of the Director.

Such kind of thing will ensure that creditors have full satisfaction of state of the business firm. All these things clearly reflects that main aim of bringing trueand fair position concept was to ensure that all stakeholders that have interest in the firm remain informed about its true state and will be able to take right decision to take prudent decisions. By doing so it is ensured that interest of the stakeholders is protected and single person cannot negatively affect interest of all stakeholders of the project. It can be said that there is high importance of the true and fair concept for the business firms (Gow, Ormazabal and Taylor, 2010).

With passage of time many new things are bring or introduced in the Australia to ensure that firms will present true and fair information on the financial statements. There are strict rules and regulations that makes it mandatory for the business firms to prepare financial statements accurately. In case any firm violate relevant rules and regulations then in that case strict action can be taken against the business firm by the regulatory authority. It can be said that there is a huge importance of the true and fair concept for the business firm.

As per the view of Lennox, Francis and Wang, (2011) true and fair value is that where the company able to know that up to which extent it earns the real value and able to perform in the market. By considering the true as well as fair value management of the firm knows that company has how much value in the market and industry. Hence, it is highly and very compulsory for each and every company to determine and assess the true and fair value among overall market for which the management needs to hire a chartered accountant. For assessing the respective kind of value there is financial reporting method and process is to be taken and then implemented within the workplace.

In the financial reporting context there are various rules and regulations are to be made and then used by the authority party. Among all the several numbers of financial reporting there is auditing process is one of the most significant under which the financial statements are to be analyzed by the external parties which have authority of auditing. In the Australia there is accounting regulatory environment is mostly and highly supportive to the Australian companies in order to calculate and analyses true and fair value of it. In the Australia there is various accounting standards under which the finance managers needs to follow and easily able to make various accounting treatments.

When there are firm follows appropriately and adequately all the Australian standards of accounting it can make effectual transactions and records by which fair value is to be determined easily. In the Australian regulatory there are several kinds of sections, principles, standards and laws etc. are to be there which helps to analyses financial statements of the company. By this the company and management can know that its true and fair value as well as financial performance in the industry is up to which extent better or poor.

According to the recognized accounting principles of Australian regulatory requirements there is balance sheet is to be analyzed. In this there are one side which is such as assets side is to be evaluated and assessed that value of both current and fixed assets is at which level. Along with this, by considering and using going concern accounting principles the company analyses and make valuation of such both kinds of assets. Further, analyzing fair value is one of the important part of the financial reporting in the Australia country. Hence, as per the respective kind analysis and principles it can be said that Australian regulatory requirement is highly helps to the companies in order to determine TFV of it in the industry.

Furthermore, in the Australian regulatory requirements there are going concern basis is to be used where an assumption is to be made that company will continue the business without stopping it. In this the amount of specific criteria is to be carry forward for every year which are the most appropriate and profitable for the firm for assessing TFV of an organization. For example: when the company follow straight line method for calculating depreciation value on property and any assets then same value and amount of the depreciation will be carry forward in all the years up to the estimated life of equipment. By this valuation of the assets will be identified and determined in highly appropriate way and ultimately TFV also. Hence, it can be said that the Australian regulatory requirement is useful for assessing the true and fair value of the firm.

Denison, (2010) states that apart from the regulatory principles there are various concepts of the value are to be used in the Australian accounting and financial practices. By using different value concepts and applying in the firm management of business able to clearly analyze the fair as well as true value of it in the whole industry at where it operates. In this there are final utility theory is to be framed under which value of each and every object is derived at the highly satisfaction level. While deriving or determining value of the each and every object there is last unit has been addressed.

The reason is that when final and last object is considered then it will give actual as well as facts and figures to the firm. Moreover, because of this respective theory such as final utility the management determine true and fair value (TFV) of the firm. Hence, it can be said that in the Australian regulatory requirements there are different types of rules, theories and concepts are used by which it helpful for determining the true and fair value.

According to the views of Cairns and et.al., (2011)true and fair value aspect implies that final accounts are free from material misstatements to a great extent. In auditing, such aspect is highly significant which in turn enables firm to present fair view of monetary position and performance. The main purpose of using true and fair value system is topresent highly reliable information in front of stakeholders which in turn helps inmaking suitable decisions.In accounting, true aspect presents that financial statements areappropriate to a great extent.

Along with this, it also entails that all the reports are prepared by followingthe guidelines of IFRS. It also shows that final accounts do not contain any kind of material misstatement which misleads the users. Hence, with the motive to reduce the level of material misstatementTrue and fair value concept is taken into consideration. Moreover, material misstatement impliesfor omission of transaction. System of True and fair value lays high level of emphasis on assessing the transactions which an accountant omits to record. The rationale behind this, to present clear picture of firm’s monetary position and performance auditors require making assessment of material statement and presenting in a clear manner. Hence, by keeping such aspect in mind auditors can prepare highly suitable statements.

On the other side, Lhaopadchan (2010) stated that accounting information that is contained in the financial statements must be properly quantified. In addition to this, accounting information must be communicated in such a manner whichis highly correspondingto economic activities as well as transactions. Further, Bonaci, Matis and Strouhal (2010) defined fair term in accounting that the financial information is presented in an effectual without having any kind of biasness. Hence, such concept focuses on presenting information in a faithful manner.

Along with this, fair termemphasized on the reflection of economic substance of transaction rather than the legal form. Georgiou and Jack (201)1 claimed that fair element shows that all the information is measured, analyzed and disclosed in an objective manner. It shows thatfinancial statements are presented withouttaking into account the sectional interest of company.However, on the critical note,Brett (2011)stated that both true and fair value aspect varies in accordance with the time and place. There is no standardizeddefinition and meaning of true and fair value aspect.

Part 2

The Extent To Which The Australian Regulatory Environment For Financial Reporting Supports The Tfv

Freund (2016) found that Australian Financial Reporting Manual provides deeper insight about the environment and legal monetary framework. Further, such standards help in assessing the difference which takes place between the reporting and non-reporting entities. Along with this, Australian regulatory framework also furnishes information about the reporting and disclosure requirements for the different types of entities. Financial reporting system also outlines the requirements for annual, concise andinterim presentation of aspects.

In addition this, financial reporting system places emphasis on the preparation and publishing aspect of reports according to IFRS. However, on the critical note, Vyas, Ambadkar and Bhargavaϯ (2015)depicted that some deficiencies are involved inAustralian Accounting Standard. Hence, concerned committee has presented conflicting views of true and fair and fair view requirement in the Corporation Act 2001. Section 296 of such Act entails that business unit which is not a small proprietor must prepare reports according to AASB.Cairns and et.al., (2011)argued that business units mustpresent a true and fair view of monetary position as well as performance.

Further, if the financial statements are not prepared according to AASB then business entity is required to present additional information with the motive to present True and Fair view (Australian financial reporting system, 2017).Besides this, auditors must mention the opinion that financial reports are in accordance with the specific section. Lhaopadchan (2010) presented that all the companies come under the registered schemes and disclosing entities are required to prepare an annual financial statements by complying with Australian Accounting standards. Further, according to the laws and legislation business units are obliged to present the information in notes regarding the standard which is not followed by them.

This in turn enables firm to present true and fair view of final accounts. Bonaci, Matis and Strouhal (2010)stated in their study that when firm meetsthe definition of non-reporting entity then it prepares special purpose financial statement. In this,company must comply with all the recognition, measurement and classificationrequirementsof AustralianAccounting Standard Board. In this, business units are required to meet minimum presentation and disclosure requirements to a great extent. Further, directors also must specifythe place where additional information can beassessed.

Inaddition to this, directors also must include information about the place where inclusion of additional information is required to give or present the fair view of information required in accordance with S297. Further, in the case where true and fair view of information is not required then director is free from the obligation to mention a statement. Entities not reporting under such Act are not permitted to follow accounting rules and regulations revealed by Australian standard Board. This condition is reversed in the case of not for profit making entities.

Hence, registered business units have obligation to provide with additional notes disclosure in the form of AASB 101.20. Hence, such system helps company in presenting thetrue and fair view of information to a great extent. All the above aspects clearly show that AASB supports to ‘True and Fair View’ system to a great extent.

According to the views ofGeorgiou and Jack (2011)AASB 101.20 requires several disclosure requirements which business entity has to fulfill for presenting the fair view or information. In accordance with such aspect, management must conclude that financial statements clearlyand fairly present the information regarding the financial health and performance.

Further, it is also required to mention that firm has properly followed all AASB to a great extent. Exceptions are available only for the business organizations which are departed from the requirement of following the aspects of fair presentation. Along with this, financial effect of departure on each item must be clearly reported which in turn helps in complying with the monetary requirements.

Conclusion

On the basis of above discussing it is concluded that true and fair concept is one of the most important concept in the accounting. In the Australia there are relevant rules and regulations that ensured that mentioned concept will be tightly followed and firms will report their financials at true and fair value. All these things bring transparency in the firm business operations and ensured that stakeholder’s will be able to take wise business decisions in respect to the business firm. It is also concluded that Australia regulatory environment support the financial reporting in the nation and it play lead role in ensuring that all financial statements are presented in proper manner.

References

  • Bonaci, C., Matis, D.U.M.I.T.R.U. and Strouhal, J.I.Ř.Í., 2010. Crisis of fair value measurement? Some defense of the best of all bad measurement bases.WSEAS Transactions on Business and Economics.
  • Brett, J., 2011.Quarterly Essay 42 Fair Share: Country and City in Australia(Vol. 42). Black Inc..
  • Cairns, D. and et.al., 2011. IFRS fair value measurement and accounting policy choice in the United Kingdom and Australia.The British Accounting Review.
  • Denison, E.F., 2010.Accounting for slower economic growth: the United States in the 1970's. Brookings Institution Press.
  • Freund, K., 2016. &ldquo Fair use is legal use”: Copyright negotiations and strategies in the fan-vidding community.new media & society.
  • Georgiou, O. and Jack, L., 2011. In pursuit of legitimacy: A history behind fair value accounting.The British Accounting Review.
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