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Contemporary Accounting

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Introduction

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

Part 1

History Of The TFV and Its Purpose

A true and fair view of the accounting records is one of the main accounting concepts that was developed in the UK in 1844. As per this concept, it was mandatory for the business firms to prepare accounting records in a systematic way. By doing so it was ensured that accounting statements were prepared in the systematic way and reflected the true financial position of the business firm. A 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 a business interest in the firm do not get a true financial position overview of the business firm (Kaplan and Atkinson, 2015). It was created in the UK in 1844 under the UK Joint Stock Companies Act of 1844 under which there was a requirement for the business firms to ensure that a full and fair balance sheet was presented in the ordinary meeting of shareholders.

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In Australia, the true and fair concept was introduced in the Victorian Company Act 1955 and it was the first act that followed the 1947 UK amendment. There are a number of historical purposes for the True and fair view concept. There were a number of reasons why true and fair concept was brought 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 rights to participate in the decision-making process of the business firm. It is usually observed that among all partners some have a high level of knowledge and some have little knowledge of the business.

Due to this reason, specific partners have dominance over others and influence other dictions. Such kind of influential partners in order to protect their own interests usually prepare or modify the financial statements of the business firm. By preparing a true and fair concept main aim was to ensure that the accountability of all partners would be secured in a systematic way in the business. There will be trust and goodwill in the business which will have a positive impact on the business firm. It can be said that true and fair view concepts or laws 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 a 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 act of relief of the creditors and proprietors under which there was a law that made it mandatory for senior officers like the governor, deputy governor and Directors to make actually a true state of the firm financial condition. Under this law, there were Directors who were authorized to appoint any accountant who was honest and could 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 with the state of the business firm. All these things clearly reflect that the main aim of bringing a true and fair position concept was to ensure that all stakeholders that have an interest in the firm remain informed about its true state and will be able to take the right decisions to make prudent decisions. By doing so it is ensured that the interest of the stakeholders is protected and a single person cannot negatively affect the interest of all stakeholders of the project. It can be said that there is a high importance of true and fair concepts for business firms (Gow, Ormazabal and Taylor, 2010).

With the passage of time, many new things are brought or introduced in Australia to ensure that firms will present true and fair information on their financial statements. There are strict rules and regulations that makes it mandatory for business firms to prepare financial statements accurately. In case any firm violates 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 where the company is able to know that up to which extent it earns the real value and is able to perform in the market. By considering the true as well as fair value management of the firm knows that the 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 of the overall market for which the management needs to hire a chartered accountant. For assessing the respective kind of value there is a financial reporting method and process to be taken and then implemented within the workplace.

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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 the authority of auditing. In Australia, there is accounting regulatory environment is mostly and highly supportive of Australian companies in order to calculate and analyse true and fair value of it. In Australia, there are various accounting standards under which finance managers need to follow and are easily able to make various accounting treatments.

When 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 laws etc. are to be there which help to analyse the 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 is balance sheet is to be analyzed. In this, there is one side which is as assets side to be evaluated and assessed the 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 makes a valuation of both kinds of assets. Further, analyzing fair value is one of the important parts of financial reporting in Australia country. Hence, as per the respective kind of analysis and principles, it can be said that Australian regulatory requirements are highly helpful to companies in order to determine TFV in the industry.

Furthermore, in the Australian regulatory requirements, a concern basis is to be used where an assumption is to be made that the company will continue the business without stopping it. In this, the amount of specific criteria is to be carried forward for every year which are the most appropriate and profitable for the firm for assessing the TFV of an organization. For example: when the company follow a straight-line method for calculating the depreciation value of property and any assets then the same value and amount of the depreciation will be carried forward in all the years up to the estimated life of the equipment. By this valuation the assets will be identified and determined in a 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 value are to be used in Australian accounting and financial practices. By using different value concepts and applying them 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 the value of each and every object is derived at a high satisfaction level. While deriving or determining value of the each and every object there is a last unit that has been addressed.

The reason is that when the 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 determines the 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 that are used 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 the firm to present a fair view of monetary position and performance. The main purpose of using a true and fair value system is to present highly reliable information in front of stakeholders which in turn helps in making suitable decisions. In accounting, the true aspect presents that financial statements are appropriate to a great extent.

Along with this, it also entails that all the reports are prepared by following the 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 misstatement and fair value concept is taken into consideration. Moreover, material misstatement implies omission of transaction. The system of True and fair value lays a high level of emphasis on assessing the transactions which an accountant omits to record. The rationale behind this is to present a clear picture of a firm's monetary position and performance auditors require making an assessment of material statements and presenting in a clear manner. Hence, by keeping such aspects 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 that is highly corresponding to economic activities as well as transactions. Further, Bonaci, Matis and Strouhal (2010) defined fair terms in accounting as the financial information being presented in an effectual without having any kind of bias. Hence, such a concept focuses on presenting information in a faithful manner.

Along with this, fair term emphasized the reflection of the economic substance of the 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 that financial statements are presented without taking into account the sectional interest of the company. However, on a critical note, Brett (2011)stated that both true and fair value aspect varies in accordance with the time and place. There is no standardised definition and meaning of true and fair value aspects.

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Part 2

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

Freund (2016) found that the Australian Financial Reporting Manual provides deeper insight into 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, the 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 the annual, concise and interim presentation of aspects.

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

Further, if the financial statements are not prepared according to AASB then the business entity is required to present additional information with the motive of presenting a 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 that come under the registered schemes and disclosing entities are required to prepare 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 the firm to present a true and fair view of final accounts. Bonaci, Matis and Strouhal (2010)stated in their study that when a firm meets the definition of a non-reporting entity then it prepares a special purpose financial statement. In this, the company must comply with all the recognition, measurement and classification requirements of the Australian Accounting Standard Board. In this, business units are required to meet minimum presentation and disclosure requirements to a great extent. Further, directors also must specify the place where additional information can be assessed.

In addition to this, directors also must include information about the place where the 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 the true and fair view of information is not required then the 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 the Australian standard Board. This condition is reversed in the case of not-for-profit entities.

Hence, registered business units have an obligation to provide additional notes disclosure in the form of AASB 101.20. Hence, such a system helps the company in presenting a true 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 of Georgiou and Jack (2011)AASB 101.20 requires several disclosure requirements which a business entity has to fulfil for presenting a fair view or information. In accordance with such aspect, management must conclude that financial statements clearly and fairly present the information regarding the financial health and performance.

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

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Conclusion

On the basis of the above discussion, it is concluded that true and fair concepts are one of the most important concepts in accounting. In the Australia, there are relevant rules and regulations that ensure that the mentioned concept will be tightly followed and firms will report their financials at true and fair value. All these things bring transparency to the firm business operations and ensure that stakeholders will be able to make wise business decisions with respect to the business firm. It is also concluded that Australia's regulatory environment supports financial reporting in the nation and it plays the lead role in ensuring that all financial statements are presented in a proper manner.

References

  • Bonaci, C., Matis, D.U.M.I.T.R.U. and Strouhal, J.I.Ã…Ëœ.Í., 2010. Crisis of fair value measurement? Some defence 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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