S117 ACT301 Accounting Theory and Contemporary Issues

Assessment 1

Part A Let us assume that the government has become concerned that existing disclosure regulation tends to fixate on the financial performance of organisation but fails to address other aspects of corporate performance, including failure to provide information about corporate social and environmental impacts as well as about various initiatives and investments an organisation has undertaken to improve its social and environmental performance. As such, the government has decided to introduce legislation that will require business corporations to provide information about the social and environmental impacts of their operations, as well as the social and environmental initiatives undertaken by the corporations. Required: You are required to do the following:

• Explain from a ‘public interest theory perspective’ the rationale for the Government introducing the legislation and how the government will ultimately assess whether any proposed legislation should actually be introduced.
• Predict from a ‘capture theory perspective’ the types of constituents that will benefit in the long run from any social and environmental disclosure legislation.
• Predict from an ‘economic interest group perspective’ whether any potential legislation to be introduced will lead to an increase in the accountability of corporations in relation to their social and environmental performance despite any implications that this increased corporate accountability might have for the financial success of large but heavily polluting organisations.

Part B

The website of FASB (www.fasb.org) has a section entitled ‘Facts about FASB’, in which there is information about how accounting standards are developed (as accessed in November 2015). In part, it states:

Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting that govern the preparation of financial reports by nongovernmental entities. Those standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) (Financial Reporting Release No. 1, Section 101, and reaffirmed in its April 2003 Policy Statement) and the American Institute of Certified Public Accountants (Rule 203, Rules of Professional Conduct, as amended May 1973 and May 1979). Such standards are important to the efficient functioning of the economy because decisions about the allocation of resources rely heavily on credible, concise, and understandable financial information.

The SEC has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history, however, the Commission’s policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest.

Mission

The mission of the FASB is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports.

That mission is accomplished through a comprehensive and independent process that encourages broad participation, objectively considers all stakeholder views, and is subject to oversight by the Financial Accounting Foundation’s Board of Trustees.

The FASB accomplishes its mission through a comprehensive and independent process that encourages broad participation, objectively considers all stakeholder views, and is subject to oversight by the Financial Accounting Foundation’s Board of Trustees.

The Rules of Procedure describe the FASB’s operating procedures, including the due process activities that are to be open to public participation or observation to provide transparency into the standards-setting process. In particular, the Rules of Procedure describe:

• The organization in which the FASB operates
• The FASB mission, how the mission is accomplished, and related principles that guide the Board’s standards-setting activities
• The operating procedures of the FASB, including the responsibilities of the Chairman, the composition of the FASB technical staff, the role of advisory groups, the emerging issues Task Force, and public forums in our due process
• Our various forms of communications, including the form and content of AccountingStandards Updates, Exposure Drafts, and Concepts Statements
• Protocols for meetings of the FASB and voting requirements
• Rules governing public announcements and the kinds of information made broadly available to the public.

A key principle guiding the Board’s work is to issue standards when the expected benefits of a change just the perceived costs of that change. The FASB has developed a plain-language Cost-Benefit Analysis summary that explains how the consideration of benefits and costs is integrated throughout the FASB’s standards-setting process. It explains how the FASB gathers information about potential costs and benefits of standards, as well as how the cost-benefit analysis differs from an analysis of economic consequences. A high-level overview of the standards-setting process as established by the Rules of Procedure follows. The nature and extent of the Board’s specific research and outreach activities will vary from project to project, depending on the nature and scope of the reporting issues involved.

1. The Board identifies financial reporting issues based on requests/recommendations from stakeholders or through other means.
2. The FASB decides whether to add a project to the technical agenda based on a staff-prepared analysis of the issues.
3. The Board deliberates at one or more public meetings the various reporting issues identified and analyzed by the staff.
4. The Board issues an Exposure Draft to solicit broad stakeholder input. (In some projects, the Board may issue a Discussion Paper to obtain input in the early stages of a project.)
5. The Board holds a public roundtable meeting on the Exposure Draft, if necessary.
6. The staff analyzes comment letters, public roundtable discussion, and all other information obtained through due process activities. The Board redeliberates the proposed provisions, carefully considering the stakeholder input received, at one or more public meetings.
7. The Board issues an Accounting Standards Update describing amendments to theAccounting Standards Codification.

Required:

(a) Given the process involved in developing standards – which involves asking constituents to make submissions on exposure drafts – do you think that accounting standards developed within the United States of America would be the same as accounting standards developed in another country? Explain and support your view.

(b) Is it appropriate for accounting standard-setting bodies to consider ‘culture’and ‘religion’ when devising accounting regulations, particularly given that the output of financial reporting is expected to be objective and unbiased? Explain and support your view

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