Financial Accounting Reporting And Assurance Essay

Question:

Discuss about the Financial Accounting Reporting and Assurance.

Answer:

Introduction:

The accounting information of Astral Music can help the users of the information in arriving at superior and informed decision. The users of Astral’s accounting information include internal users (management, members of the staff and the owners) as well as the external users (creditors, tax authorities, financiers, customers as well as the regulatory authorities) (Deegan, 2013). The overall analysis of the case study can help in the process of ascertainment of the users of the accounting information of Astral Music. The owners Natasha and Anastasia can be regarded as the internal user of the information. Anastasia being the equity participant is also a part owner of the business and require the accounting information as Anastasia’s decision to stay. The two owners need the accounting information for analysing the financial condition of the firm. Natasha and Anastasia need to use the accounting information for evaluating the feasibility and profitability of the investments they have made (Weil et al., 2013). In addition to this, the owners also need the accounting information for determination of the upcoming course of action (Edwards, 2013). Moreover, the new management of the Astral also have the need of the financial information for evaluating the overall performance as well as the position of the business concern for undertaking suitable measures for improvement of the results of the company. In particular, the former owner of the company Olga also require the accounting information as she is entitled to receive certain percentage of profits from the present business of Astra for the initial three years of the operations necessarily on a descending rate. Therefore, Olga also needs to keep track of the financial information of the company for receiving the stipulated share of profits. The employees of the firm Astral Music also require the accounting information for assessment of the profitability of the firm and its consequence on the security of their job and remuneration structure. The creditors of the firm also require the accounting information. As mentioned in the case study, Natasha will have to acquire loan from bank for replacement of the investment of Anastasia in case if Anastasia decides to pull out of the business at the end of the first year. Therefore, the bank being a financier would require the accounting information of the company Astral Music Inc. for disbursement of the loan (Pratt, 2013). In addition to this, the regulatory authorities would also require the accounting information for making it certain that the disclosures of different accounting information are essentially in accordance with the accounting rules as well as regulations. It is important for the regulatory authority to access the accounting information for the purpose of fortification of the interests of all the stakeholders who utilize the information for framing their decisions (Horngren et al., 2013).

Identification of the various accounting issues facing Astral

As per the case study, it can be hereby ascertained that there exists accounting issues regarding the sharing of the business profits with Olga on a descending rate. The share of the profits is as per the valuation of the ongoing business during the time of purchase. Again, as mentioned in the case study, Astral failed to recover the different instruments in around 50 % of the cases. Therefore, there exists an issue as regards the accounting of different bad debts and doubtful accounts. Again, the management of the Astral placed order to the Czech corporation for manufacturing of the instruments that would be sold under Astral’s brand. This required maintenance of different departmental financial statements, departments as well as agencies (Henderson et al., 2015). This also proves to be an accounting issue to the firm. In addition to this, the manufacturing company also offered a discount of approximately 50% to different structural defects of products. As per the agreement, the discounts were supposed to be modified against different future purchases. The adjustments can also be regarded as an accounting issue faced by the management of Astral. Again, in the middle of the year Astral Music placed order to the Czech manufacturer for diverse musical instruments. However, regrettably the company announced bankruptcy and liquidated the business. By that time, astral could only market only half of the instruments and the other half remained in the inventory as recorded during the year-end. Therefore, the valuation of the inventory has also become an issue for the organization Astral Music.

Accounting policies that replicate the economic situations for the detected accounting issues

The management of the Astral Music can follow the accounting policies of the ASPE as the management currently has no plan to access the public equity market. Natasha plans to acquire half of the funds from Anastasia and therefore do not intend to access the public equity market. Natasha and Anastasia can follow diverse stipulations conditioned under the section ASPE 1582. The section ASPE 1582 for business combinations helps in the process of identification of the acquirer, determination of particular date of acquisition, recognition as well as measurement of identifiable asset. In addition to this, this regulation also helps in the detection of assumed liabilities as well as different non-controlling interests ("Home | Financial Reporting and Assurance Standards Canada", 2016). The regulations set under the section 1582 of the ASPE also facilitate the process of recognition as well as measurement of the goodwill of the company Astral Music. This can help in the process of ascertainment of value of the company at the time of purchase from Olga. The adoption of the ASPE can be considered better choice for the management of the company Astral Music as there are significant numbers of regional competitors, target consumers that operate privately. Therefore, the regulations of the ASPE can be considered better choice as the company Astral Music currently has no plan for global operations, reporting system is also less intricate with minimal accounting complication, negligible dependence on diverse benchmarking as well as comparative evaluation. In addition to this, ASPE can also be regarded as better choice for Astral Music as Natasha immediately has no plan for transition and has intention to maintain business within certain private individuals that include Natasha and Anastasia. The management of Astral Music can take into consideration ASPE rather than IFRS as the company has no external equity financiers who might hold different views regarding the future of the enterprise. Again, the company Astral Music also has minimum resources for accounting to spend on training, compliance as well as education. The management of the company also need to prepare appropriate financial declarations suitably for owners, lenders as well as maintenance of conformity. In addition to this, compliance to the ASPE rather than IFRS can be considered to be better as the requirements for disclosure are comparatively less and there are strict rules regarding size of the enterprise. Therefore, any privately owned business such as Astral Music can adopt the ASPE not considering size.

The accounting regulation set conditioned under section 1582 of the ASPE replicates different economic situation that reflects the alterations in ownership interests from Olga to Natasha. The accounting standard set the regulations for the acquisition cost, helps in determination of the date of acquisition, association with the timing of disbursements of considerations (Horngren et al., 2012). Thereafter, the case study also mentions about the arrangement of the two equity participants that are involved in the acquirement of the new business (Richard & David, 2016). The accounting strategy that can replicate this definite economic circumstance is the regulation under “Section 3056- Interests in Joint Arrangements” conditioned under the ASPE. “Section 3056- Interests in Joint Arrangements” is applicable for different business entities that are essentially partners to a joint agreement ("Home | Financial Reporting and Assurance Standards Canada", 2016). Natasha and Anastasia also entered into agreement with the former owner Olga. Again, the company also entered into diverse contractual agreements with Czech manufacturer. In addition to this, the capital as well as contribution of the two different equity participants Natasha and Anastasia also represents the contractual arrangements where the involved parties enter into an understanding. These economic situations can be considered as joint arrangements (Lovell, 2014). The accounting policy of the ASPE Section 3056- Interests in Joint Arrangements consequently replicates fundamental economic state of affairs. As mentioned in the case study, the company Astral Music also faces the problems of collection of the receivables. The company was also unable to recover diverse rented instruments in 50% of cases where there were bad receivables. The accounting policy of ASPE section 3856 financial instruments indicate towards the regulations as regards the financial instruments. Therefore, this accounting policy outlines the underlying economic situations of the trade receivables. In addition to this, the management of the company Astral also decided to provide a warranty of around two year on diverse musical instruments marketed under the brand. The accounting strategy of the ASPE “Section 3856 Financial Instruments” can fittingly be a sign of the underlying economic situation that encompasses around delivering warranties to customers by Astral Music. The ASPE Section 3290 Contingencies” states the regulations for contingent gains and losses but cannot be applied to guarantee provisions. (Wagenhofer, 2015). ASPE Section 3290 Contingencies” also proposes different directives that provide different provisions, contingent liabilities in addition to contingent assets. Again, the management of the company Astral Music decided to amass returned defective instruments and market them to an external party that has the business to salvage different parts from different defective musical instruments (Warren et al., 2013). In this case, the management of the company needs take into account different aspects of the sales return (Traistaru & Cotoc, 2013). ASPE Section 3400 Revenue suggests different rules as well as directives for accounting diverse cancellable sales activities, authority of return arrangements, sales return and for reflecting the underlying economic situation of sales return. The ASPE Section 3400 Revenue considers the sales return as a certain form of changeable consideration and this policy provides guidance for different forms of variable consideration. As per the guidelines of Section 3400 Revenue, different selling entities take into consideration various aspects at the time when sales are made to different consumers with a power to return. The factors that need to be taken into consideration include the recognition of revenue, establishment of liability for the expected amount of consideration, establishment of asset with analogous entry to different cost expensed for sales for acquirement of right. This can help in recovering diverse products at the time when refund liability is established (Sundem et al., 2012). Thereafter, the company placed order with the Czech manufacturer that liquidated suddenly. The company could sell only half of the purchased musical instruments and the other half remained in the inventory as registered at the end of the year. The “Section 3031-Inventories” also put forward the rules as well as regulations for establishments of the guidelines for accounting inventories. The management can take note of different regulations of ASPE for treating different items as is presented below:

Accounting policies that affect various objectives of the users

The accounting policies ASPE can also affect the objectives of different users. The ASPE presents all the users of the accounting information the objectives of different financial reporting (Whitecotton et al., 2013). The overall consideration of the financial statement includes the fair presentation consistent with GAAP, preparation on-going concern basis of the financial declarations, general-purpose declarations, basis of preparation, comparative information. The fair presentation is as per Section 1100 of the principles of the GAAP ("US PwC", 2016). The goal of the general purpose financial reporting is essentially to offer important financial information regarding the particular reporting entity to all the existing as well as prospective financiers, lenders as well as creditors. The structure differentiates between two different qualitative characteristics for essentially offering important information (Trucco, 2015). The fundamental qualitative features include the faithful representation as well as relevance and the enhanced qualitative characteristics comprises of comparability, verifiability, lucidity as well as timeliness. The pertinent financial information has the potential of drawing a difference to different decisions framed by diverse users. The modified structure of the accounting policies can out forward the concept of materiality as a component of the relevance. The new term of faithful representation, replaces the term reliability as there was lack of understanding regarding reliability. The faithful representation of the financial information can help the users of the accounting information as it provides complete, neutral and at the same time error free information (Wilks et al., 2012). The modified structure of the framework admits limitations in attainment of faithful representation owing to different inherent ambiguity, approximations as well as assumptions. Subsequently, the financial information might not be completely free from error. However, the faithful representation is essentially attained in case of the errors or else omissions affect the overall description of different economic phenomena. Comparability permits the users of the financial information to recognize with different similarities as well as differences among different items both between diverse periods and across different enterprises. The comparability factor of the accounting policy can help the owners of the company astral Music to understand the compare the information among different enterprises as well as different period. This can help the owners in understanding the financial condition as well as position of the company Astral music at the time of acquirement.


The acquisition cost is also based on the existing good will as well as the list of customers. Therefore, the qualitative characteristic of verifiability can help the owners in the process of arriving at decisions of acquirement date, cost and many others. The comparability of the financial information as per the conceptual framework of the ASPE can also help Natasha and Anastasia in understanding the position of the competitors of the company in the sector. This has helped the company to understand to understand the competitive position of the company in the industry that led to the decision of lowering of the selling price of the products of the corporation. Again, the qualitative characteristics of the accounting policy can also help the equity participant as well as the creditor such as the bank in understanding the financial information. The bank as a creditor might need knowledge as well as observation to reach agreement regarding the faithful representation of an event. The timeliness of particular information is also important for the users as it helps all the users through timely reporting as well as consistent information.

References

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