BAC21 Financial Accounting Theory Assignments
Solution to Task 1
The study at hand takes into count the report published on 29 June, 2018 on “Changes to the Australian Accounting Standard AASB 16 affecting franchisees & franchisors: Bringing leases onto your balance sheet” by Andrew Grima. The article deals with the changes in the Australian standard of AASB 16 those impacts the franchisees and franchisors. The change in the standard has led to a change in the structure of a balance sheet. The managing innovation has added enables the heading of leases in the balance sheet of the companies.
The article has clearly evaluated the benefits of the new trends of the accounting standard. The author has pointed out that the changes will bring significant changes in the way business is conducted between the franchisee and the franchiser. The franchisee is the independent entrepreneurs who take franchise stores of known existing brands and then in their own place, using their own money and utilizing the brand name and technical knowhow of the franchiser they conduct business. Common example can be given like Gelatissimo, Gutter-Vac, Mad Mex, Poolwerx, Roll’d, Coffee club, and Battery world. All these are the names of the Franchisers who allow the business and brand to be used by the Franchisee units. It is very important for both the franchisee and franchiser to follow standard accounting practices of the land because the business may become very complicated, especially for the franchiser. The franchiser is to have calculations about plenty of franchisees and whatever goods are sold to them. The government is always vigilant about whether any business activities that are going on are beyond the permission. Therefore the Australian government has formed the Australian Accounting Standards Board which is a direct agency of the government that creates and keeps up budgetary reporting principles material to elements in the private and open businesses of the Australian economy. Every country has their own dedicated agencies to take care that the standards of financial practice within the country is regulated and standardized. The said agency the Australian Accounting Standards Board (AASB) is expected to introduce the new “a new leasing standard (AASB 16) requiring Australian businesses to bring operating leases onto their balance sheets.” (Grima 2018). The new standards means that the leases especially the ones which were previously kept off the balance sheet now is expected to be accounted for which is usually known in the following term “right of use asset and lease liability.”
The author has stated the new action may affect all or at least most of the Australian businessmen to some extent. Therefore it is necessary for all the entrepreneurs, business men and everyone else to be properly reviewing the New Leasing Standards or the AASB 16 by the Australian Accounting Standards Board (AASB). The author has also stated that the risks in the financial reporting may increase because of the introduction of the said leasing standards. It is the imperative of the business entities to ensure that there are no irregularities happening within the financial reporting of the company.
As per the author in his news article, AASB 16 is the single lessee model of accounting that includes a lessee for recognising of the assets and liabilities for all leases with a period of more than 12 months, unless the asset underlying has a low value. The lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligations to make lease payments. On the other hand the AASB 16 substantially includes the lessor for the accounting requirements. As per the standard the lessor continues to distinguish its leases as finance leases or operating leases and account for those two measure the leases differently.
In the article Grima Firstly mentions the best thing to do for the Australian companies in order to understand the new standard of AASB 16 at the current stage is to consult the accounting professionals regarding the new standards, as they will have the best knowledge of the extent of impact the business would have, along with the specialized professional know-how for effectively implementing the changes in the accounting process that would result in the changes in the balance sheet structure. However the business administration, as advised by the author must make a detailed observation of the accounting systems for the confirmation that the business is being able to capture and record more financial data.
In addition to that the author Grima in this article has also highlighted
the importance of noting down changes that may well result in the structure of balance sheet. The article specifically argues that the financial statement may be represented as much “less healthy” than it looked like previously before the amendment. The businesses may also need to consider how this will impact on the covenants and financial KPI's set by the bank, as well as any other financiers with whom the business organisation are involved.
The article by Grima is an ideal guideline for the can be business owners that would help them to adapt the new financial amendment of the Australian accounting standard. The author has advised the businesses who should consider taking a notable observation at the technique in which the rental payment structures are negotiated in AASB 16. This would be of great importance for the business owners as this would help them question the accountants regarding the new standard in an effective manner. The question may also include whether turnover rent falls within the new requirements or not.
In this article the author has talked about implementation of the AASB 16b in the Australian accounting standard from 1st of January 2019. As of 1 January 2019, the Australian Accounting Standards Board (AASB) will introduce a new leasing standard that is AASB 16 that would enable the Australian businesses to represent the operating leases in their balance sheets. According to him the benefit of the Change would means that the certain leases that had been recognised off a business' balance sheet previously will now have to be accounted for, in what is known as a right of use asset and lease liability. The change in this new idea would help in ensuring that there is greater transparency and therefore would give a more accurate representation with respect to financial commitments of the enterprise that includes the lease liabilities.
However, as pointed out by Grim, this new arrangement can lead to become a significant liability, The author has said that the change is likely to impact almost all the Australian businesses to some extent. Sadly, considering the complexities and issues that are likely to arise following the implementation of the AASB 16, the 2019 changes are set to increase the potential risks associated with financial and commercial reporting.
Lastly, the author overall mentions in this article that the main motive of writing this article was not to give a definitive accounting advice to the business owners, he has put more stress on the importance and process of consulting to the accountants for the incoming changes that are to be faced by this Australian Accounting Standard of AASB 16 for leases.
Solution to Task 2
In the following paper, the discussion deals with crucial analysis of the several proposals as mentioned in the FASB or Financial Accounting Standards Board. The proposals are regarding the share based payment method for the various workers that are linked with the stock based compensation system. The selected topic number 718 that is based on the change of the accounting standard that deals with stock compensation is analysed in the discussion. The proposed update is basically on the up gradation of the “Nonemployee Share Based systems of accounting and payment”. In this context, there are four respondents who give their feed backs on the updates in the form of exposure draft. The primary purpose of the discussion is to conduct a wide analysis of the excess tax benefit and recognition of the deficit in the various income statement heads.
A brief overview
The present proposal is dealing with the segment that involves in the regulations in accounting as per the standards and updates on invoice compensation in the topic number 718. The accounting standard includes improvements in the share based payments of the non-employees. In this context, the improvement guidelines is compulsory for the reduction of the complexity and the overall cost of development and maintenance of the data efficiencies as mentioned in the financial statements(Proposed Accounting Standards Updated on stock Compensation (refereeing no 718): The advancement of Share-Based Payment of Nonemployee Accounting, 2017). In the discussion four residents are there to give the feedback for the proposals. The collections of the responses are taken from the accounting board’s official websites. The analytical review of the responses from the several respondents would help in understanding the issues of the proposal and effectiveness of its implementation. In addition to that the objective of the whole process is to systematically comprehend the implementation of this accounting standard improvement (Proposed Accounting Standards Updated on stock Compensation (refereeing no 718): The advancement of Share-Based Payment of Nonemployee Accounting, 2017).
The components of the proposal
The current segment explains in aspect of the procedure accounting of payments of non-employee share. In this context, the proposal that is mentioned is vital for the emotions, sentiments and opinions of the various non-employees of the organisations. As stated by (), a sound organisation and a proper bond between workforces and its business can positively enhance the business environment. Therefore, it can be mentioned that various types of processes of payment development can be said to be vital.
Essentially, the standard of accounting shows various kinds of ideas with thorough information and impacts the businesses from various industries and sections. This also impacts businesses to connect with the method of putting their opinions. With the help of this, it can be said that necessary response can be obtained on the offered improvement proposals of regulations and standards. In due course, public interests can be satisfied additionally in a more efficient way. Fundamentally, the queries regarding transformations matters are also mentioned in the Financial Accounting Standards Board. It can be seen as a management accountability of businesses to reply and send an answer to the questions represented in the forms of exposure draft and converse about the disagreement. The agreement and the disagreement hence aids in understanding the acceptance and suitability of the proposals that are given to the regulations enforcers. This refers to (Suggested Standards of Accounting Updated on Stock Compensation (Topic 718) talking about advancement of Share-Based Payment arrangement for Nonemployee). In addition to this, various questions shown in the exposure draft and solutions are shown as response of various enterprises can help essentially in serving the interest of public. Hence, it can be commented that the queries are undoubtedly required to be answered in the interest of the public.
It can be delineated in insight with respect to the response gathered from various respondents. The inputs are considered in aspect for acquiring of information technology regarding acceptance and disagreement in the context of the changes proposed in the exposure draft. Naturally, the changes that are proposed from differing respondents are therefore clarified illustratively are therefore said below:
Name of the organisation: Visa Inc
Visa is renowned business that has wide range of operations in the territory of advanced and modern online payment technology. This organization has the aim to set up enhanced payment strategy all through the world through steady innovative work towards improvement of new, enhanced and trend setting innovations. In this association, it can be identified that the administration of the firm shows their concern in the form of remarks with respect to the said proposition by FASB and recommend certain things for development. Examination of the comment introduced by this enterprise uncovers the responds of the organization to various queries said in this exposure draft. Additionally, this organization additionally appropriately says about their consent to the recommendations and proposals set forward by the FASB which is the regulation authority, contradicting diverse recommendations of supplementary points of taxation interest and deficiency of earnings assertions. Examination of their comment uncovers the way that the administration of the organization keeps full confidence, trust and faith in the recommendations displayed by the FASB. Administration of the organization considers that this particular proposition for development can help the operational process improvising of the business operations by way of reducing of the hurdles that retains the businesses effective operations. Further, it is said that this proposal enhance the development of augmentation of cost volatility linked with the income tax.
Name of the organisation: Heiskell and MacGillivray and Associates
The organization has their business of auditing and accounting in Australia and reports to various queries for various accounting directives. Their response analysis in the way of remarks represents that they approve the termination system and closing PIC pool for the purpose of accounting. Specifically, they reduce the enterprises expenditure along with intricacies that are related to accounting system. Additionally, this enterprise also approves to various costs for the specific pay system and implementation of the same in the company’s earnings declaration. This would benefit the systems of tax as the deficiencies can be considered to be vital and have the need implemented properly. Additionally, the business is also aware that there is a need to limit the total delays in the identification technique of surplus advantages of tax.
Name of the organisation: Raytheon Company
Raytheon Company is a well-known business in USA that ventures its functions in the region of development, progressed applications of technology and technological offerings like the security equipments, defence and tools, civil market software Globally. From the observations of the comments the company reacts to questions numbered second, third and fifth contained in the exposure draft. The organization has presented viewpoint that is opposite in the context of the systems and processes suggested for the standard of the benefits of tax in terms of tax inadequacy stated in income statement. In contrast, the management of highlights that FASB needs to follow a specific framework. In this way, the various benefits and limitations and dearth of supplementary taxation are revealed especially in equity of the firm.
Name of the organisation: American Bankers Association
These operations of this business deals in the banking segment in USA. The business has given a positive approval of the changes that the FASB authority has projected in the context of share based arrangement of payment. In addition to this, the business responses to several questions positively but comments contradict ally to only to a particular question present in the exposure draft.
The significance of the proposal
The current proposal as reflected in the exposure draft can be said to be a essential in the context of the accounting standard, since the subject area of share based system payment to the employee benefits are covered. Moreover, this accounting scheme is a process that can aid in augmentation of remuneration of executives based on shares. On top of that proposal has a primary motive of improvising the various financial standards and reduces the work pressure of the accountants. Due to this the theme of “Public interest” can be considered in the current discussion and it can provide overall theoretical validation for the defined guidelines and can be considered as an efficient premise in this perspective
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