Factors and Value Relevance of Voluntary †MyAssignmenthelp.com

Question: Discuss about the Factors and Value Relevance of Voluntary. Answer: Introduction The key objective of financial reporting is to offer high quality corporate financial information concerning various economic entities, especially of financial nature, useful in effective decision-making. Such provision of high-quality information is significant because it can assist in influencing stakeholders in making credit, investment, and other decisions that can enhance the overall efficiency of the market. According to the conceptual framework for financial reporting, financial information is useful only if it adheres to the qualitative characteristics. Business owners can utilize such accounting information to undertake a financial analysis of their companies. Without the presence of the proper information, it becomes difficult to take proper decision. The business owners are unable to take proper action if the qualitative features are absent. Such information plays a leading role in influencing the decision-making process. Decision making can be effective when the qualitati ve features are established and presented in a better fashion (Damodaran, 2010). Besides, qualitative characteristics consist of business owners perceived significance of the financial information. Qualitative characteristics of accounting information The fundamental qualitative characteristics are faithful representation and relevance that can enhance the quality of financial reporting. In short, the qualitative features helps in providing a strong foundation for the financial reporting and making decision-making more meaningful in nature. Further, other characteristics like verifiability, timeliness, comparability, and understandability form part of the conceptual framework to enhance decision-usefulness when these are properly established (IASB, 2010). Based on the conceptual framework, accounting information can be regarded as relevant if it possesses the ability to manipulate the financial decisions of users by assisting them to assess present, past, or future scenarios. This means that relevant information must have confirmatory or predictive value. Besides, the predictive value can assist users in assessing the past, future, and present events (Bodie et. al, 2014). Furthermore, to possess predictive value, information must not be in the kind of explicit forecast. Nevertheless, the capability to make anticipations from financial statements is maximized by the kind in which the detail on the past is reported. In addition, information can have confirmatory value if it assists the users in confirming or verifying their prior assessment. On a whole, information can be considered as relevant when it is offered in a timely way so that decision-making can be influenced. The second characteristic is a faithful representation that represents faithfully the events and other transactions it intends to either depict or can reasonably be expected to depict. It involves recognition of all obligations and rights arising from an event and accounting for the event in such a way that depicts its economic substance (Deegan, 2011). The information must be accounted for and represented in relation to the economic substance of a specific transaction and not simply its legal form. Further, the legal form of an event is not often consistent with the financial reality of the transaction. In such circumstances, the reporting of property sale will not faithfully depict the transaction entered into. To sum up, fina ncial statements must represent faithfully every transaction and other events that can assist in giving rise to liabilities, assets, and owners equity. Further, the profit and loss statement of the company must depict the transaction faithfully that can give rise to income and expenditure in a particular period (Bence Nadine, 2012). The third characteristic is materiality that assists in offering guidance as to how a particular transaction must be classified in the financial statements and/or whether it must be disclosed separately instead of being aggregated with other items. Such characteristic assists in dictating any item or transactions that can significantly affect the financial statements, and which must be accounted for utilization of GAAP exclusively (IASB, 2010). In simple words, if an event or cost that happened during the year can influence how an investor must view the company, it must be accounted for utilizing GAAP on the financials. Nevertheless, transactions that a re deemed to be immaterial can be ignored as they cannot influence how such investors can view the financials to make decisions (Fang Jin, 2012). The fourth characteristic is comparability that assists an individual in enabling comparisons within and across the entities. Further, when such comparisons are being made within an organization, information is compared with one financial accounting period to another. For instance, an income of a company is compared for the years 2015, 2016, and 2017. Nevertheless, such qualitative characteristic of financial accounting across organizations can play a key role in enabling evaluation of differences and similarities betwixt various companies. The fifth characteristic is verifiability that plays a key role in corporate reporting as it assures users that the data represents faithfully what it intends to represent. Further, financial information assisted by evidence and other independent individuals can verify them to observe whether such data is faithfully represented or not. In simple words, information in the financial statements is verifiable if it can be easily audited (Mangena, 2007). The sixth characteristic is timeliness that is one of the most vital elements in decision-making. If an individual cannot make a decision in a timely manner, the organization may miss the profits of customers and much more. Therefore, in simple words, timeliness refers to the provision of information to the decision-makers of financial statements inappropriate time so that they are able to influence their decisions. Moreover, such provision of data must not be significantly delayed otherwise it will be minimal or no value to the users (Carol et. al, 2016). The seventh characteristic is understandability that necessitates financial information to be comprehensible or understandable to the users of financial statements with ample knowledge of economic activities and business. Besides, in order to be understandable, information must be p resented concisely and clearly. However, it is inappropriate to discard complicated items in order to make the reports understandable and simple. The last characteristic is Prudence that allows preparers of financial information to exercise prudent views while making a judgment about uncertain transactions like asset lives, provision for doubtful debts, etc (Ibrahim et. al, 2013). The major crux of this qualitative characteristic is that it assists preparers in encountering uncertainties so that expenses and liabilities are not understated, and income and assets are not overstated (Carol et. al, 2016). This is one of the major reasons why it is considered one of the most significant qualitative characteristic. Qualitative characteristics are the attributes that provide usefulness to financial information in the financial statements. Based on the framework, such qualitative characteristics are all vital in nature and various similarities and differences can be found. One may argue that such fundamental characteristics are requirement-enhancing characteristics for information to be highly useful to the users. On a whole, effective judgments can be only made if the qualitative characteristics assist in enhancing the value of corporate reporting, thereby serving as a major tool for enhancement of the companys goodwill as a whole. The thought of the fair value can be defined as the price that can be grabbed by the selling of an asset or can be the price that is required for the shifting of a liability in a particular transaction that forms a bridge between the companies in a market. This definition is as per the AASB 13. The crucial point to be represented by the AASB 13 is to decisions made as in concern with the fair value which can be a boon to the people using the financial statements. In May 2011 the IASB issued a rule for the evaluation of the fair value price, and the topics covered under the IFRS 13 is in correspondence to this rule only. Attention was also paid towards the fair value evaluation in the form of AASB 13 which was issued on September 2011 by the AASB. Increase in the potential and the transparency of the corporate reporting in the form of financial statements is the main motive of following the above rules which would help the users of the financial statements and positively affect their decisions. But it should be noted that categorization of a particular liability or asset is not taken into attention, rather a fair value estimate is the only output as per the need and demand (Whittington, 2008). Many statements against such rules are put up which are broadly explained in the study. Concept of fair value It is already explained that fair value can be defined as the price that can be grabbed by the selling of an asset or can be the price that is required for the shifting of a liability in a particular transaction that forms a bridge between the companies in a market. The base target of the followed concept can be said to be independent of the alteration which takes place with time in the market. For instance, a reduction in the standard of the liabilities and the assets cannot affect the marketing conditions as it always considered as the date of evaluation. It is also seen that the value of an asset is in accordance with the marketing companies. There are some non-profit entities that provide assets for the sake and profit of the public (Porter Norton, 2014). But it may happen that these assets are combined with the others in a way so as to provide profit to the companies as the market never lacks in buyers. This depicts a clear state of demarcation between assets which are used for the same caused. Processes in accordance with a transaction like share-based payments and leasing transactions are started to be eliminated by this concept. It is also estimated that the as per this concept, if a liability or asset is sold the followed process, is genuine in nature going on between the marketing companies (Mark Michael, 2016). Also, this estimate is based on the idea that no ill-equipped transaction related to the liability or asset is recorded in it and only a particular type of process is taken into account. Thus, the concept of fair value can be put up in the circumstances in which the IFRS requires exposure of the evaluation of the fair value. In this concept attention towards the marketing, conditions are also paid. The IFRS 13 acts as a boon to the users of the financial statements by positively affecting their decisions and also helps the companies by disclosing their concealed facts and figures and also evaluates the assets and the liabilities aligned with the fair value price on a recurring or non-recurring form but only after the initial scanning (Libby et. al, 20110. A whole lot of public thinks the concept to be a boon for them but as in accordance with the timely alteration and manipulation in the accounting standards, many a people have raised questions about the effectiveness of such concepts. The reasons of such questioning are the facts that the many alterations made involve the approval of such concepts (IASB, 2010). The usefulness of fair value accounting plays a vital role in influencing the down market in a negative manner. When it comes to the process of evaluation of an asset in a downward manner that happens due to a market fall, the assets lower value can play a pivotal role in increasing the selling of assets at a price that is lower in consideration of the expectation of the seller. However, when there is an absence of the valuation then it is focused on the concept of fair value so that additional downward valuation can be negated. Further, it is even argued that the information that is present in the financials offered by the method of fair value accounting is reliable and relevant only for a specific period (ICSA, 2016). Hence, when the information present in the financials is based on time for the market scenario that is prevailing then any variation in the scenario of the market will lead to a major difference in the present financial projection of the organization. The financials t end to have a change undergoing a difference in the financial projection (Shah, 2013). Hence, to have reliable information, a new financial statement needs to be requested leading to more cost for the organization. This provides a factor of additional charges for the company and the cost of operations are enhanced hence, leading to a burden on the cost of the company. Conclusion It is seen that the AASB 13 pays more attention towards the data required for the evaluation of the fair value, but it to be noted that the upper hand is always of the fair value output. Many times questions has been raised about the profits gained by the users from the concept because at times it is not at all convincing and not at all required. So as a whole the potential of the concept is under question because it is always confusion always prevails about the positive effect of the concept in the accounting framework (Davies Crawford, 2012). The profitability of the concept comes from the dark side because many a time loopholes are detected in the concept. A whole lot of a people believe that the concept of fair value is the best ever way but the changing time has given birth to many manipulative techniques which are not covered in the concepts safety. Finalization of the concept in a proper way is not sure because alterations in the market affect the concept severely. Moreover, users have also stated it as the most important approach because the variations that happened n the accounting standard is a big threat to the present course of action. This report highlights the effective selection of the intangible assets. The main target of the report is to highlight the points and the factors which are related to the evaluation and also the process of identification and the undertaken work procedures of the prevailing accounting standards. In this report, Harvey Norman is selected that is listed on the ASX. The topic of discussion broadly explains the working and the process of evaluation of different terms related to the accounting standards which are necessary to be represented. In todays worlds, the innumerable transaction takes place on a single day and it is a matter of great concern that which transaction are to be stated and which are not be exposed by the company. It is obvious that a bunch of transactions which are depicted in the financial statements can affect the decisions of certain individuals which use the statements for their profits. A specific rule to be followed by all to survive in the market has been set up by the AASB and IASB from a long time. But it is also correct that a single rule is never efficient enough to cope up with the thinking and the dream of every individual. So it is advised that to totally rely on a particular set of rule is a very dumb move by anyone (ASC, 2016). Materiality is the term that must be paid attention and in accordance with it, the transaction necessary to be depicted must be done the same and the negligible ones are free to be neglected in the financial statements. Materiality is a key factor which solely d epends on the amount and size of the transaction which is different for different organizations or companies. This is why materiality is a subjective factor. The differences between companies are the output of the various policies and the methods of survival adopted by them. This is a perfect reason of different materiality for different companies which have demarcations (Williams, 2012). Measurement and recognition All the corporate reports like the financial statements are to be made in accordance with the rules set up by the International Financial Reporting Standard which is IAS 39. The IAS-39 plays a key role in providing input for the intangibles. Credit can be seen as a process that formally welcomes a particular product into the company which can be categorized as either liability or asset or expense or proceeds. Credited products are also included in the financials of the organization in both words and figures (Harvey Norman Holdings Ltd, 2016). Similarly, evaluation is the method to compile the amounts with the key elements. Costs related to intangibles are seen as expenses till they are able to satisfy the conditions of an intangible (Maines Wahlen, 2006). Many times it may happen that the intangible costs get mixed up with the ones spent for increasing the respect of the company. Thats the reason why costumers bill, generated brands are not recognized as intangibles. As in the case of intangibles, it is seen that after their evaluation, their value remains as cost minus gathered amortization. Many a times outlook of the fair value is needed in such cases and this can be grabbed from an active running market. It is so advised that the entry of a product into the financial statements of a company is only possible if it satisfies the four conditions of the accounting standards which are in accordance to the materiality doorsill and the efficiency hold back (Needles Power, 2013). The first situation is definition which can be thought of as recognition stage of a particular product into the financials of the company. The second situation is relevance in which the provided data must be capable enough to affect and alter the decisions of the individuals (Melville, 2013). The third situation is measurability in which the product is necessary to hold a pertinent trait quantifiable amid plenty steadfastness. The last but not the least situation is reliability which gua rantees realistic demonstration, verifiability, and objectivity of financial information. The GAAP is the one that answers all questions to the measurement and recognition requirements (Berk et. al, 2015). Evaluation on Harvey Norman The company Harvey Norman has been for incorporated with intentions and purpose of doing study and for that, the company has carried out work in compiling different and substantial aspects of corporate governance to facilitate the interested and aspiring offshore investors will be able to know regarding the composition and functioning of the Board of an entity. Hence, such aspects are designed proposition in this regard. In the annual report of Harvey Norman, there is mention of the details comprising of composition and selection of the board of directors, independent members, board meetings and the other important informations. In addition, it can be noticed from the report that the company has provided all the applicable details in relation to recognition and measurement of intangible assets. This implies that the companys board has taken an ethical stand in implementing a policy where the business process and accounting are based on prescribed accounting standards (Brealey et. al, 2011). The company trusts that the accounting standard principles are the demonstrative principles that lead to the better business system. Furthermore, regarding the goodwill of the company, the report spells out the in excess of the acquisition cost over the fair value of share against the total attributable assets purchased by the date of procurement. In addition to that, the company Harvey Norman possess plenty of enterprise value that is associated with its cash-generating unit in Australia appraises such as brand image, location premium and other additions to the share of profit (Harvey Norman Holdings Ltd, 2016). This assessment on part of the company engrosses the managements enthusiasm to continue and use such intangible assets in the future growth (Samaha Dahaway, 2010). None-the-less the company has provided its intangible assets are having an everlasting lifespan that is derived at cost minus accumulated impairment losses, as the intangible assets are having an indefinite workable lifespan are not subject to amortization with regard to impairment testing and are evaluated annually for depreciation. The impai rment losses of these assets are perceived as the value by which the carry-forward value of the assets exceeds its recoverable value. Conclusion In conclusion, taking into consideration the detailed analysis, for an effective decision-making process can be undertaken by adapting to in recognition and measurement principles into the system and in the due course of time more focus is being given by professional approach, as it allows and provide assistance in eliminating of mistakes from the book of accounts thereby helping in preparation of healthy financial report of the company. Furthermore, that giving a boost to the decision-making process in the company. The recognition and measurement of intangible assets also provide assistance in assessing the carry forward value of the intangible assets to allow the process of disclosures of the assets can be actualized. Further, the management of Harvey Norman is successful in implementing effective adequate decisions in recognition and measurement of distinctive intangibles such as goodwill and premium etc. In short, the disclosure of all those informations in the financial statemen t by the company can allow the clients in making a suited choice as well as the company in implementing accounting standards. 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