Over the period 2004-006, the Australian Accounting Standards Board (AASB), on behalf of the International Accounting Standards Boards (IASB) has greatly developed the accounting standards, in intangible assets, revenue, leases, and liabilities. Thus as from the year 2006 International Accounting Standard Board and the FASB conducted an essential Memorandum of Understanding in which the International Accounting Standard Board greatly influenced the aims members to agree to move from research to draft project proposal that should be put under consideration on whether to always put into consideration an intangible asset project to the FASB and International Accounting Standard Board. However this need to be influenced by some of the factors like the available guidance, the importance, accordance and the reliability and relevance of the information that is available to the users of the financial accounting and auditing; and converge improvement and the standards of the quality that would be available and needed to be improved. The International Accounting Standard Board is trying to formulate and implement policies and procedures by involving itself in many forms, with an aim of enhancing global recognized quality and highly accepted reporting structure that are used by investors, lenders and firms (Barth 2008).
The primary and essential effort of the global market is based on the view that the most significant way to arrive at its level of reliability, equity and fairness in the capital market is by providing the required information in terms of accurate and well-structured financial statement report with comparability and reliability of the information. Besides, the most crucial part of the information in the financial statement is ensuring that the information provided is not biased. Thatâs, why the principal primary objective is maintaining and retaining the quality of the statement on the financial structure, is pursued. This is mainly done to satisfy the users of the financial reports for instance the lenders and the investors in that they adequately gauge and analyze the effectiveness and the efficiency of the staff members and their representative teams. This ensures capability to analyze the level of stability and profitability of their employers. The primary objective of the financial statementâs reliability and trustfulness depends on the users for instance the lenders need the information to evaluate its primary purpose of the possibility adequately to attain its goals to repay the moment also borrowed in addition pay interests (George & Benston 2006, p. 130).
The main objective of the report is to examine the measurements and the recognition criteria on transactions and recording of leasing, liability, revenue and intangible assets when preparing the financial statements using the required principles formulated by the Accounting and Auditing bodies(International Financial Records Principle and the Generally Accepted Accounting Standards) .Analyzing and trying to identify some of the major challenges faced by organizations in implementing the policies and some of the possible improvements required.
2.0 Part 1
2.1 Leasing Measurements and Recognition Requirements
At the starting period of the leasing level, finance leases requires always to be at the level of recording the lease as an asset and a liability at the lowest value of the assets and the present value of the lowest lease payments. The allocation of the lease amount needs to adhere to the payments between the finance charge and the decrease of the outstanding liability. Once the depreciation policy of the identified asset is held below the finance leases, there is a need to be continued with that for owned assets. However, in the absence of a reasonable later an actual certainty that the indefinable lease will attain the ownership during the period the lease ends it needs to be depreciated over the short of the lease term and the also taking into considering of the operating leases. Besides, itâs the amount on payments requires to be recognized as an expense in the statement of income over the lease term on a straight level. However, another can be represented by the userâs benefitsâ time pattern (McGeachin 2013, p. 580).
2.2 Analyzing Measurement and Recognition on leasing
Leasing is probably a major component in many organization. The board of company decides the lease term. Also an entity need to consider all the available relevant factors that are needed to create an economic advantage in order to exercise an option of extension or may be not to terminate a lease (McGeachin 2013, p. 582). Most of the time an entity need to include such an option in the lease term if and only if it is reasonably sure that the lease will adequately and efficiently accomplish the desired goals and objectives of the organization taking into consideration the relevant effects on the economic factors. Also, the boards should decide whether a lessee needs to reassess the term of the lease only upon the occurrence of a significant incidence or a particular change of circumstances that are not within the lease control. In most of the current accounting standards, many organizationsâ leases are not accounted in a lesseeâs financial statement. Besides, the current accounting models and leases mostly recognizes classified leases and lesser. For the capital leases. A lessee identityâs lease assets and liabilities are identified on the financial statement. On the Operating leases since the lease excludes the lease assets on the balance sheet (George & Benston 2006, p. 131).
2.3 Possible Improvements in accounting standards Under Leasing
Generally being an essential activity for many organizations that is private or public or nonprofit organizations, it is a major way of getting an advantage to access assets, acquiring finances that greatly help the organization in the current and future running in case of deficiency of some of the essentially required resources (McGeachin 2013, p. 581).
To improve the accounting and auditing standards on the international market, the International Accounting Standard Board as highly developed an activity that is aimed mainly towards the attainment of client satisfaction needs. However, more need to be done in order to ensure that the objectives of the organization are achieved, and they are incompatible with the policies and the procedures of the organization. Also, the policies or the approach to improving the leasing accounting standards need to be incompatible and able to utilize the available resources in order to attain the required level fully. For instance, a lessee substantially needs to identify assets and liabilities for leases of more than 12 months. The FASB and the IASB (International Accounting Standard Board) need to work jointly to promote and converge the accounting and auditing for lease rights and obligations. This can be of help since for instance in the year 2005 the SEC staff identified leasing as a form of off-balance sheet accounting that highly needed to be taken into account (George & Benston 2006, p. 130).
3.0 Part 2
3.1 Liability Measurements and recognition requirements
IAS 1 Presentation of Financial Statements gives out the overall need procedures and the need facilities for financial statements, such as how they should be designed, the lowest or the minimal number of requirements for their content and overriding. .Some of the major concepts of going concern (ability of an organization to function under no threats of liquidation for the foreseeable next activities mostly estimated to be within 12 months,),concurrent or present distinction and the actual basis of financial accounting. The standard generally requires a fully identifiable set of financial statements to comprise a financial statement position, profit and loss income statement and other financial comprehensive earnings statements a statement of equity change and cash flows statement. IAS1 main objectives include prescription of the basis for presentation of the general-purpose financial statement; to both comparability with the entityâs financial statement of the past periods and the current financial statements of other entities. It also sets out the primary requirements for the financial statements presentation, the minimal required contents, and the guidelines in terms of policies and procedures for the structure (Kierze 2005, p. 70).
3.2. Analyzing Measurement and Recognition on liabilities
With the exception of liabilities of trading and those derivative instruments that are typically recognized at fair values; other financial liabilities are initially recognized at fair value at a lower transaction costs and significantly measured at amortized amount with the use of the effective interest method. Basically, the effective interest rate is one that proportionally discounts approximated future cash payments or receipts over the estimated term of the instrument of finance or where applicable over a minimal period ,to the net carrying amount of the financial asset (Kierze 2005, p. 70).The amortized cost at the acquisition date is proportional to the proceeds from another issue less the fair value of the embedded derivative (George & Benston 2006, p. 131).
3.3 Possible Improvements in accounting standards on liability
The primary objective of IAS 37 is mainly to ensure that the required, efficient and effective recognition criteria and measurement levels are properly applied. Accordance to the provisions, contingent assets, contingent liabilities and the necessary information are given out in the books of the financial statements to help the users to understand effectively and comprehend their nature, amount and timing (Kierze 2005, p. 71).
The primary key characteristic that need to be established by the standard is that a provision needed to be identified for the liability i.e. a current obligation resulting from the previous incidence. It should be brought out that it aims only on genuine obligations dealt with in financial statements; the future expenditure plans and also in the place authorized by the directors is excluded from recognition. Some consideration needs to be taken action as if an entity must recognize a provision only if the amount can approximate reliably, and the payments are probable (McGeachin 2013, p. 580)
In addition, more effort should be added in formulating laws on long-term value on the organization’s strategy, innovation, executive remuneration, customers, and markets. Organizations should continuously produce a 5-year summary of both the financial and operating figures instead of the current 2-year period, which is still adopted by some of the organizations. This greatly improves the standard of accounting and auditing by better global comparability, efficiencies on cost and processes, boosts investorsâ confidence that is greatly influenced by market share prices and higher PE and most effective and deficient capital allocation.
4.0 Part 3
4.1 Intangible assets Measurements and recognition Requirements
IAS 38 Intangible Assets outlines the accounting requirements for mostly the intangible assets, which doesnât have any physical substance and identifiable. Mostly, the goods meet the relevant recognition criteria, which are measured at cost, subsequently measured at cost and amortized on a procedural basis over their useful nature.in March 2004 , the revision of the IAS 38 that applied to intangible assets acquired in business was accomplished.The objective of IAS 38 is to ensure prescription of the accounting treatment for all the intangible assets that are not covered by the IFRS. Usually, the standard requires an entity to identify an intangible asset when only a particular specific certain criteria is met. It also recognizes particularly on how to measure the carrying amount of the intangible assets and mostly needs an appropriate disclosure regarding intangible assets. The IAS 38 typically applies to most of the intangible assets excluding the financial assets , expenditure mostly on the development and extraction of oil, natural gas and other like minerals; some of the intangible assets arising from insurance contracts issued by insurance organizations and evaluation and exploration assets are also included (Eckstein 2004, p. 139).
IAS 38 mostly requires an entity to identify an intangible asset, whether purchased or created, if and only if the amount of the intangible asset is measured reliably and if it is probably that the foreseen economic advantages are attributable to the intangible asset flow to the entity. Whether client contract intangible assets need to be identified even if the clients can cancel the purchase. Identification and recognition should be considered whether defensive assets should be recognized. These are the types of assets that an entity does not plan to use but intends to control others from using (Barth 2008, p. 468)
4.2 Analyzing Measurement and Recognition on Intangible Assets
The standards of FRS 10 ensure that financial statement reporting entities on intangible assets should be depicted from their financial statements. Under the lesses’ financial statements, leases should identify finance lease as a liability and assets in the comprehensive financial report and the balance sheet at the same amount at the inception of the lease in accordance with the fair value of the volume of the leased property. The amount transferred and other activates related to the intangible asset are taken into account and presented in agreement with their financial reality and substance; not merely with any legal form. Since the legal form of a lease agreement in most of the cases is only that the lease may attain no legal title to the leased asset (Kierze 2005, p. 70).
4.3 Possible Improvements in the accounting standards for the intangible assets
Tangible assets at first are required to be recognized at their fair values. In addition, in case it has a useful life it should be amortized, and the amortized amount is recorded less any residue value, but intangible assets have no residual value making full amortization of its amount (George & Benston 2006, p. 131).
It is sometimes very difficult to determine whether expenditure will significantly improve the intangible asset and as a result if it will possibly attain higher economic benefits in future or will it retain the asset at its current standard of performance. In addition, it is also difficult to attach such costs directly to a particular intangible asset hence only very few costs will be incurred after the initial ascertainment of an acquired intangible asset. In the balance sheet, intangible assets shall always be presented at their book value (Eckstein 2004, p. 140)
Some of the changes needed include having regular impairment testing on intangible assets, since some of the instances arise whenever indications show that an intangible assetâs carrying an amount may not be retainable. For example continues decrease in the market price, extra costs incurred in asset construction and adverse change in legal factors (Kierze 2005, p. 70).
Financial statements prepared and audited under the observation of high-quality financial reporting and auditing are of utmost essential to the users, For instance, the investors and the lenders. Since, without high qualitable financial reporting and auditing is a clear indication of a lack of the organizational goals and objectives; presentation of incomplete or ambiguous information may lead to the destruction of investor community’s trusts and shrink demand for the organization’s securities and lowering the value down.
Generally a lot of consideration need to be taken in helping the accounting standards to meet international standard each country desire. Hence, the required standards and the bodies that are involved for instance the International Accounting Standards Board, the IFRS and the FASB should try to unite and harmonize the accounting standards to the level that each party using the rules really satisfy its demand and is always attempting to be formulated towards most of the organizationâs goal and objectives. In addition, the IASB and the FASB bodies have to recognize and respect each other on a simple characteristic that they create a benefit for the other
To effectively increase the customer satisfaction in the process of presenting quality financial statements and audits to the users, the organization should be ready and willing to have a flexible accounting and auditing personnel to easily scope change and implement the changes to the organization’s policies not forgetting the international standards policies and regulations. Also the reporting principles should be made simple and clear to implement. Transparent disclosure needs to be written in plain language and external financial reporting must flow in relation to internal management information with minimum configuration.