Contents
- This report is based on the following requirement -
- From time to time, new transactions or variations of transactions arise that are not specifically covered by existing accounting standards or for which application of an existing standard is uncertain. If considered material, accounting standard setters must consider how to deal with the particular issue.
- Assume a new form of financing has arisen that blurs the distinction between debt and equity and for which application of the existing relevant accounting standard is uncertain. There appears to be some variation in accounting for these transactions, with some entities recognising these financing contracts as debt (liabilities), some recognising them as equity, and some attempting to apportion the financing into underlying debt and equity components. Accordingly, the International Accounting Standards Board (IASB) has decided that it should develop specific provisions within the relevant accounting standard to provide more definitive accounting regulation of these new financing contracts.
- The assignment question requires you to explain, from a regulation and theory perspective, how the IASB would approach this issue in developing the new provisions. In particular, this will require you to incorporate consideration of the following questions into your essay:
- How would the IASB use scientific (empirical/inductive) and normative (prescriptive/deductive) theory approaches in addressing the issue (or any similar issue)?
- How does regulatory theory apply to the issue in relation to the IASB’s response?
- What role does the accounting profession have with respect to the IASB’s
- response?
- This assignment consists of two parts, Part A and Part B. Read each part carefully before attempting to fulfil the requirements.
- REQUIRED:
- Write a research essay addressing the above assignment question. You are required to fully explain your viewpoints and support your decision by reference to relevant sources. In particular, ensure you incorporate into the essay consideration of the three questions outlined in the preamble above.
- Note that the Part B written assignment does not require you to specifically discuss the relevant accounting standard requirements relating to the types of financial contracts, and the debt versus equity issue, referred to in the question. The financing issue (new form of financing) is merely provided as an example of an issue that regulation might have to deal with. Hence, the assignment particularly requires you to focus on the theoretical issues underlying an accounting standard setter’s response to any new hypothetical accounting issue that may arise.
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