Global Financial Regulation: Accounting Standards for Market Integration - Essay Sample

Introduction

Contemporary business investment is conducted, focusing on opportunities arising worldwide. The role of the international accounting standards is to ensure that the world financial centers utilize a global framework of financial reporting that ensures effective regulation of financial markets. Uniform accounting framework requirements are crucial in the integration of global capital markets. The requirement of global comparable reporting and accounting standards is created due to the globalized financial market. The purpose of this paper is to address issues related to international accounting standards, including conceptual, financial reporting framework, excessive disclosure, and the impact of introducing IFRS 15 to companies.

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The Need to Develop an Agreed International Framework

The Conceptual Framework for Financial Reporting

The conceptual framework designed for financial reporting aims to fulfill various roles for the company. The conceptual framework is designed to assist financial statement preparers in applying IFRS, which entails focusing with accounting transactions for which there is not a defined value of accounting. It will facilitate the harmonization of accounting standards and regulations by minimizing the amount of allowed alternative treatments of accounting (ACCA, n.d.). It will result in the creation of IFRS for prosperity and the evaluation of contemporary standards by creation out the inherent perceptions. The framework is valuable to users and auditors of financial statements helping the interested parties to gain insights on the approaches of IASB to the formulation of a standard for accounting.

An agreed international conceptual framework will report entity to be issued, identify financial statement objectives, indicate the parties that utilize financial statements, and demonstrate qualitative attributes showing the value of financial statements. Also, it will indicate the old framework which focuses on financial statement elements (ACCA, n.d.). The components of the old framework entail the expenses, income, equity, liabilities, and assets and the period they should be recognized. The adoption of the framework of financial reporting allows the company to be audited on its financial statements following the international standards of Auditing (I.S.A.), enhancing the company's status and reputation (ACCA, n.d.). The company will yield only an individual set of economic reports for any entry of securities for nations that are associates of the International Organization of Securities Commissions (IOSCO), which recognizes IFRS for entry reasons. The one set of financial statement crates an easier and cheaper means of obtaining finances in the international markets.

The conceptual framework deals with recognition and derecognition, description of components of financial statements, financial reporting entity, and statements, the objective of the overall role of financial statement and concept of capital and capital maintenance (ICAEW, 2013). With these attributes, it can be utilized in resolving issues related to practical issues. With the revenue recognition principle, the conceptual framework helps to determine the period of account for recognizing expenses and revenues. It accounts for accrued revenue, which is documented before cash is received and deferred revenue, which is documented after cash is received. Accounting is usually accompanied by fictitious loses and profits, which are circumvented using existing balanced accounts.

In terms of disclosure of items, items are disclosed when not disclosed in the financial statement but is present in financial statement notes. The revenue recognition principle associated with the accrual accounting culminates, forming the matching principle, which recognizes the expenses. The expense is documented when the obligations are incurred and obligations offset against recognized revenue. The matching principle solves the issue of assessment of actual performance and profitability through enhancing the process. The utilization of a conceptual framework solves the issue of forgetting to save financial records causing the loss of accounting information. Appropriate records will be provided to fill financial statements, which are crucial for the auditing process.

The conceptual framework can be applied for developing sustainable chain management of oil and gas. It will encompass the determinant if a corporate strategy, namely internal factors that entail company capabilities and limitations and external factors including environmental opportunities and threats and societal expectations. The incorporation of four key elements of supply chain framework is important in the sector of purchasing used or new resources or materials, conversion of services or products, and distribution of services or products to fulfill the requirements of the consumers.

Disclosure

Corporate disclosure is financial or non-financial, providing information that contributes to corporate transparency (Buijink et al., 2019, 131). The purpose of a company's disclosure is to offer a complete and detailed explanation of transactions and events acknowledged in the financial statements, measurement properties, and their risk exposures. Inadequate disclosures lead to a lack of transparency, which results in a lack of investment and trust. Companies that aim at limited disclosure focus on ensuring that the required entities are disclosed, which are consistent with the core policies of segment reporting. The general information presented in the report entail factors used to identify reportable segments and type of service or product which each reportable segment derives its revenue.

The organizations also need to report information on the reportable sections, counting the foundation of measurement, liabilities, assets, expenses, revenue, and loss of profit (PwC., 2017, 111). The reportable segment reports a quantity of profit or loss, overall liabilities, and resources. Also, a clarification of the measurements of section disclosure, foundation of accounting for dealings between the sections to be reported, and variations nature between measurements if segment disclosures and comparable items in the financial report entities. The disclosure should also include reconciliation details (PwC., 2017, 111). These segments demonstrate the totals of segments of liabilities, resources, loss of profit, revenue, and any other physical section matters to their consistent sums in the fiscal reports. The entity-wide revelations of revenue from peripheral consumers for each service or invention or each cluster of alike services and products (PwC., 2017, 111). Also, it reports the incomes from external consumers ascribed to the unit domicile nation and characterized by all overseas countries where the unit obtains its returns.

The entity-based disclosures also address revenues from external customers, which is directed to one foreign country in case of material (PwC., 2017, 111). It also reports the level of reliance on major customers, such as information on individual client's income greater than ten percent of the returns of the entity. Non-current assets in one foreign country if the material is added in the report. The report also addresses the non-current assets separate form right arising under insurance contracts, post-employment benefits assets, deferred tax assets, and financial instruments. Focusing on investors, the disclosure of corporate financial statements and related information are significant in making decisions based on the investment. The financial disclosures are utilized in evaluating the growth prospect of a company, riskiness, and long-term success of the business model of the company (C.F.A. Institute, 2013, 10).

Excessive Disclosure

Excessive disclosure influences the external costs of the company, which makes it less good. Excessive disclosure of information allows competitors to get insights on the company's activities, innovation, profitability, and strategy level reducing the competitive advantage (Wang et al., 2019, 2). The concern of the users who use annual reports applies to the reduction of competitiveness (Fung, 2014, 79) of the company after the release of excess information in the annual plans. The users of the annual report use the comprehensive report of the yearly activities of the company to gain an understanding of those activities.

When the B.P. plc discloses excess information in the annual reports, the interesting competitive institutions will be provided with the strategies the company used to progress in the past financial year in case of profits. The financial performance in the annual report is crucial for the stakeholders but not beneficial for the company for its competitors. The unbeneficial nature of fierce product information is due to the high likelihood of low-quality information disclosure from excessive disclosure. Excessive information provided is detrimental to users since the excessive disclosure volume may obscure key messages resulting in users overlooking the key portions of data in the whole report (ICAEW, 2013, 23).

Barriers B.P. Plc Face in Bid to Reduce Excessive Disclosure in Annual Reports

Investing institutions in the company advocate for the company to disclose internal information for analysis and ensure responsibility. According to Financial Times, Investment institutions such as M&G Investments, Aviva Investors, Legal and General investment management and Hermes E.O.S. organized to propose a shareholder resolution at the annual general meeting of B.P. to demand more transparency and evaluate the level of the investment of the company in fossil fuel resources and reserves. FASB and S.E.C. have developed incremental procedures that ensure adequate and appropriate cost-benefit analysis that influence new disclosure requirements (ICAEW, 2013, 63). The law of the company also requires the directors who prepare the financial statements for yearly financial statements to approve the statements after satisfactory of its validity in demonstrating state affairs of the company (Gilvary et al., 2019, 6). The IFRS standard that indicates compliance requirements need to be adhered to avoid issues during audits the international accounting standards board established a disclosure initiative in 2013 to ensure disclosures of financial statements are effective (Hellman et al., 2018, 3).

Weakness in the Old Revenue Standards

IASB explains that I.A.S. 18 and I.A.S. 11 are different materially, leading to variation in the financial statements depending on the applied standard. Also, the existing requirements do not account for differences in rules and considerations for the time value for money. The disclosures lack cohesion and are inadequate in association with other terms in the financial statements (Haggenmuller, 2019, 52). The previous IFRS revenue recognition standards could not be implemented in every industry because of unspecific or missing guidance, which caused the industries to use standards outside of IFRS.

I.A.S. 18 standards of revenue recognition revised in 1993 fail to address complex transactions of modern business, which are covered in the IFRS 15. The revenue is defined as the prices determined through an agreement between parties accounting for possible volume rebates and trade discounts. IFRS 13 standards on revenue explained them as price received after selling of assets or paid to transfer a liability in a transaction that is orderly between participants in the market at measurement date. The I.A.S. 18 focuses on the requirements or period when revenue is recognized. The requirements are varied for different categories, including d...