Accounting Theory Under Consolidation Aspect

Question: Describe about the Accounting Theory for Under Consolidation Aspect. Answer: Overview of the current discussion: In this section the two issues which have been picked for discussion are (a) Consolidation and (b) Joint Ventures. Issue 1-Consolidation Under Consolidation aspect it will be necessary to discuss the various problems that usually come up when different systems of are followed. Such problems are faced usually by the investors who are unable to measure the actual performance parameters of the organizations which they intend to put their precious money into their operations. Whenever someone is contemplating placing his funds with an organization it is essential that the individual gets a correct and faithful picture of the economic matter or substance present in that organization. Therefore the need for bringing all the modes of accounting has been felt and people are out to standardize the accounting procedures so that the interpretation of the statement of accounts does not leave any grey areas. The efforts of all the entities which are seeking to streamline and standardize the various accounting processes existing in the world are basically an attempt at developing comprehensive guidance for accounting which will aff ect the partnership or affiliations of the parties involved. Their efforts have been to start with focusing on issues at the policy level but could also take a stance on the eventual procedural matters which are more or less certain to emerge(Berger, 2013). This points out to not only identification of the likely impact of the changes suggested by the new consolidation policy but also suggest acceptable and workable solutions to these fallouts. The issues pertaining to the consolidation are inclusive of first, the correct identification and giving encouragement of the agencies who will support the move since the voting public (financial interest groups) may have reservations about the entire process of consolidation in totality or in part, second, firming up the strengths and weaknesses of the minority shareholder with respect to the majority shareholders and third, the issue of obtaining controlling financial interest by means of acquiring convertible debts etc or other paths of getting voting rights. Fourth and final is the obtaining of controlling powers (financial interest) with the help of relevant agencies and agents(Farrington, 2016). The entire effect of the continuous efforts are meant to ensure that the scope of projecting a false picture to the world by taking advantage of the different accounting processes available today around the world is done away with. Many organizations in the emerging economies do not stck to any definite method of accounting. They keep shifting from one method to another only to project to the outside world that they are doing very well. This is certainly not sharing a factual set of information and the hidden cause is usually only to lure in investors with false representation of the situation. Very simply stated, the fundamental aim is to protect the investing public from false data furnished by the numerous not so scrupulous organizations across the globe who regularly try to entice investors by projecting a very rosy picture. This evil had been the root cause of many financial swindling and cheating which led to several disastrous consequences faced by innumerable investors across the globe. With the advent of globalization, investors all over the world especially the economically advanced countries, are ever on the lookout for greener pastures for parking their funds which are often not finding attractive returns in their home markets which are very close to saturation. Issue 2-Joint Venture Joint ventures take place between several parties and all the involved parties may not be from the same country or following the same accounting procedures. The issues which come under this heading are many and of varying degree of interest to different parties involved. However the main concerns are mainly the identification of the actual or real nature or kind of interests in all ventures which are jointly held and controlled. Then comes the identification which of the two processes i.e. proportional consolidation or the equity method, would more correctly represent the economic strength in the jointly held and controlled organizations. After this would come the locating of the differences in understanding and interpreting of a joint venture by the concerned agencies. Personnel belonging to the extremely active Australian Accounting Standards Board have also conducting research on these aspects of joint ventures which will be untie several knots in this issue of short-term benefits of the efforts towards convergence. Unless this is done all joint ventures are working in a fluid situation and chances of mid course failures are pretty high(Lawyers, 2011). As each and every country come under the globalization net they are essentially opening up their borders and welcoming external investors to participate in their efforts for developing their industries. In many cases organizations from across national borders try to build up synergies between themselves so as to together they become more robust and stronger for facing the competitive situations existing either in the national markets or in the global market. Joint ventures are becoming very frequent and this needs to be distinguished where one organization works as the vendor to another. In such supplier and buyer relations where the agreement is more of contractual in nature the financial health of the buying or ordering organization is not all that important to the selling organization. Only when there is a financial participation the information conveyed by the financial statements of both the organization must project a true and correct picture to both the parties. In the present world where innumerable varieties of accounting processes exit it has reached a situation where the intending parties for a joint venture can take a conscious decision without any trace of a chance of getting caught in the trap of misleading financial statements. Thus, if global trade is to survive as well as thrive, the joint ventures must keep growing, and this cannot be made possible if the numerous methods of representing financial statements keep continuing. It may be recalled here that the pressure for investing across borders is felt more acutely by the economically advanced countries which are extremely cash rich and need more lucrative markets for investing their money. This investing across borders may be done by just equity participation or by entering into a joint venture. While equity participation does not allow much control on the activities of the organization entering into a joint venture gives much close involvement in the working of the other organization. Hence to ensure the free growth of joint venture process it is necessary that the financial statements of both the organizations convey the same story and information. The discussion here is about Convergence which has been pursued for a very long time ever since the global economy has started to function. The various accounting statements issued by every organization convey different meaning and is capable of different interpretations. Thus the entire process of assuring uniformity has been on the anvil for quite some time though under different names like internationalization and harmonization of the standards of accounting. In the latest parlance the name used is convergence and let it be remembered that the same efforts may emerge under a new banner at a later date. Whatever be the name given the fundamental intention is of finding and getting the acceptance with implementation also of some suitably high, good and effective quality of accounting standards because then people across the globe will be understanding and interpreting accounting information in a standard and uniform manner. Since the information contained in the accounting statemen ts will be conveying the same set of information to the reader and auditor this will make the job much easier for the investors and lend much higher credibility to the information made available to the people working in the capital markets(Reilly, 2015). The role played by the Financial Accounting Standards Board had initially started in the accounting area at the international level from being just a participatory observer who handled just a few collaborative ventures went on to become an agency which researched on the ways and means of achieving the goals of convergence by examining every aspect of various accounting activities and processes. Comparability and compatibility has always remained an unachieved goal in the international accounting procedures. The main thrust of the most advanced countries especially the United States of America has was to obtain financiers in the capital markets of their countries. With the phenomenon of Globalization gaining ground the investment climate and financing of projects across borders of countries increased as the technology advanced. The interpretations and reading of the accounting statements by various investors in different countries felt the need for bringing in uniformity since implications of transactions and events in the global context started having significant implications in the area of international commerce which in turn started affecting the environment of domestic accounting. Therefore in view of the several issues precipitated due to the trends in the international business the Financial Accounting Standards Board was compelled to go deeper into the issues for find ing solutions which would be effective, efficient and encouraging to the users as well as the global investing agencies. The mission of the Financial Accounting Standards Board in the beginning was to keep in view the main task of promoting and improving the global level comparability of all standards of accounting together with the improvements in the quality of reporting financial results. Thus it is clear that of global cross border investments have to grow and thrive then the evolving and implementing of standard accounting practices become inevitable(Rics, 2014). This statement is neither acceptable nor admissible under any circumstances. The author has made a statement which gives the feeling that the public funds are there only to be spent ruthlessly without any concern for checking, monitoring and controlling. Public funds are made available by the common people who are required to part with a considerable amount of money. They have the legitimate rights to know where the money is being spent and whether their basic needs and wants are getting fulfilled. It is extremely necessary that fiscal information which is reliable and credible is shared with the public. Since it is public money extra caution need to be taken to ensure that the public money neither get spent recklessly nor get channelized into private accounts. Hence, it is very essential to have very clear and consistent procedure for all matters relating to budget execution, control with monitoring together with faithful and complete reporting. It is therefore very critical to put in place such accounting system which would make available a reliable method for keeping track of revenues, public commitments, required payments made, arrears built up with suitable justifications, liabilities requiring to be made and finally the assets which get built up. To start with there must be a budget whereby the government plans the utilization of the money collected from the public and the contents of this plan will reveal the areas which are going to receive the governments financial support and which areas will have to wait. This will enable the public to know if there are areas of concern which gets left out or goes out of focus of the government authorities. It is right from this stage that people can take up with the government for incorporating their views and demands into the priority list of the government for the accounting period. On the other hand the government will also have to ensure that all expenditures are transparently done and no shady deals are done. The common public should have access to the information on the budget and its deployment in a totally transparent manner which is that all relevant financial information should be disclosed with reliability and free from any distortion of information. This process would allow the public may be with the help of knowledgeable citizens to check and assess as to whether the people in the government are doing justice to the stewardship of public money(Finance, 2016). If what has been stated above by Murphy were to be true then the public money will get squandered mercilessly and very soon it will create a disastrous situation. While the motive for rigorous accounting principles being adopted by the individual enterprises may be related to ensuring best financial results, the use of similar if not more rigorous procedures are necessary when the money belongs to the public. Many people feel that everybodys money is nobodys money and hence the need of implementing strong, robust and rigorous accounting principles do not exist. Nothing could be further from the truth since being everybodys money each and every individual has the legal and constitutional right to ensure that their money is well spent in good cause which are desired and required by them(Lampert, 2010). This is a great mistake to think or feel that International Accounting Standards Board is just a coterie of people who work for the Big 4 accounting firms viz. PricewaterhouseCoopers,Deloitte Touche Tohmatsu,KPMG and Ernst Young. It may be said with a lot of confidence that all the four organizations being referred to above are very highly regarded in the industrial circles. It is accepted that these four people between themselves have decided to do something which is very highly reasonable and helpful in generating transparency all across the globe as far as accounting principles are concerned. On the contrary it only makes sense to realize that these four stalwarts of the accounting world have joined hands to evolve and implement a system which will render the assessment of the information contained in the accounting data much easier and reliable. These four big firms have not only the required competence but also the need for furthering the drive which International Accounting Standards Board has undertaken. This is so because these four firms are available in every corner of the world and they are very frequently required to face the investors for interpreting the financial statements of organizations beyond the borders. Since with a converged accounting procedure having been implemented they are then free to attend to their more urgent and pressing businesses. Therefore, there can be no doubt that these four firms will be the happiest if the International Accounting Standards Board finds its mission accomplished. This should not be construed that they are instigating the International Accounting Standards Board to carry out their mission. It has to be kept in mind that with the process of globalization being on in full swing the main beneficiary would be the global trading partners whose number runs into millions. The cardinal aim of International Accounting Standards Board is to ensure that trade and commerce across the world goes on in a smooth and uninterrupted manner. There are no ifs and buts in the interpreting of the accounting statements of the organization by any foreign investors looking for alternate sources for gainfully deploying his or her money. With the standardized and uniform accounting procedure in place the cross border investors will be better placed to assess the risks that are associated with any organization to the extent it is incorporated in the accounting statements. In case any organization of any country which agrees to accept the final recommendations of the International Accounting Standards Board will not be able to give rosier picture to the intending foreign investors since the new procedure will ensure that full and valid information is served to the international investing public. As has been stated earlier, the four giants in the field of accounting will also certainly benefit since they are frequently required to make recommendations to their clients about the authenticities of investing opportunities in other countries. They will find their jobs made much easier when the International Accounting Standards Boards recommendations come into force. But this does not mean that the entire effort is to make the job of the Big 4 easier and they are at the bottom of this entire exercise. The recommendations of the International Financial Reporting Standards are meant to bring about a parity of the accounting procedures all over the world. With the implementation of the recommendations of International Financial Reporting Standards in all the industries of this country it will render them acceptable to the world community. In case of any proposal of Joint Venture from overseas coming up, the foreign party has access to all the pertinent data in the clear and candid form. The scope for making any mistakes in the evaluation of the Australian organization is thoroughly ruled out. When the recommendations will be made effective then the local organization will find it difficult to misrepresent the facts and mislead the intending investors. The credibility of the local industry will go up leading to renewed and additional interest of the investors. Therefore with the acceptance and introduction of the recommendations of the International Financial Reporting Standards the l ocal industries gain in stature in the world investment market to the extent that Australia will become an important investment destination. Now it remains to be seen as to what would be the effect if the recommendations of International Financial Reporting Standards are neither accepted nor implemented locally. Like any other country this country also has its share of unscrupulous businesses. These unscrupulous businesses would continue to have their free run in the local market. Now this needs to be seen in another light. While with the rejection of the recommendations of International Financial Reporting Standards adds to the comfort of the unscrupulous businesses it also deprived the ethical and forward looking businesses since the international investor community does not improve their image they carry now of the business in this country. What is then happening is that in order to generate comfort for one section of businesses the growth track of the enlightened section of businesses are being deprived of their opportunity to take advantage of the favorable investment climate now prevalent in the world. The administr ation will now have to balance the two aspects i.e. give protection to local businesses which dish out faulty and misleading accounting information or help the aggressive and clean businesses to grow in stature in the global market(Ifrs, 2016). It is felt that days are not far off when the question of accepting or not the recommendations that will come from the International Financial Reporting Standards will cease to exist. Every organization which wants to stay alive will have to be clear and transparent in the accounting procedures and will have to follow the standardized norms. References: Berger, R. (2013, April 12). 4 Debt Consolidation Traps to Avoid. Retrieved October 06, 2016, from usnews: https://money.usnews.com/money/blogs/my-money/2013/04/12/4-debt-consolidation-traps-to-avoid Farrington, R. (2016, July 28). The Problems With Student Loan Consolidation. Retrieved October 06, 2016, from moneymanagement: https://thecollegeinvestor.com/18164/the-problems-with-student-loan-consolidation/ Finance. (2016, September 01). Budget process. Retrieved October 06, 2016, from Finance: https://www.finance.gov.au/resource-management/budget/ Ifrs. (2016). International Financial Reporting Standards - IFRS. Retrieved October 06, 2016, from investopedia: https://www.investopedia.com/terms/i/ifrs.asp Lampert, N. (2010, May 28). Why Brittany Murphy's friends say they are GLAD her British husband Simon Monjack is dead too. Retrieved October 06, 2016, from Dailymail: https://www.dailymail.co.uk/tvshowbiz/article-1282316/Why-Brittany-Murphys-friends-say-GLAD-British-husband-Simon-Monjack-dead-too.html Lawyers, D. (2011, September 02). What is a Joint Venture? Retrieved October 06, 2016, from dundaslawyers: https://www.dundaslawyers.com.au/what-is-a-joint-venture/ Reilly, B. (2015, May 18). Convergence theory explains the lack of choice in Australian politics. Retrieved October 06, 2016, from theconversation: https://theconversation.com/convergence-theory-explains-the-lack-of-choice-in-australian-politics-41956 Rics. (2014, january 01). RICS Valuation Professional Standards . Retrieved October 06, 2016, from noordhoff: https://hoadd.noordhoff.nl/sites/7605/_assets/7605d24.pdf