Accounting Theory and Issues Accounting

Questions: 1. Describe about the Critique of Commonwealth Bank applying theory of Accounting theories of issues?2. Describe about the Critique of conceptual framework applying theory of accounting theories and issues? Answers: 1. Commonwealth Bank: The Senate report had stated that the customers of the Commonwealth Bank had lost all their lives savings that amounted to millions of dollars when the executives of the bank invested the money of their clients in the securities that were exposed to high risks without the permission of the customers. (Abc.net, 2015) The National Australian Bank had reported that the bank had paid millions of Dollars towards the compensation to more than 700 customers. (ABC.net, 2015) In the month of October during the year 2008, the financial planner of the CBA Jeff Morris had alleged the Bank to have involved in a high profile forgery and in the act of dishonesty and concealment of the material facts. But the fact was just uncovered after 16 months when the ASIC had launched an investigation. The bank had repeatedly kept the regulator and the public in the dark and there was no report whatsoever about the same. (AFR.com, 2015) The annual report of the bank 2008 reports that neither the bank nor any of the entities that are controlled by it are engaged or are exposed to any sort of litigation or claim that is likely to have an adverse impact on the financial position of the bank. (Commonwealth Bank, 2008) The main reason behind the failure of the bank was the practice of the bank of high risk lending. This led to building up of the losses after the financial crisis. It was reported that the bank kept on giving the loans to the parties whose financial condition was continuously deteriorating. (Justoice.gov, 2015) The following people were charged with the conspiracy of committing the fraud and multiple numbers of unlawful participation in the loan activities: Edward J. Woodard Simon Hounslow Stephen G. Fields Troy Brandon Woodard Thomas E. Arney Dwight A. Etheridge If proved guilty, then they will serve 30 years in prison. A strong financial report is the one that leads the investors to understand the performance and the profitability of the company with the least figures. The first thing that comes in front of their eyes is the income statement. The income statement of the banks shows an increase in the revenue and a corresponding increase in the profit of the period. The cash flows showed a decrease in the amount of cash and cash equivalents. A strong financial report is indicated by the increased revenue, net income. The annual report of the bank showed an increased revenue for the period under consideration. (Small Chron, 2015) The bank was under scrutiny during the period of 2008, this could have resulted in litigation and levy of the penalties but the fact was never disclosed. Further, the annual report of 2009 or annual report 2010 showed a decrease in the net profit but it never stated anything on the litigation that it was exposed to. (Commonwealth Bank, 2010) (Commonwealth Bank, 2009) The bank could have easily overcome the heavy penalties if it had assessed the financial position of the organizations to whom the loans were made or the riskiness of the securities in which the investment was made. The annual report of 2009 states that it has all the policies and systems in place for the following: For review of the fair treatment Equal Employment Opportunity Occupational Health and Safety Recruitment and selection Performance management Talent management and succession planning Remuneration and recognition Employee share plans Supporting Professional Development Further, it also states that all the decisions taken by the bank are transparent and undertaken with utmost honesty and values and openness but the scandal showed otherwise. The Libertarian Ethics means freedom. It means the individual freedom. The choice of investment in the securities was made but the choice was wrong that led to the loss of savings of many. Both the auditor reports of 2008 and 2009 were unqualified. 2. General purpose financial reporting: The general purpose financial reporting caters to the different needs of the different users, such as the creditors, financial institutions etc. these users have to take the decision whether they should associate with the company or not. The report further indicates whether the company is using the scarce resources that are available with it in the most efficient manner and that there is no wastage. Further the report states whether the management is taking the decisions that are right for the entity or not. The following are some of the qualitative characteristics that makes the financial information of use: Its relevance: the information provided must be useful to the user. The information provided must be true and correct and must show the correct financial position of the organization. Further, the characteristics includes comparability, verifiability, timeliness and understandibility. For the reason of comparability, the company must use the consistent accounting principles so that comparison could be made between the statistics of 2 or more years. (IFRS, 2015) General purpose financial reports shall provide information useful to users for making and evaluating decisions about the allocation of scarce resources. The AASB 1053 provides the framework of 2 tiers of the reporting requirements for the preparation of the general purpose financial statements. The following entities are required to prepare the general purpose financial statements which forms the part of the general purpose financial report: The entities for not profit The entities under the Australian Government and State, Territory and Local Governments (AASB, 2015) The following is the example of the not for profit organizations that prepare a general purpose financial report: Royal Freemasons' Benevolent Institution Sir Zelman Cowen Universities Fund (Probono Australia, 2015) The general purpose financial reports requires the entities to get their financial statements audited aby an auditor so that it could be ascertained whether the financial statements represent a true and a fair view of the financial position. The auditor has to give a declaration that he is expressing his opinion free from any bias and that he is exercising his judgement to the fullest level. (ANAO, 2015) à ¢Ã¢â€š ¬Ã¢â‚¬ ¹The sustainability report are required to be prepared by all the companies and organizations of all the types, sizes and from all the sectors. The report states the impact of the operations of the entity on the environment, society and what it is doing to compensate for the damage that is being done. (Globalreporting, 2015) The report of any entity cannot be said to be free from any bias since it is the result of the interaction between the corporation and the environment in which it operates. This is the political economy theory. The legitimacy theory states that the corporate continuously ensures that is operating within the rules and regulations and that they abide by the same. They have to ensure this since, otherwise it would attract heavy penalties. Each and every entity is required to follow a doe of conduct to ensure that all the practices are adequately followed and that there is no fishy business in the same. Further, it ensures that the management is accountable to its stakeholders. The conceptual framework shows the basic concepts that are used in the preparation of the financial statements. When this framework is followed by all the entities in the same sector, then enables benchmarking and comparison. (IFRS, 2013) References: ABC News, (2014). Command boss says sorry to customers who lost millions in financial planning scandal. Retrieved 25 February 2015, from https://www.abc.net.au/news/2014-07-03/commonwealth-bank-responds-to-financial-planning-inquiry/5568504 ABC News, (2015). Bad financial advice costs NAB millions in compensation. Retrieved 25 February 2015, from https://www.abc.net.au/news/2015-02-21/nab-pays-millions-in-compensation-over-bad-financial-advice/6172650 Globalreporting.org, (2015). Sustainability Reporting. Retrieved 25 February 2015, from https://www.globalreporting.org/information/sustainability-reporting/Pages/default.aspx Ifrs.org, (2015). IFRS - Frequently Asked Questions. Retrieved 25 February 2015, from https://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/EDMay08/Pages/Frequently-Asked-Questions.aspx Justice.gov, (2015). USDOJ: US Attorney's Office - Eastern District of Virginia. Retrieved 25 February 2015, from https://www.justice.gov/usao/vae/news/2012/07/20120712woodardnr.html Probonoaustralia.com.au, (2015). | Pro Bono Australia. Retrieved 25 February 2015, from https://www.probonoaustralia.com.au/directory/search/results?keys=tid=13state=All Small Business - Chron.com, (2015). Key Indicators on a Financial Statement That a Company is Profitable. Retrieved 25 February 2015, from https://smallbusiness.chron.com/key-indicators-financial-statement-company-profitable-18602.html www.aasb.gov.au, (2015). AASB 1053. Retrieved 25 February 2015, from https://www.aasb.gov.au/admin/file/content105/c9/AASB1053_06-10.pdf www.anao.gov.au, (2015). Preparation of Financial Statements by Public Sector Entities. Retrieved 25 February 2015, from https://www.anao.gov.au/uploads/documents/ANAO_FinStat_BPG.pdf www.commbank.com.au, (2015). Annual report 2008. Retrieved 25 February 2015, from https://www.commbank.com.au/about-us/shareholders/pdfs/annual-reports/2008_Annual_report.pdf www.commbank.com.au, (2015). Annual report 2009. Retrieved 25 February 2015, from https://www.commbank.com.au/about-us/shareholders/pdfs/annual-reports/2009_Annual_report.pdf www.commbank.com.au, (2015). Annual report 2010. Retrieved 25 February 2015, from https://www.commbank.com.au/about-us/shareholders/pdfs/annual-reports/Commonwealth_Bank_2010_Annual_Report.pdf www.ifrs.org, (2015). A Review of the Conceptual Framework for Financial Reporting. Retrieved 25 February 2015, from https://www.ifrs.org/current-projects/iasb-projects/conceptual-framework/discussion-paper-july-2013/documents/discussion-paper-conceptual-framework-july-2013.pdf Yeats, C. (2015). The man who blew the whistle on CBA. Financial Review. Retrieved 25 February 2015, from https://www.afr.com/p/business/financial_services/the_man_who_blew_the_whistle_on_gXRai1FAdK3vNJAKv22z0N