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Accounting Issues

Question:

1. What accounting issues have been addressed in the article?

2. In terms of the accounting issue being discussed, what did you agree/disagree with in the article? Provide support for your argument. 

3. How does this article relate to theory/theories discussed in the Advanced Accounting unit?  Demonstrate the connection to theories. 

Answer:

1. The major accounting issue that has been addressed in the article “The Big Question of Measurement” is related to the measurement of the long-term investment. Moreover, the other major issue is related to the cash conversation cycle, statement of profit/loss and the use of OCI (Other Comprehensive Income). It is true that, in recent time, measurement has become the most controversial as well as sensitive issues in accounting. There are basically two techniques of measurement: historical cost and current value (fair value). Along with this, the major problem with the techniques of measurement is that both historical cost and fair value are opposite from each other. Moreover, the fair value requires a full update on all the variables, whereas historical cost entails intermittent as well as irregular update of the variables (Hoogervorst, 2015). As a result; both historical cost and fair value create a big difference in the valuation of the financial position or performance of an organization.

On the other hand, the other issue is related to the cash conversation cycle of the organization. This is the major accounting issue due to the historical costs and current value. For case, some people believe that historical cost is better than the fair value for the business activities that are associated with the short cash conversion cycles. Apart from this, the other people believe that for long cash conversion cycles historical cost has a propensity to be less relevant. The main reason behind it is that historical cost notifies a little about current value of an investment (Shaffer, 2011).   Moreover, the historical cost is less relevant in the longer time-span of business activities. In this way, it also has become a major controversial issue in accounting.

2. Yes, I am totally agreed with the accounting issues that are discussed in the article. There are numerous reasons behind this. For case, the major reason is that historical cost and fair value has been created a lot of differences between the value and return of the investment. Along with this, due to the big difference, investors are unable to take appropriate decisions to make their investments. They are in trouble that they should consider the historical value or fair value to accomplish the higher return. Moreover, there is not a specific criterion that organization must adopt and implement to remove this problem. The organizations are not obliged to follow a common cost for the valuation (Needles and Powers, 2010). In this way, the accounting issue related to the measurement has become a serious issue to all over the world.

Apart from this, the historical cost and fair value also created issue for the cash conversation cycles of the businesses. The main reason behind it is that business organizations and investors believe that historical costs are more effective and relevant with the short cash conversion cycles. But, they also believe that historical costs are less relevant with the long conversation cycles. In this way, the cost related to the cash conversation cycle also has become other serious accounting issue for the business organizations (Needles, Powers, and Crosson, 2010). For that reason, I am fully agreed with the accounting issues discussed in this research article.

3. This article relates to the theories that are discussed in the advanced accounting unit. For case, the article relates to the decision usefulness accounting theory of advanced accounting. The decision-usefulness theory plays a significant role in order to offer direction for all accounting as well as financial reporting choices. Moreover, as per this theory, the primary objective of financial reporting is to present information and data that is useful in order to make investment decisions (Staubus, 2013). In the same way, this research article also focuses on the fair value or current value of the assets and liabilities to comprehend the valuation of the assets. Moreover, this article also expresses that historical value may create a big difference in the value of assets and liabilities of the business organizations (Hoogervorst, 2015). Consequently, this article also describe that people show consider all the accurate financial information to make any investments in an organization.

On the other hand, the article also relates to the normative theory of   advanced accounting. For case, the normative theory describe that financial decisions of the people should not be based on the observations; but they should follow all the accounting processes or procedures before making any investments. In the same way, the article also describes financial process is essential to make any important decision (Reddy, 2004). Hence, fair value or current values have need of a full update of all the inputs at each reporting date to make any investment or financial decision. This update plays a significant role in order to provide accurate valuation of the business assets. Moreover, fair value would also be helpful to provide a meaningful picture of the financial position and performance of an entity.

In addition, the article also relevant to the positive accounting theory of advanced accounting. This theory is helpful to better understand that how accounting practices should be used. Same as, the article also helpful to expresses the importance of accounting practices to make any investment decision. The article focuses on the statement of profit & loss and other comprehensive income to recognize the cash conversation cycle in an accurate manner Fischer, Tayler, and Cheng, 2015). This research article also describes the importance of the statement of profit and loss. The main reason behind it is that P&L is a major indicator that lays a significant role in order to evaluate the financial performance of an organization in an effective and a more comprehensive manner. 

Moreover, this research article explains that if investors want to invest in an organization then they must presume all the income and expenses of the previous years in order to predict the returns on their investments. If the income or revenues are higher than the expenses then the organization is profitable for the investors. In contrast, if the expenses are higher than the income in that case the investors must avoid investing in that particular organization (Hoogervorst, 2015). In this way, it can be said that, this article discuss the major accounting issues properly. In addition to this, it is also observed that, all the concepts as well as facts described in this article are related to the theories of advanced accounting.  

References

Fischer, P.M., Tayler, W.J., and Cheng, R.H., 2015. Advanced Accounting 12th ed. Cengage Learning.

Hoogervorst, H., 2015. The big question of measurement. Available At: http://www.ifrs.org/Alerts/Conference/Documents/2015/Hans-Hoogervorst-speech-HK-Oct-2015.pdf 

Needles, B.E., and Powers, M., 2010. Financial Accounting (11th ed.). Cengage Learning.

Needles, B.E., Powers, M., and Crosson, S.V., 2010. Principles of Accounting. Cengage Learning. 

Reddy, J., 2004. Advanced Accounting: Theory & Practice. APH Publishing.

Shaffer, S., 2011. Evaluating the impact of fair value accounting on financial institutions: Implications for accounting standards setting and bank supervision. Available At: https://www.bostonfed.org/bankinfo/qau/wp/2012/qau1201.pdf

Staubus, G.J., 2013. The Decision Usefulness Theory of Accounting: A Limited History. Routledge. 

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