Financial Accounting for Business Cycles

Question: Discuss about the Financial Accounting for Business Cycles. Answer: Introduction The following study evaluates the different concepts of measurement in accounting. In addition, it examines the issues in the measurement of accounting in the context of the global financial crisis. For the purpose of the study, Rio Tinto has been selected. The companys 2106 annual report has been evaluated to understand the issues pertaining to the issues of measurement in accounting. In addition, the various measurement concepts in accounting have been stated in the study. It can be stated that the brand follows the fair value accounting concept that can assist the business entity in the development of the accounting strategies in the global business market. However, in the present global market the historical method as well as the present value method shall assist the management of the business entity in assessing the asset and the liabilities of the business entity . The issues in the measurement shall relate to the non-compliance of the accounting guidelines and the changes in t he accounting methods adopted by the business entity than in the past year. Bull (2014) mentioned that the measurement concepts that are adopted in the business entity in the accounting sector have been related to accounting policies taken by the business entity. In the context of Rio Tinto, the remuneration that has been offered to the employees has to be assessed by the individual companies and this has helped the company to determine its financial policies. However, this has led to issues in accounting measurements in various reputed business units based in Australia. Thus, it becomes necessary to strictly adhere to the accounting guidelines and the framework related to such issues. However, factors like the changes in the market conditions as well as the changes in the accounting methods adopted by the business enterprise can have an impact on measurement of accounting in the business entity . Besides this, the changes in the accounting procedures can hamper the process of assessment and comparison with the past years. Pratt (2013) mentioned that the companies adhering to the IASB/AASB standards have traditionally struggled with the issues of measurement in the context of the accounting. Following are the problems in measurement in the context of the IASB standards and framework. The changes in the market conditions- The changes in the market conditions shall have an impact on the measurement of the IASB standards in the organization. As such, this shall have an impact on the assessment procedures of the organization. Brinca et al. (2016) mentioone The vulnerable market conditions shall relate to the operational policies of the business entity and that shall have an impact on the operational policies of the business entity. As such, this shall have an impact on the operational policies of the business entity. The issues in the measurement of financial policies of the organization shall lead the organization to growth and prosperity in the international market. Changes In The Financial Policies - The changes in the financial policies of the organization shall have an impact on the financial policies of the organization. As such, this shall lead to issues in the operational policies of the organization. In this regard, it can be said that the alterations in the financial strategies in the organization. Changes in The Accounting Method The changes in the accounting method in the organization shall hamper the assessment procedures in the organization. This shall change the procedures and the methods involved in the preparation of the accounts in the organization. Ismail and King (2014) mentioned that the alterations in the accounting procedures in the organization shall hamper the assessment procedure in the organization and therefore assist the business entity in the development of the goals and the objectives of the business entity. Variable expenses - DRURY (2013) stated that the variable expenses of the business entity should differ with each successive years. As such, the changes in the variable expenses of the business entity shall affect the assessment procedures in the organization. The variable expenses of the business entity shall change with the changes in the operational expenses of the business entity. Following are the issues in measurement in the context of the IASB standards. Taxation Procedures Hartman ad Mouritsen (2013) mentioned that Companies operating in different companies are subjected to different taxation procedures and guidelines. As such, the taxation procedures in the organization shall be changed as per the different guidelines in the international market. Thus, the assessment procedures in the organization shall have to be altered as per the needs of the market. Thus, the business entity shall help to develop the uniform taxation procedures that shall assist the business s entity in the correct payment of taxes. According to Holmes (2012), the taxation procedures shall be vastly distinct in different parts .As such , this would hamper the assessment procedures in accounting. Thus, conducting the taxation procedures would have an impact on the operational policies of the business entity. Auditing measurements - The auditing guidelines are different in different countries. As such, the organization shall have to adapt to the business procedures in bringing in transparency as well as authenticity in the financial statements of the organization (Wesfarmers, 2016). Thus, the auditing measurements shall be suited to the country where the country is operating. Thus, the company shall follow the global accounting standards in the organization. According to Scott (2016), the auditing standards that are to be followed in the business entity shall be of assistance to the business entity in reducing the discrepancies in the organization. Thus, the management of the organization shall have to take appropriate measures that shall assist the business entity to make its financial statements more authentic. In the case of Rio Tinto , the brand has been operating in many countries where the auditing guidelines are distinct . This has posted an issue for Rio Tinto regarding the measur ement of the financial reports in the organization. Thus, Rio Tinto has to take in-depth data analysis to present its financial statements in an appropriate manner. According to Kaplan and Atkinson (2015), Rio Tinto has taken pertinent measures to overcome this threat for the business entity. Bad debts It is necessary to identify the amount of bad debts in the taxation procedures of the organization. Thus, this shall assist the business organization to identify the relevant taxation procedures that shall help in the growth and the prosperity of the business entity in the international market. Needles et al. (2013) mentioned that Rio Tinto being a multinational company could have several bad debts in lying in different countries. The bad debts of the organization shall help the business entity in the growth of the business enterprise. In the recent years, Rio Tinto has faced a number of bad debts, which has led to discrepancies in the financial statements of the organization. As such, this has assisted the business entity to develop the financial statements of the business entity as per the goals and the objectives of the business entity Non compliance with the AASB standard Otley and Emmanuel (2013) stated that the non-compliance with the AASB standard should hamper the process s of assessment in the context of the buyers. As such, this would result in measurement issues for the company. In this regard, it can be said that the non-compliance with the IASB standards in the organization would lead to disproportionate allocation of expenses within the business organization In addition this shall lead in discrepancies in the financial statements of the business entity. As such, the non compliance with the financial statements can lead to issues in the financial statements for the business entity. According to Hodgson and Russell, M. (2014), this has been one of the primary causes which has led to measurement issues in accounting. The measurement in accounting depends on two bases that include the choice of the unit of measurement as well as the attribute that is required to be measured. According to Stice and Stice (2013), the accountings concept SAFC 5 confirms those areas. The monitory unit that shall be used in the measurement of the accounting concepts shall have an impact on the operational policies of the business entity. Besides this , the organization have stated that different monitory attributes like historical cost, net realizable value as well as the present value of the future cash flow can be used to measure the financial statements of the business entity . As such, this shall have an impact on the operational strategies of the business entity. In regard to this Deegan (2012) noted that property, plant as well as the equipment are the items that can be assessed at the historical cos. As such, the fair market value shall assist the business enterprise in assessing the financial statements as per the existing market condition. According to Haider (2015), the present value measurements have been in accounting for measurements. As such this is the primary tool through which the measurement in accounting is executed. The present value is the tool of a recent FASB statement. In the present global market , the present value measurements has been used to facilitate organizational changes in the global market . Rankin et al. (2012), the Fair value method is also one of the methods in the measurement of accounting. As such, t the fair value method is an authentic presentation of the measures that can be used in the measurement in accounting. Deegan (2012) stated that the accounting measures should help the business entity in the authentic representation of the financial statements of the organization. In this regard, it can be said that the Fair value, method has been one of the essential procedures that have facilitated financial transparency and growth in the economic condition of the business entity (Wesfarmers, 2016). In this regard, it can be said that the fair value method assesses the financial condition of the business entity in a free and fair manner. The historical value method assesses the financial condition based on the past results. Hopper (2012) mentioned that the historical method of accounting evaluates the price of the asset based on its past value. The historical method of accounting uses the generally accepted accounting principles (GAAP) to evaluate the assets on the basis it was originally acquired. Holmes (2012) noted that entities that use the historical method of accounting shall evaluate the assets on the basis of its originally acquired value, even if such values have changed significantly over a period of time. However, not all assets are assessed at the historical cost. The marketable securities of the company cannot be assessed at the fair value method of the company. In the case of Rio Tinto, such marketable securities are measured at the fair value method. Besides this Gray (2014) noted that Rio Tinto has been following the fair value method in assessing the assets in the organization. Thus, the Assets like building, plant and equipment as well as land are assessed at the market price in the organization. This has assisted the business entity in the development of the goals and the objectives of the business entity. Prodhan (2013) mentioned that the realization accounting principle refers to the accrual accounting model in the preparation of the annual financial statements of the organization. The recognition of revenue in the business entity shall help the business entity to correctly assess the financial position of the business entity. As such , the realizable revenue shall be recognized depending on the following two conditions 1. The earning process shall be processed to be complete 2. The presence of reasonable certainty in the gathering of revenue for the business entity. The realization accounting principle shall help the business enterprise in the authentic recognition of revenue in the organization. This has been an effective tool in the preparation of the accounting statements in the business entity. The revenue shall only be recognized if the financial transactions are fully recorded in the books of the accounts. As such, this shall helop De Simone (2016) mentioned that the Generally Accepted Accounting principles (GAAP) offers the framework through which major business enterprises operating in Australia shall prepare their year ended financial statements As such, this shall help the business entity to prepare authentic financial statements and forecasts the future financial condition of thee business enterprise. In the case of Rio Tinto, the KPIS were used as the measure to assess the remuneration of the executives. As such, this shall help the business entity to determine the operational processes of the business entity. Thus the KPIS has been used as an effective tool for decision making. The KPIS has been an useful tool for the management for the business entity for taking measures that shall be essential for the firm for decision-making. Watts et al. (2014) mentioned that Rio Tinto has been using the usage of KPI shall have an impact on the decision making of the users. This has also assisted the business entity for the assessment of the financial position of the business entity. In this regard, it can be said that the KPI offers the opportunity for the fair comparison of the e= financial statements with the past year. In the case of Rio Tinto there has been a consistency in the assessment procedures of the organization for successive years. As such, this has assisted the business entity in the development of the financial years. Besides this Fuest et al.(2013) noted that Rio Tinto has been constantly monitoring its financials statements to identify any discrepancy that can have an impact on the preparation of the annual reports of the company. The measurements have been effective to determine the financial position of the business entity and respond appropriately for organizational growth. Rio Tinto has been effective in determining the operational policies of the business entity. Ismail and King, (2014), The brand being a multinational corporation shall have to be adjust according to the rules and the regulations of the business enterprise. There has been effective coordination between the operational policies of the business entity to help in the decision-making processes of the business entity. The remuneration policies of the business entity shall have to be established as per the business regulations of the entity. Parker (2014) mentioned that The KPIs have been an essential tool in the measurement of accounting .As such, this shall help the business entity in the development of tools of the business entity. The brand has made efforts to adhere to the IASB and the AASB framework. The operational expenses of the business entity have been stated in the financial statements of the business entity. in the case of Rio Tinto , the accounts are developed and shall adhere to the required guidelines. Conclusion Rio Tinto has been strictly adhering to the AASB/ IASB accounting regulations in the business entity. As such, this has assisted the business enterprise in the development of the accounting statements in a true and fair manner. The brand has been using the KPIS to ensure the assessment of the remuneration policies of the business entity. This has enabled the business entity to develop pre-determined guidelines as per the needs of the business entity. In addition, this shall help the entity to identify any discrepancy in the financial statements of the business enterprise. The fair value, historical method of accounting as well as the present value of the business entity shall assist the business enterprises to facilitate measurement in accounting . As such, this shall help the business. Rio Tinto follows the fair value accounting method in the assessment of the assets and the liabilities of the business entity. The Generally accounting principles (GAAP) have been an effective in determining the financial policies followed in the business enterprise. However, there has been issues s in the measurement if the accounts are prepared as per the AASB/IASB framework. These include the violation of the principle of consistency in the development of the accounts. Thus, this shall prevent the business entity in comparison of the financial statements of the business entity with the past years. Besides this, the non-compliance with the accounting guidelines shall also lead to measurement issues in the business organization. In addition, it can be said that the complexities in the business operations shall lead to the measurement issues for the business enterprise. Apart from these factors, the presence of bad debts and uncertainties in the recognition of revenue for the busines s entity. The brand has faced issues regarding the assessment of the assets in the business organization. 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