Contemporary issues in accounting theory
This paper discusses an accounting treatment of financial items on financial statements of the company. This report will identify required accounting theory which will be studied for determining that which financial items are required to be included and treated by company in financial statement.
In addition to it, this report will help in developing understanding and knowledge by justifying the accounting treatment of intangible assets and fixed management fee in the financial statements.
In every organization, it is compulsory to follow and adopt proper financial rules and regulations, principles and processes in order to examine the financial performance of business in the competitive market.
There are large number of accounting policies and standards which are set for meeting the difficulty of managing a complete financial details and information efficiently.
According to Australian Accounting Standard Board, it is clearly stated that company uses all accounting standards for avoiding any mistake and error in financial reporting as well as for identifying the financial competency in market (Sinclair & Keller, 2017). However, this help in recording all financial transaction properly and efficiently in the statements books.
In balance sheet, intangible assets are included like goodwill, patent, brand, etc. In other words, Denicolai et al., (2015) stated that it is also compulsory to disclose all intangible assets as separate items with all details of opening and closing balance amount.
In simple words, intangible assets are those assets which are not touched i.e., no physical substance only it is identified as non-monetary asset. For justifying the statement that company should include intangible assets on its balance sheet, international accounting standard (IAS) 38 is followed by company.
As per International Accounting Standard (IAS) 38, it is specified that intangible assets are required to be included in the balance sheet compulsorily.
The objective of IAS 38 for intangible asset states that to prescribe the accounting treatment that are dealt specifically in other IFRS standard. Under this standard, there is required to have an entity to recognize an intangible asset of the company when any certain criteria or policy are met.
This accounting theory or standard is clearly defining that intangible assets can be included in balance sheet properly as this disclosure of intangible asset helps in following class of intangible assets by differentiating between generated intangible assets and other external intangible assets.
In the research study of Cascino & Gassen (2014) it is clearly described that under IAS 38, intangible asset is obtained in a business combinations which are might be separable or might be together in related contract where intangibles assets and liabilities are identifiable.
In similar manner, generally accepted accounting principles (GAAP) involves those accounting principles and policies which are required to be disclosed by each and every company worldwide but there is a difference in GAAP of each country.
Moreover, this amendment of IAS 38 is commonly used by every organization for enhancing their financial performance and stability. In like manner, an intangible asset is included in the financial statement in which any intangible asset is purchased at cost of its assets where intangible asset is recorded under total asset of financial statement (Carvalho et al., 2016).
Recording of intangible assets in financial statement provide help and support to the company in achieving future benefit in terms of goodwill or high investment opportunity.
Simply, Australian Accounting Standard Board (AASB) is used as accounting theory by companies for examining and determining a firm value and business life cycle according to financial performance.
Fixed management fee is also treated under income statement of financial accounting. This is a management fee which is charged by investment manager for managing and handling n investment fund efficiently and effectively.
In concern to this, Phang et al., (2015) also explained that management fee is a fee which is charged by investor for making investment decisions on the behalf of a client. This fixed fee is charged by manager on the basis of percentage of the net asset value of asset fund with percentage of small value.
In every organization, fixed management fee is charged differently by the firms as advisory fee and this fee is required to be listed under prospectus and in financial statement of accounting.
In management accounting theory, the treatment of fixed management fee is referred as a sale for service for management in which asset management by investors on behalf of customers then management fee is charged usually in large amount.
In addition, Australian Accounting Standard Board (AASB) 1028 is demonstrating that total amount which is disclosed as remuneration during reporting period is recognized as management fee rather than an expense in the statement of financial accounting of company (Qu et al., 2014).
In financial company, the amount which is disclosed to specific director is usually included as amount of income received for the service offered to customers.
As per companies act 2013, profit and loss account is reliable to disclose the sale of services which financial company provides to its customers. This income and expenditure account is considered under Australian Accounting Standard Board (AASB) 116 in which it is clearly stated that in finance company, revenue from operations must disclose their income which they receives in form of interest or financial services.
But at the same time, Hu et al., (2015) also explained that these types of financial services are required to be disclose by the company as an income because they receive a service fee after providing services to customers.
But on the other hand, Kent & Zunker (2013) also mentioned that Australian Accounting Standard Board (AASB) helps in preparing a proper notes of the account statement for each financial books.
In respect to it, any disclosure specified in accounting standards are necessary to be considered by the company in addition to meet the requirements of set provision in AASB The use of accounting standard plays a vital role in developing understanding and examining the financial stability by making financial statements which help in making business financial decision effectively.
Fixed management fee is treated as professional fees in which management receives fees from customers and recorded under as an income. But at the same time, fixed management fee is additional income which company’s manager or director as an income over the expenses.
The use of Australian Accounting Standard Board (AASB) provides support to the company in managing their financial accounting records efficiently and effectively.
Therefore, it can be determines that both the accounting treatment are required to be considered according to Australian Accounting Standard Board (AASB) i.e., intangible assets are recorded in balance sheet and treat fixed management fee as an income for the company.
The above study concludes that there are some financial items which are necessary to be included in the financial statements books of the company like tangible and intangible assets, revenue and expenses.
Moreover, it is also identified that intangible assets are required to be included as per international accounting standard (IAS) 38 whereas fixed management fee is also included in profit & loss accounting as income according to Australian Accounting Standard Board (AASB) 1028 & AASB 116.
This study helped in determining the accounting theory or standards which provide justification that intangible assets should be included in balance sheet and fixed management fee in income statement.
Carvalho, C., Rodrigues, A. M., & Ferreira, C. (2016) The Recognition of Goodwill and Other Intangible Assets in Business Combinations–The Portuguese Case. Australian Accounting Review, 26(1), pp. 4-20.
Cascino, S., & Gassen, J. (2014) Online Appendix for “What Drives the Comparability Effect of Mandatory IFRS Adoption?”.
Denicolai, S., Cotta Ramusino, E., & Sotti, F. (2015) The impact of intangibles on firm growth. Technology Analysis & Strategic Management, 27(2), pp. 219-236.
Hu, F., Percy, M., & Yao, D. (2015) Asset revaluations and earnings management: Evidence from Australian companies. Corporate Ownership and Control, 13(1), pp. 930-939.
Kent, P., & Zunker, T. (2013) Attaining legitimacy by employee information in annual reports. Accounting, Auditing & Accountability Journal, 26(7), pp. 1072-1106.
Phang, D. J. W., Kwan, S. A., Lua, H. S., Sim, Y. R., & Tan, S. N. (2015) The impact on audit fees after IFRS Convergence: An investigation in trading and services industry (Doctoral dissertation, UTAR).
Qu, X., ajella Percy, M., Hu, F., & Stewart, J. (2014) Corporate Governance and Stock Option Vesting Conditions: Evidence from Australia.
Sinclair, R., & Keller, K. L. (2017) Brand value, accounting standards, and mergers and acquisitions:“The Moribund Effect”. Journal of Brand Management, 24(2), pp. 178-192.