You are required to prepare a report about your findings from the literature research, and discuss how it is useful for financial reporting in Australian companies. The report should cover the following:

a. An explanation of the reasons (at least 3) why your group has selected the two research articles relating to your topic.
b. An explanation of the purpose of the two studies and what research question(s) they set out to explore about the topic.
c. A discussion about the similarities and differences in the findings of the two studies.

d. For each of the two studies, provide two (2) major implications of their research findings that will be useful to inform each of the following external reporting stakeholders:
i) accountants in Australian companies;
ii) accounting regulators; and
iii) one specific external user of financial reports (needs to be identified in your answer). 

Answer:

Introduction

Accounting theories are the underlying principles based on which the different organizations tend to prepare their financial statements. The importance of a financial statement cannot be undermined in an organization and hence, it is important for the financial analysts to ensure that the different financial statements in an organization are prepared as per the theories and standards (Al Jifri and Citron 2009). However, the different current issues which take place in the external environment tend to have an impact on these theories as well and thus, their implications need to be analyzed (Bia?ek-Jaworska and Matusiewicz 2015). The primary aim of the report is to analyses to relevant journal articles by eminent authors and to assess their impact on the decision making of the concerned parties. The research purpose of the articles shall also be examined. In addition to this, the report will also provide an insight into the implications of the findings and their impact on the accountants involved in Australian companies, Accounting regulators and external users

Analysis

Reasons why the articles have been selected

The first article: The effect of audit committee characteristics on compliance with IFRS for related party disclosures

The given article has been chosen for analysis as it talks about the impact of the characteristics of the audit committee on the topic related to the party disclosures related to the IFRS. The paper has been selected from the Managerial Accounting Journal and thus it is a useful article, the analysis of which would go a long way in assisting the users of the subject to understand the implication of the committee related to the International Financial Reporting Standards. Moreover, its findings are relevant for financial analysts and hence, it has been chosen.

The second article: Principles-Based versus Rules-Based Accounting Standards: The Influence of Standard Precision and Audit Committee Strength on Financial Reporting Decisions

The second article has been chosen for the analysis because it analysis a relevant topic which primarily discusses the Principles based versus the rules based Accounting Standards. This article just like the previous one discusses about the relevance of the audit committee and the impact which the committee has on the principles and rules which underlie the financial reporting decisions based on which the firm prepares its financial statements. Moreover its findings will have a useful impact on the user.

Purpose of the studies and their research questions

The first article

The first article, the effect of audit committee characteristics on compliance with IFRS for related party disclosures, aims to examine the impact of the different audit committee characteristics like the number of members, the independence of the committee with respect to the different participants and the meetings held along with the expertise of the different members (Mnif Sellami and Borgi Fendri 2017). Their impact on the compliance of the various International Financial Reporting Standards is examined with respect to the specific topic related to the party disclosures. The paper is primarily based on South African organizations. It aims to identify whether there exists any strong relation between the nature of the audit company and the rule of following the reporting standards in the context of any organization.

The research questions or rather the design methodology which has been followed with respect to the given journal article is that the consolidated financial statements of different non-financial firms have been analyzed. These companies have been taken from the listed firms under the Johannesburg Stock Exchange for a period of 2012 and 2014. The method which has been used is the Panel aggressions. Through this analysis, the research question of whether the audit committees have any impact on the financial reporting has been examined.

The second article

The second article, Principles-Based versus Rules-Based Accounting Standards: The Influence of Standard Precision and Audit Committee Strength on Financial Reporting Decisions is based on the recent accounting scandals which have taken place recently and how it has had an impact on the strengthening of the regulatory accounting initiatives which are designed so that the work of the audit committee on the different aspects of the corporate financial reporting is more secured in nature (Agoglia et al. 2011). Moreover, the background also lies that the US Generally Accepted Accounting Principles are too rules based. The primary purpose of the journal article is to analyze the different issues related to these initiatives by making use of two experiments. Hence, the purpose lies to analyze the impact of these audit committees on the financial reporting decisions and the research question is based on the understanding whether these impacts are strong enough to alter the decision or not.

Discussion on similarities and differences between the two articles

Both the articles, ` Principles-Based versus Rules-Based Accounting Standards: The Influence of Standard Precision and Audit Committee Strength on Financial Reporting Decisions` and the ` The effect of audit committee characteristics on compliance with IFRS for related party disclosures` are based on the strength of the audit committee and the implications on the financial reporting of the overall organization. However, there are certain differences between them as well. The given section will be discussing the similarities as well as differences between the two articles:

Similarities

• Both the articles are based on the strengths of the Auditing committee in an organization
• Both the articles emphasize on the impact of the auditing  committee on the financial decisions based on the organization (Mnif Sellami and Borgi Fendri 2017).
• Both the articles are based on certain research purposes which are similar as it is based on finding out the impact of these committees on the financial standards and how these financial standards have changed over some time.

Differences

The major differences between the different articles is as follows:

While the first article ` Principles-Based versus Rules-Based Accounting Standards: The Influence of Standard Precision and Audit Committee Strength on Financial Reporting Decisions, is based on the companies of South Africa and analysis the non-financial firms listed under the Johannesburg Stock Exchange, the second article, Principles-Based versus Rules-Based Accounting Standards: The Influence of Standard Precision and Audit Committee Strength on Financial Reporting Decisions is not based on a specific firm but is generalized in nature.

Moreover, the findings of the first article concluded that the related party disclosures are positively influenced by the Auditing Committee independence and the size of the committee along with the characteristics of the committee do no have much impact on it, however the experience of the committee does have an impact on the operations at large (Agoglia et al. 2011). Whereas the second article states that there is no impact of the audit committee strength on the decisions when the different standards are less precise in nature. Moreover, the second article supports the use of the three path mediating model which drives the impact of the standard precision on aggressive reporting decisions.

Implications of finding 

The given section will be analyzing the impact of the findings of the articles on the three different parties namely the Accountants in the Australian companies, the impact on accounting regulators and other external parties.

Implications of the findings of the first article:

Accountants in Australian company

For the accountants of the Australian companies, the article has the following implications:

• It proves that the auditing committee is required to have adequate freedom which will thereby assist the different committees to perform in the best manner.
• They should improve the disclosures of the related parties which will then assist them to perform well (Mnif Sellami and Borgi Fendri 2017).

Accounting regulators: 

The implications of the article on the accounting regulators are as follows:

• It provides the accounting regulators with an idea that the enough experts are required to be adopted on the board in order to provide them with an idea about the implication of the rules (Mnif Sellami and Borgi Fendri 2017).
• Moreover, it also suggests that the combination of the accounting as well as financial expertise in improving compliance with the IFRS should be made.

One specific external user of accounting information

These users are the investors, students and other policy makers and the implications for them are as follows:

• The accounting , financial and industry experience must be an essential prerequisite for the Auditing committee membership (Neifar, Halioui and Ben Abdelaziz 2016)
• Moreover, with respect to the future researchers, this research implies that they should consider AC characteristics as potential factors with respect to IFRS.

Implications of the findings of the second article:

Accountants in Australian company: 

The implications of the findings of this article on the accountants of the Australian company are as follows:

• A lenient accounting approach can be made use of.
• It is important to strengthen the audit committee.

Accounts regulators

The implications are as follows:

• It suggests that moving towards a two based principle standard will not open the door to better reporting (Agoglia et al.2011).
• Moreover, it also suggests that there exists greater variability in the responses by the financial statements preparer. Is concerned with inter firm comparability.

One specific external user of accounting information

Such as a researcher, can understand that:

• The relationship between the auditing committee and financial standards should be examined.
• It also leaves scope for research that the disagreements could diminish and the concerns with respect to the auditors lost leverage could be alleviated.

Conclusion

Therefore, from the given analysis it could be understand that the power of the auditing committee is crucial in an organization and that in case a firm wants to ensure that it is able to achieve success in the long run, the different financial standards are required to be abided by in order to ensure long term success of the firm.v

References

Agoglia, Christopher B., Doupnik, Timothy S., and Tsakumis, George T. ,2011. Principles-based versus rules-based accounting standards: The influence of standard precision and audit committee strength on financial reporting decisions.(Report). Accounting Review, 86(3), 747-767.

Al Jifri, K. and Citron, D. 2009, “The value-relevance of financial statement recognition versus note disclosure: evidence from goodwill accounting”, European Accounting Review, Vol. 18 No. 1, pp. 123-140.

Bia?ek-Jaworska, A. and Matusiewicz, A. ,2015, “Determinants of the level of information disclosure in financial statements prepared in accordance with IFRS”, Accounting and Management Information Systems, Vol. 14 No. 3, pp. 453-482.

Mnif Sellami, Y. and Borgi Fendri, H., 2017. The effect of audit committee characteristics on compliance with IFRS for related party disclosures: Evidence from South Africa. Managerial Auditing Journal, 32(6), pp.603-626.

Neifar, S., Halioui, K. and Ben Abdelaziz, F. ,2016, “The motivations of earnings management and financial aggressiveness in American firms listed on the NASDAQ 100”, Journal of Applied Accounting Research, Vol. 17 No. 4, pp. 397-420.

 

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