The revised Conceptual Framework for Financial Reporting (Conceptual Framework) issued in March 2018 is effective immediately for the International Accounting Standards Board (IASB) and the International Financial Reporting Standards (IFRS). Additionally, the revised Conceptual Framework included a new chapter, being chapter 6, which included measurement and its two bases being historical cost and fair value. Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and accrued in the balance sheet and the income statement (IFRS Foundation, 2010). Furthermore, this essay will explore the two measurement bases in detail as well as implementing real life examples of how global companies utilise these measurement bases as factors when considering including it within their respective financial statements and its impact. Finally, this essay will then conclude by outlining which measurement base is more efficient in its utilisation within financial statements for effective and efficient viewing.
Firstly, many of the leading companies around the world intend to publish their respective financial statements, on an annually/quarterly basis, in order for effective use. It can then be considered that both the measurement bases being historical cost and current value are therefore not ‘mutually exclusive’ and instead both concepts are mainly ‘complementary’ both having their respective strengths and weaknesses [Deaconou A, 2004]. The First element being historical cost which measures use information derived from the transaction or event that created the element [Maynard, J. (2017). Financial accounting, reporting
Issue of Self-Serving Bias and the Role of International Ethics Standards Boards
Table of Contents
A Critical Appraisal of the Role of International Ethics Standard Board for Accountants
Practice Management Issues
This paper tends to look into behaviour known as “self-serving bias” trying to look at the implications of the behaviour as provided that “Whenever individual’s face a trade-off between what is best for themselves and what is morally correct, their perceptions of moral correctness are likely to be biased in the direction of what is best for themselves. It seems likely that the judgments of auditors, who ultimately represent the interests of the shareholders but are hired and fired by the people they audit, are likely to be blinded to some degree by the incentive for client retention. Therefore the sole reliance on professional ethics to ensure desirable behaviour is a questionable resource for audit management¹.”
This paper is divided into three sections with in-depth research and knowledge carried out on each section. The paper starts with an in-depth research into the behaviour known as “self-serving bias” and, using relevant examples, with the application of the research to the special problems of auditor’s objectivity.
Furthermore, the role of the International Ethics Standards Board for Accountants (IESBA) is critically discussed and the paper comes to a conclusion with a demonstration of the application of knowledge in a case study situation which identifies and explains the ethical, professional and practice management implications with regards to the case study.
SECTION B Self-Serving Bias
Given the advent of recent accounting scandals and their distressing effects on workers and investors, it’s not surprising that the public assume that the underlying problems are corruption and criminality. However, the bigger problem with corporate auditing, as it’s currently practiced, is its vulnerability to unconscious bias (Bazerman etal, 2002)
Self-serving bias refers to people’s tendency to behave inequitably when it benefits them, and they think they can get away with it (Prentice, 2000). It affects how people gather and process information, it is influenced by people’s perceived best interest and existing beliefs (Prentice P. R., 2014). (Bazerman, Morgan,