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Journal of Applied Research in Accounting and Finance

Vol 2 (1) July 2007



Can Global Standards Be Principle Based? by Professor Sir David Tweedie

This paper examines issues pertaining to standard setting in an increasingly interconnected world. It is argued that many present day accounting standards are flawed, generally because of inherent compromises welded into their structure, yielding needless complexity and sometimes absurd results.

Using examples drawn from contemporary practice, including pension accounting, financial instruments and lease accounting, an argument for a move towards more simplified, principles based accounting is made. Some of the potential gains from such a project are discussed, as well as potential barriers and how these might be avoided in the quest for better accounting.


AIFRS - A Practitioner's Viewpoint by Professor Wayne Lonergan

This paper addresses a range of contemporary financial reporting issues from a practitioner's viewpoint. Rules relating to the accounting and reporting for goodwill and its impairment are subjected to a forensic review, and found wanting. In particular, the concern is expressed that the implementation of AIFRS rules for accounting for goodwill and identifiable intangibles will yield potentially misleading results, at odds with any discernable thread of logic or principle. Alternative treatments to those embedded in the accounting standards reviewed are contemplated as part of an argument for an alternative future reporting regime.


Are All Audits Born Equal? by Professor Tyrone M. Carlin, Nigel Finch, Professor Guy Ford

By convention, the quality of an audit is understood to relate to the joint probability that its conduct results in the detection and reporting of material financial statement errors. Early research into this phenomenon suggested a positive relationship between audit firm size and audit quality. This has resulted in a plethora of studies in which a fundamental element of the research design has been to segment data samples into portions relating to large and small audit firms and to test for evidence of audit quality differences apparently associated with the size of the firm conducting the audit.

Many such studies have concluded that larger audit firms do indeed provide higher quality audit services. Typically however, the quality of audit services provided by large firms (of which there are very few) has been assumed to be or treated as homogenous. While the collapse of Arthur Andersen lead to some work which questioned this approach, on the whole, the large firm homogenous quality assumption stands.

This paper examines the quality of disclosures pertaining to the high risk issue of goodwill impairment testing made by a sample of large Australian listed corporations in the first year after their transition to A-IFRS. All firms in the sample were clients of Big 4 auditors. However, disclosure quality and compliance levels varied substantially, with audit firm identity appearing to explain a substantial proportion of observed cross sectional variation.