The Coursework Task
There is one requirement in this section. The response to the requirement should be submitted in no more than 4,000 words. Penalties apply for exceeding the word count. No formal penalties apply for using fewer than 4,000 words but in so doing you may be penalizing yourself as it is likely to be challenging to respond to the requirement in less than 4,000 words.
Context:
The coursework is based on Themes 1 and 2 of the study materials.
Theme 2 is focused on the benefits, both actual and perceived, that regulators believe accrue from IFRS, in general, but specifically on those that arise from harmonization of IFRS. These benefits include, but are not limited to, improvements in the quality and transparency of financial reporting so that the value of earnings in a period is accurately produced.
However, topic 4 of Theme 1 focuses on tax avoidance by corporations and the effect this can have on stakeholders. In such circumstances, managers are effectively using earnings management techniques to report lower than actual profits. These techniques may be allowable within the reporting regulatory framework but could adversely affect the transparency of reporting.
So there appears to be a problem. On the one hand, IFRS is designed to improve the information obtained by financial reporting but on the other hand, it is still possible for firms to undertake earnings management with the deliberate intention of reducing tax liabilities.
Required:
Discuss the issues raised by having an apparent conflict between the application of IFRS with the benefits it provides with earnings management which is designed to avoid paying corporation tax liabilities. Consider if there is justification for allowing any form of earnings management within IFRS.
