The Westeros Accounting Regulator (WAR) is the board responsible for creating all accounting standards in the country of Westeros. Like Canada, Westeros follows IFRS, and the existing accounting rules are identical to Canada's accounting rules. WAR is structured very similar to the Canadian AcSB, and follows the same process for adopting new accounting standards. WAR is currently evaluating a proposal for a new accounting standard. The new accounting standard is being proposed after lengthy discussions with the Westeros Income tax Negotiation Group Exceptionale (WINGE), a collection of companies and individuals from across the country. WINGE feels that the current accounting standards do not adequately inform investors about the opportunity cost represented by employee discounts. It is WINGE's belief that sales to employees represent products and services that could not be sold to "regular" customers; the amount of the discount, in the opinion of WINGE, represents "lost" profits for the company. WINGE feels that investors deserve to be aware of these opportunity costs. If approved, the new accounting standard will require every company that offers a discount to its employees to report the total annual amount of the discount as part of the company's compensation expense. Each company that gives its employees a discount on purchases will have to keep track of (a) the amount paid by the employees and (b) the amount that would have been paid by a "regular" customer. The difference between the two is to be reported on the financial statements as "Additional compensation expense. In order to comply with the new standard, it is estimated that more than 70% of Westeros companies will need to upgrade their computer systems (or purchase new ones), at a significant cost, in order to track the information required. REQUIRED: a) Accounting researchers have identified two theories related to the regulation of financial reporting. Identify and explain, in your own words, these two theories. Which of these two theories does the proposed standard above appear to be following? Explain your reasoning. (5 Marks) b) There are four (4) general criteria to be considered before a new accounting standard is considered to be successful. Identify and explain, in your own words, all four of these criteria. For each of the criteria, evaluate whether the proposed accounting standard above meets or fails to meet the criteria, and explain why. (12 Marks) The Westeros Accounting Regulator (WAR) is the board responsible for creating all accounting standards in the country of Westeros. Like Canada, Westeros follows IFRS, and the existing accounting rules are identical to Canada's accounting rules. WAR is structured very similar to the Canadian AcSB, and follows the same process for adopting new accounting standards. WAR is currently evaluating a proposal for a new accounting standard. The new accounting standard is being proposed after lengthy discussions with the Westeros Income tax Negotiation Group Exceptionale (WINGE), a collection of companies and individuals from across the country. WINGE feels that the current accounting standards do not adequately inform investors about the opportunity cost represented by employee discounts. It is WINGE's belief that sales to employees represent products and services that could not be sold to "regular" customers; the amount of the discount, in the opinion of WINGE, represents "lost" profits for the company. WINGE feels that investors deserve to be aware of these opportunity costs. If approved, the new accounting standard will require every company that offers a discount to its employees to report the total annual amount of the discount as part of the company's compensation expense. Each company that gives its employees a discount on purchases will have to keep track of (a) the amount paid by the employees and (b) the amount that would have been paid by a "regular" customer. The difference between the two is to be reported on the financial statements as "Additional compensation expense. In order to comply with the new standard, it is estimated that more than 70% of Westeros companies will need to upgrade their computer systems (or purchase new ones), at a significant cost, in order to track the information required. REQUIRED: a) Accounting researchers have identified two theories related to the regulation of financial reporting. Identify and explain, in your own words, these two theories. Which of these two theories does the proposed standard above appear to be following? Explain your reasoning. (5 Marks) b) There are four (4) general criteria to be considered before a new accounting standard is considered to be successful. Identify and explain, in your own words, all four of these criteria. For each of the criteria, evaluate whether the proposed accounting standard above meets or fails to meet the criteria, and explain why. (12 Marks)
