Essay: Analysis Of Corporate Political Activity - IASB And AASB Relationship Study.

Adoption of IASB Standards by AASB

Discuss about the Analysis of Corporate Political Activity.

The study takes insight into the changing relationship between the standard setter that is International accounting standard boards (IASB) and Australian accounting standard board (AASB).Pronouncements issued by International accounting standard boards are incorporated in the Australian accounting standards. Relationship between the domestic standard setter and IASB is changing for establishing more formal link between the regional and domestic group of standard setters that is move currently motivated by trustees and IASB (Carey et al., 2014). Original strategic model of IASB was mainly developed for creating strong relationship with key standard setters and in this regard, Australia was one of the key standard setters. Australia was at IASB gathering from the start of operations of IASB.

AASB has the responsibility of issuing and developing accounting standards that are applicable to Australian entities along with maintenance and care of the body of standards. A strategic decision was provided to the board for working towards those issued by International accounting standard board. The Australian that is equivalent to IASB comprise of accounting standards that are equivalent to Australian standards. Some of them can be listed as AASB 1-99 corresponded to AASB 101-199. Furthermore, interpretations that are issued by AASB are corresponds to the interpretations that has been adopted by IASB. In the absence of any IASB equivalent such as standards like AASB 1039 and AASB 1031, the accounting standards of AASB and IASB were retained (He et al., 2016).

The several issues were proposed by IASB. Process of identifying such issues by Australian accounting standard is as follows:

• Assessment of proposal of issues by AASB is done against the criteria that such issues have practical relevant and are widespread.
• Divergent interpretations are significant in such issues
• Reduction or elimination of methods of diverse reporting would be reduced by improving financial reporting by way of addressing such issues.
• Such issue represents application issue and narrow implementation that is possible to resolve efficiently within the existing Australian accounting standards.
• Matter would be referred to IASB based on improvement and that will help them in reaching consensus (Harmon & Ntseh, 2016).
• It is required to provide guidance on timely basis when the issues are related to current and planned AASB.

On July, 2004 the AASB was made equivalent to IASB. Concerning this, AASB has acted in accordance with strategic direction of financial reporting council. The overall approach of AASB for adopting the IASB standards is adopting the working and contents of IASB.  In need of adopting the environment of Australia legislation, words are being changed. It leads to inclusion of application paragraph of Australia that is mentioned in Corporation Act.  Substances of requirement are not affected by such changes. AASB has the responsibility of setting accounting standards for all types of reporting entities and IASB on other hand is mainly focuses on adopting standards for profit entities. When there is requirement for not for profit entities, there are additional texts that are included in the AASB. Requirements in relation to profit entities are not impacted by the addition made to this standard. Under certain circumstances, non-profit entities that comply with the Australian standards to IASB will not be able to simultaneously comply with the standard because the additional requirements mentioned in the AASB are not consistent with requirements of IASB (Steenkamp et al., 2016).

Objectives under ASIC Act

A highest quality of financial reporting is aimed by AASB in adopting the IASB standards. Some of the optional treatments in IASB standard are used only few times by AASB. AASB already requires some of the additional disclosures that are sometimes required by IASB.  For achieving compliance with standards of IASB, the capacity of Australian entity is not impacted by removing the requirement of additional disclosures and optional treatments. There are some helpful commentary mentioned in AASB and this is not present in equivalent IASB standards.  Such commentaries are considered beneficial for users of AASB standard and such commentary is not part of IASB standard. This helps in handling situations that are particular to and are encountered by Australian entities. For performing the functions in relation to standards of IASB, object of part 12 of Australian securities and investment commission act, 2001 are required. Adoption of IASB needs to be consistent with objective part 12 resulting from the inclusive advantage that is associated with the adoption of the same (Spencer, 2014). Some of the object of part 12 of Australian commission that needs to be involved in the Australian standards are as follows:

• The directors should be assisted in discharging obligations concerning financial reporting.
• It should help in facilitating the economy of Australia by reducing the required rate of return or cost of capital and adoption of standards that are easy to understand and are clear.
• Adoption of standards should be relevant for assessment of financial performance, investment and position.

The standards adopted by AASB is relevant to situation of environment of Australia in which entities operate that particularly deal with non-profit entities and does not have equivalent to IASB board. IASB Framework (paragraph 29 and 30) are consistent with AASB 1031. Framework of IASB has been adopted by AASB and in order to ensure that meaning of materiality is concise and clear, AASB 1031 has been retained. Standard AASB 1039 is applicable to entities preparing financial reports that has registered schemes and sending concise report to members instead of annual report.  Amendment to AASB 1039 has been made resulting from changes that has been announced due to adoption of AASB standard (Morais & Curto, 2014).

IASB 126 deals with Accounting and reporting by Retirement benefits funds. Domestic regulations impacts the superannuation plan that are considered not for profit entities and as a part of strategy of adopting IASB, AASB has not dealt with this particular fact.  In this particular regard, AAS 25 Financial reporting by Superannuation plans would be retained by AASB and a fundamental review of requirements would be undertaken by standard. Requirement of AASB concerning superannuation plan is overcome other international standard (Chandramohan et al., 2013).

The AASB is associated with limited number of accounting policies particular for small enterprise enterprises and the implication is mainly on transition and comparability. Amendments to be made to the reporting standards particular to Australian small entities come with a number of concerns on proposal.

Implications for Australian entities

Public accountability definition- IASH has proposed that no clarification is required to be provided for judiciary term used in public accountability. This particular proposal of IASB  is not accepted by AASB and it calls for clarifying the definition. Term contains some common legal meaning that is seemed to be not consistent with the way Judiciary term is used by IASB.

Section 29 of Income tax: It has been proposed by IASB that income tax should be based on section 29 of IAS 12 to which AASB agrees. It is intended by IASB to reduce the reporting gap between public accountable entities and entities that are non-publicly accountable. This would be done by aligning with the principles of measurement and recognition of deferred tax in section 29 (Eisenschmidt & Schmidt, 2016). Some of the other propositions concerning the Australian entities are given. While most of the proposal of IASB was agreed by IASB due to clarification that are provided in existing section and because of their minimal nature. Some of the concerns of AASB in this regard are given below:

• Requirement for disclosing accounting policies in terms of termination benefits should be removed.
• Other concern is related to exempting the intangible assets requirements in business combination in event when it is not possible to measure fair value without considering undue costs or efforts.
• Acquisition of subsidiaries in relation to disposal or with the intention of sale within one year and its clarification and needs to be excluded from consolidation.

Standards created by IASB for small Australian entities are acknowledged by AASB and they have the stand-alone vision. It has been considered by AASB that in order for small entities in Australia to avail the benefits, they should take full advantage of improvement made to the standard. There was disagreement on part of Australian accounting standard board on part of proposal of IASB relating to amendment made in contribution of sale of assets between joint venture and investors in IAS 28. This is so because it is thought by board that such amendment helps in reducing diversity in practice and addresses the existing inconsistency between requirement of IAS 28 and financial reporting standard 10. The board continued proposal by IASB and board should expedite the equity method of accounting research (Bond et al., 2016).

Amendment made by IASB to AASB 116 would prohibit deducting cost of property, equipment and plant from the proceeds of selling items. Proceeds from sales of asset would be recognized as loss or profit. As per the amendment, Australian entities should recognize sales from proceeds in terms of loss or profit. Company accounting would be positively effected as this will help in reducing the diversity gap in a manner that will help improving financial reporting of reporting entities. Recognizing sales as income from the sales of such assets would help users of financial statement by providing them relevant information. As per the existing IAS 116 requirements, the sale from proceeds might be offset against the cost, property and equipment that do not give users a clear picture (Deegan, 2013). There would be change in method of depreciation and its process as the amendment would not involve depreciation in their costs. Entities would not be required to identify costs in relation to before items are sold and produced and property, plant and equipment are available for use. Identification of cost would lead the entities to apply judgements. Costs of inventories would be required to recognize as an expense and costs that are directly attributable to equipment, property and plant needs to be included in cost of assets (Chandler, 2014).

Specific instances of proposed changes

Proposed amendment by IASB on section 18 that deals with intangible assets other than good will. It says that recognition of intangible asset in business combination should be exempted. This is done when the fair value without including costs cannot be measured. Adding this particular line is not agreed by AASB. It is considered by Australia board that there are many circumstances when reliable fair value of intangible assets are required and it is not possible to know the value of business combination when the value of intangible assets are not known.  In such circumstances, a reliable fair value for measuring intangible assets is required. AASB perceives that recognition of intangible assets in business combination should be done based on same requirement as those of IAS 38 Intangible assets (Pacter, 2017).

Another proposed amendment is section 28 concerning employees’ benefits that deals with eliminating the need for disclosing accounting policy for benefits attributable from termination. This particular proposed amendment is not agreed by Australian board because the decision to disclose accounting policy or not needs to take into consideration that whether the users of financial statements would be assisted in understanding conditions and transactions are reflected in such transactions. General principles as stated in paragraph 117-121 stated in IAS 1 should form the basis whether the disclosure of accounting policy should be done or not (Henderson et al., 2015).  

While AASB amending Australian equivalents, it should also consider the amendments proposed by IASB. It is considered by AASB that are needs of some unique domestic interpretations that is equivalent to requirements of IASB and such requirement is needed in some exceptional and rare circumstances.

Considering the discussion above, it can be said that there are ambiguity within the components of accounting standards of several countries. Different components and transitions would have influence on transactions of developing countries. It is mainly essential for such countries to adapt to the international standards. On the other hand, countries for not complying with the internal reporting standard would have certain political and economic sanctions (Zeff et al., 2013). International standards help in providing more detailed financial reports and this leads to increased level of comparability and transparency. Optimal presentation of provided by the adoption of such standards, as this helps investors in giving proper insight about the transactions included in financial report. It has been perceived by investors that countries aligning their reporting standards with the international standards offer a sense of security and this helps inn attracting international investments. Nonetheless, it has been continuously recognized that the approach of one size fits all often lack relevance for the users of the financial statements of private companies. Not all reporting entities would fit under the one size approach and the need for reporting standard should be provide ease to prepare as well as users of financial statements in every aspect (Nobes, 2015). Therefore, it can be said that adopting the international standards would help in standardizing the reporting standards of respective entities operating in different countries.

Some of amendments introduced by International accounting standard board has been incorporated in the Australian accounting standard board. Any such arrangement that would interfere with the standard setter independence and good due prices would should not be considered by Australian standard.  Furthermore, it is highly considered by Australian counting board that there should be consistency between sectors as it will help in facilitating economic decision-making. Some of reason that would lead Australian standards not to comply with the international reporting standard is use of different due process, different times and different resources.

Conclusion:

Considering several aspects of the International accounting standard board, the Australian accounting standard board supports and agrees with the arrangement. However, there are some instances to which the Australian standard is not agreeing. Regardless of the model adopted by the Australian entities complying with the reporting standards, the main concern of AASB is adequate level of funding concerning accounting standard setting of public sector entities.  Furthermore, the adoption of one size approach would partially assist prepares of financial statements. Adopting the amendments offered by IASB would help in improving the company accounting in several ways. 

Reference:

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