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International accounting standards changes adoption into the Australian accounting standards

Question:

Discuss About The Australian Accounting Standard Environment?

The present research paper aims to discuss and analyze the Australian accounting standard setting environment. In this context, the report presents a literature review in relation to the procedures adopted by the AASB for incorporating changes into international accounting standards. Also, it demonstrates the process through which AASB adopts local and Australian issues into Australian accounting standards. In addition to this, a report is presented at last in response to the call for comment in relation an Exposure Draft ED 116 on the AASB website.

International accounting standards changes adoption into the Australian accounting standards

As per the information obtained from Australian Accounting Standards Board (2017), the AASB (Australian Accounting Standards Board) develop accounting policies and procedures to be followed by the businesses operating within the country for developing their financial reports. The accounting policies and procedures adopted by the AASB are developed in accordance with the IASB (International Accounting Standard Board) rules and conventions. The AASB has made the Australian accounting standards as equivalent to IASB in the year 2004 as pre the strategic direction of the Financial Reporting Council. The AASB complies with the IASB standards by integrating the content and words of the International Financial Reporting Standards. The AASB modifies the content of IASB in accordance with the legal environment of Australia. The AASB modifies the wording of the IASB as per the Corporations Act 2001 without affecting the substance of the requirements. The AASB aims at ensuring highest quality of financial reporting in Australian business firms by adopting the IASB standards (Australian Accounting Standards Board, 2017).  

According to Deegan (2012), the modifications adopted by the IASB are adopted by the AASB as per the strategic direction of the Financial Reporting Council. The modifications are also included by the AASB work program with varying level of involvement that can be substantive or non-substantive. The IASB regulatory adopts and integrates changes into the accounting standards with the aim of improving the quality of financial reports. The Australian stakeholders provide recommendations to AASB for consideration of the new issues adopted by the IASB for improving the relevance and reliability of financial reports. The AASB develops a project proposal in relation to the proposed changes that identifies and illustrates the potential benefits raising form adoption of the IASB changes. The project proposal also outlines the cost of undertaking the proposed changes and analyzes the availability of resources for their successful adoption. The project proposal is reviewed by the AASB for taking decision in relation to whether the project should be considered or not. The decision of the Board to not add a topic to the AASB conventions as per the IASB changes is reflected as formal report into ‘agenda rejection statements’. However, in the situation of adopting the proposed changes, the AASB develop an agenda paper addressing the scope of issues, alternative approaches and benefit realized (Deegan, 2012).

Procedures for incorporating changes into Australian accounting standards

As per the information obtained from AASB adoption of IASB standards by 2005 (2005), the proposed change is implemented by taking into consideration the relevant materials from other standard-setting accounting bodies such as IASB and New Zealand Accounting Standards Board. The AASB needs to comply with the Australian Securities and Investments Commission Act (ASIC) 2001 at the time of adopting the IASB changes. The implementation of each and every IASB standards needs to be in accordance with the ASIC Act 2001. The Financial Reporting Council has mandated AASB to adopt standards equivalent to IASB for enabling the business entities in Australia to compete effectively in the foreign markets. This was mainly done to promote the development of Australian business firms and to promote their goodwill in the international market. This will help the Australian forms to attract investors from the overseas market thus promoting their growth and development. The compliance of Australian business firms with the IASB financial reporting requirements will help in making their financial reports more understandable, comparable, relevant and reliable in the eyes of foreign investors. This is essential for developing the investor confidence in the Australian economy thus promoting the country long-term economic growth (AASB adoption of IASB standards by 2005, 2005).

Patel and Chand (2011) stated that the AASB in Australia holds the responsibility of developing accounting rules and standards for all type of reporting entities that includes profit and non-profit entities. However, IASB standards are mainly developed in relation to provide guidance for-profit entities in developing the financial reports. The AASB additionally includes the financial reporting requirements for non-profit entities that do not have any impact on the requirements in relation to for-profit entities. Thus, it can result in the development of a situation where a non-profit entity complies with the AASB standards and inconsistent with IASB standards. This is because the additional requirements stated by AASB for non-profit entities do not comply with IASB financial reporting requirements. As such, the local Australian issues are incorporated by the AASB through stating the additional disclosures. The AASB also contains a commentary for providing guidance to the domestic business entities for dealing with the local issues. The commentary is not equivalent to the IASB standards but provides benefit to the local firms for complying with the AASB rules and conventions (Patel and Chand, 2011).

Williamson (2004) stated that the AASB has also maintained that such additional disclosures does not contradict with the IASB standards but is only meant for resolving the situations that are faced by businesses while operating in the Australian environment. The AASB in developing additional requirements for dealing with local issues complies with the ASIC Act. The Act proves to be helpful for the board in developing the requirements about allocating scare resources, reducing the cost of capital and protecting the investor confidence in the Australian business market. The AASB also includes an Australian application paragraph for mentioning about the Corporations Act 2001 in order to deal with the local issues. The corporations Act 2001 helps in the incorporation of local issues prevailing in the Australian business environment into the AASB standards. However, AASB for adopting the local issues ensures that these additional requirements do not have any impact on the substance of the financial reporting requirements adopted as per the IASB standards (Williamson, 2004).

Impact of additional disclosures on non-profit entities

Likely impact on company accounting if the recommended changes are written into IAS 116/AASB 116

The Exposure Draft ED 116 of IASB proposes to integrate changes in the IAS 16 of Property, Plant and Equipment. The amendment states that an entity should not deduct from the cost of an item belonging to property, plant and equipment the sales proceeds realized from selling items while bringing the asset to the desired location. Thus, as per this change an entity should not deduct from the cost of an item of property, plant and equipment any sales arising from testing the equipment before it is available for use. The business entities are entitled to recognize the sales proceed in its profit or loss. The likely impact of this recommended change if written into AASB 116 is that they have to recalculate the carrying amount of property, plant and equipment initially by recognizing each of the items of property, plant and equipment. This can be very time-consuming for business entities (AASB Exposure Draft: ED 280, 2017).

Likely impact of the change on countries with higher exposure to manufacturing operations

The entities that operate in manufacturing sector are most likely to get impacted by the respective recommended changes of the IASB. As such, the countries with higher exposure to manufacturing operations need to integrate the proposed changes into their national accounting standard setting bodies for its effective compliance (AASB Exposure Draft: ED 280, 2017).

Effectiveness, or fairness, of trying to incorporate a "one size fits all" approach with international Accounting standard

The effective compliance of all the IASB standards by the national accounting board such as AASB would prove to be helpful in overcoming the disparity in financial reporting. This will help in developing uniform and comparable financial statements that can be easily understood by the end-users. However, in some situations such as the recommended change proposed by IASB in relation to IAS 116, that are narrow in scope should be adopted by the countries that have higher exposure to such changes. The recommended change in IAS 16 is most likely to impact the countries with higher manufacturing operations. Thus, in such cases, the national accounting board should disclose additional requirements to comply with the IASB changes effectively. The countries with less exposure to the proposed change should formally report the agenda under ‘agenda rejection statements’. This will help in removing the unnecessary burden on the financial reporting requirements of other national accounting boards. Thus, the national accounting board cam modify their reporting requirements if the need arises in relation to proposed change by proper declaration that it does not impact the substance of reporting (Williamson, 2004).

Conclusion

It can be summarized form overall discussion, that national accounting boards such as AASB should develop their accounting standards as equivalent to IASB for overcoming disparity in financial reporting globally.

References

AASB adoption of IASB standards by 2005. 2005. [Online]. Available at: https://www.aasb.gov.au/admin/file/content102/c3/Background_to_AASB_adoption_of_IASB_standards_by_2005.pdf [Accessed on: 23 August, 2017].

AASB Exposure Draft: ED 280. 2017. Property, Plant and Equipment— Proceeds before Intended Use. [Online]. Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED280_06_17.pdf [Accessed on: 23 August, 2017].

Australian Accounting Standards Board. 2017. [Online]. Available at: https://www.aasb.gov.au/Home.aspx [Accessed on: 23 August, 2017].

Deegan, C.M. 2012. Australian Financial Accounting. McGraw-Hill Australia.

Patel, C. and Chand, P. 2011. Achieving Global Convergence of Financial Reporting Standards: Implications from the South Pacific Region. Emerald Group Publishing.

Williamson, M. 2004. International Accounting Standards and their Impact on Resource Industries in Australia. Ampla Yearbook, pp.534-545

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My Assignment Help (2018) Australian Accounting Standard Environment: Essay On Procedures And Processes. [Online]. Available from: https://myassignmenthelp.com/free-samples/australian-accounting-standard-environment
[Accessed 29 February 2024].

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My Assignment Help. Australian Accounting Standard Environment: Essay On Procedures And Processes. [Internet]. My Assignment Help. 2018 [cited 29 February 2024]. Available from: https://myassignmenthelp.com/free-samples/australian-accounting-standard-environment.

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