The standards that have been issued for the purpose of preparation and the presentation of the financial statements of the entity are applicable throughout the country in all the states and the territories. The entities that are carrying out the business operations within the country are required to report to the Australian Taxation Office, the Australian Securities and Investment Commission (ASIC) and the Australian Stock exchange.
Some of the key financial reporting requirements are as follows:
a).Business activity statement:
The businesses that are operating within the country are required to file a business activity statement with the taxation office of the country for the purpose of making payments and reporting their respective tax obligations. Sometimes individuals are also required to file BAS. The BAS is personalized to respective business and the same can be lodged electronically by mail or in person. The entities need to lodge the same monthly, quarterly and annually depending on the amount of instalments that are due.
b). Financial reporting requirements:
The Australia’s securities and investment commission has been assigned the responsibility to overlook the corporates, financial markets and the financial services that are being provided within the country.
The companies that are conducting their business operations within the country need to lodge their financial report with ASIC. This filing usually takes place at the end of the financial year. The reports that are being presented need to be audited.
c). Australian Stock Exchange Requirements:
The companies that have their listing on the stock exchange of the country have to compulsorily abide by the various disclosure requirements of the stock exchange. The information regarding these disclosures is provided in the listing rules of the stock exchange (Hoyle et al. 2015).
d). Australian accounting standards:
The Australian Accounting Standard Board is responsible for setting the various standards that are to be followed by the entity. The standards are to be considered as legislative requirements of the corporation. The application of the accounting standards must be utilized for applying the same to all the general-purpose financial reports that are going to be prepared by the public and the private sector reporting entities. The requirements that have been set up by the International Accounting Standards Board. It has to be noted that thought the principle say or the power is exercised by the International Accounting Standard Board in the matters of the standard setting, the AASB reserves the right to take the call in respect of the matters stated out in the accounting standard that is going to affect the economic and the social factors that are going to impact the performance of the entities that are conducting their operations within Australia.
2). The various steps that are involved in the process of setting up of the accounting standards are as follows:
a). International organizations identify a technical issue:
It is possible that an important issue is being identified by the International Accounting Standards Board or by the IFRS interpretations Committee. (IFRIC).
Australia has indulged in the adoption of the international financial reporting standards since the month of January in the year 2005. This was done in alignment with the view of Financial Reporting Council. Because of this, the work programmer that is being related to the IASB and the work program that is being undertaken by the IFRIC have found their respective inclusion in the work program that is being undertaken by the AASB. However, the degree of involvement of the AASB differs from work to work basis and this involvement may be substantive or non-substantive in nature (Abdel-Maksoud et al. 2016).
It has been duly found that some of the technical issues that are being faced may be undertaken by the International Public Sector Accounting Standards Board (IPSASB). The work program that tis being concluded or undertaken by the IPSASB is duly monitored by the AASB. This results in AASB undertaking work program in respect of certain related topics. The topics are being selected by the AASB for concluding the work program based on the significance that is being held by them in respect of the public sector reporting that is being done in Australia.
b). AASB identifies a technical issue:
The members of the AASB are responsible for the identification of the technical issues that are going to need or are presently in need for the consideration. In case the considerations or the factors that have been identified by the members are in relation to for profit, entities are generally referred to the IASB or the IFRIC for consideration.
The issues that are being found in relation to the not for profit consideration, the public or the private sector companies might addressed domestically or referred to the IPSASB.
c). Some issues are being identified by the organizations and the individual of Australia:
The stakeholders of the company can inform or suggest the AASB in respect of the various issues that they feel might be included in the in the financial reporting of the entities. The issues that might be thought by them for the purpose of consideration include issues relating to the increasing the reliability that can be placed on the reporting that is done in the financial statements of the entity and the process that should be undertaken for the purpose of reducing the costs that are involved in the preparation and the presentation of the financial statements of the entity (Dutta and Patatoukas 2016).
d). Addition of the issue to the agenda:
Once the issues have been duly identified a project proposal is being developed by AASB. The project proposal is undertaken for ascertaining the benefits that are going accrue in respect of the stakeholders. In addition to this, the costs that are going to be incurred if the same are not addressed immediately, the resources that are currently available and the time that is going to be required for the implementation (Weygandt et al. 2015).
e). Research and consider issue:
After the addition, FO the issue to the agenda the AASB will discuss the agenda that have been prepared and presented by the staff of the AASB. The matters that are being reported in the papers that are presented by the staff include the scope of the issues, alternative approaches and also the timing in respect of the outputs. Relevant matters may be drawn from different standard setting bodies that includes IASB, the IPSASB and the New Zealand Accounting Standards Boards and from other organizations.
f). Consultation with the shareholders:
There are several documents released by the AASB for the comments off the public and discussion with the stakeholders.
It is a type of draft or a proposed standards or draft amendment to standards.
Invitation to comment:
Feedback on broad proposals is often sought through an invitation to a comment. A discussion paper or consultation paper might be contained in an invitation to comment.
A wide range of accounting policies is being outlined in respect of a particular topic. The discussion papers, the consultation pears and documents of the similar nature are generally issued by the AASB, the IASB, and IPSASB or by other standard setters.
g). Issuing of the standard and other pronouncement:
In respect of the outcome of the consideration that is given by the AASB may result in the issuance of a pronouncement. This may be in a form of a standard, an interpretation or a document that is related to the conceptual framework of the company. As an alternative method, the AASB may decide to give out its view in respect of the issues that have been presented in the minutes of the meetings or in the form of a formal Board Agenda Decision.
The pronouncements that are being made by the AASB in respect of the for profit organizations will always remain compliance with the international financial reporting standards that are being issued by the International Accounts Standards Board. This is done for ensuring that the reports that are being prepared by the for profit entities in addition to complying with the standards that are issued by the AASB also comply with the standards that are being issued by the IFRS (Beams et al. 2017).
At present the AASB has adopted a transaction neutrality program under which the transactions that are having the same nature and the characteristics must be accounted for in the same manner by all the entities that are conducting their operations within the country irrespective of the fact that they are for profit organizations or non-for profit organizations. In addition to that, no relevance has been given to the fact that they are public sector companies or private sector companies. This is done unless there are sound reasons for being different in case of specific circumstances. While engaged in the process of preparing the new IFRS for the companies due consideration is being given by the AASB on the fact that they are non-profit entities.
h). Implementation and compliance:
The implementation of the accounting standards are being monitored by the AASB and the way that these accounting standards are being monitored is ascertained by the AASB. These implementation and the monitoring process may lead to the requisite changes being made to the domestic standards or proposal may be sent to the IASB for making the changes in the international standards. Some of the organizations that monitor the implementation of the standards are as follows:
- Australian Prudential regulatory authority.
- Other federal, state, and territory government regulators.
- CPA Australia.
3). Merely the preparation of the various accounting standards for the purpose of financial reporting and ensuring that they are in compliance with the standards that are prescribe in the International Financial Reporting Standards is not enough. For ensuring that the same are, being adopted byte entities all across the country by the entities strong steps are to be taken in respect of enforcing them. The need for the adherence to the standards that are being issued by the AASB is stressed in the provisions of the standards that have been set up by the AASB in the provisions of the corporation act 2001 that is prevalent within the country. As per the provisions and the conditions that have been laid down by it, the financial statements of the companies have to be made in accordance with the standards that have been issued until date (Libby 2017). In addition to that while conducting the audit of the financial statement of the company an opinion has to be presented by the auditor of the company stating the whether the reports that have been prepared by the entity is in accordance with the accounting standards or not. This is to be analyzed by the auditor of the company to determine whether the financial statements of the company that have been prepared are showing the true and fair view of the financial performance and the financial position of the company for the respective year (Warren et al. 2015). So this is seen that the corporation act that is prevalent in the country is the main enforcing legislation that is present to ensure the adoption of the accounting standards in the financial statements of the company and the auditor of the company has to reaffirm that fact that the accounts have been prepared in accordance with the accounting standards.
4). The objective of the general purpose financial reporting is to provide financial information about the reporting entity that is useful to the existing and the potential investors, lenders and other creditors in decision making about providing the resources to the entity’ the statement hold very good in terms of the present scenario of the capital market.
The users of the financial users all across the globe are quite similar though not limited to the same entities. The primary purpose of going through the financial statements of the entity is to ensure that the financial performance and the financial position of the company have improved significantly over the period of last years (Wen 2016). The stakeholders of the company include the suppliers, government, the lenders of the company, the shareholders of the company and many other entities like social groups regarding the impact of the company’s overall activities of the company on the environment and the surrounding society. It is seen that depending on the needs of the stakeholders the requirement of the information has to be included in the financial statement of the entity. Some of the users of the financial statement of the entity and their corresponding needs are as follows:
The ability of the company to repay back the dues that is outstanding due to the purchases that have been made by the entity from them in the near future.
b). The shareholders of the company:
The information that is required by the shareholders of the company is in respect of the returns that are being generated by the company in respect of them. It is very important for the shareholders of the company to get assured that the company will be able to give them good returns in the future with the help of the activities that are being concluded by them (Callen 2015).
c). Government of the company:
The government is interested in ensuring that whether the company is abiding by all the rules and regulations that are being made applicable on it but the various regulatory bodies that are present within the country. In addition to that, the company must ensure that the company is paying its dues properly in respect of the taxes that are accruing in respect of the company on the net profits that have been generated by it.
It can be seen that the kind of information that is demanded by all the stakeholders of the company are interrelated and in the absence of one of them the relevance and the reliability of other information gets affected. For instance if the company is earning decent profits but is in non-compliance with the laws and regulations that have been made applicable on it (Maynard 2017). Then in that case, there are high chances that the company is going to face government interference in the future and this may result in the disruption in the revenue generation capabilities of the entity. Similarly, if the due payments are being received by the suppliers at present but the company is not earning sufficient profit. This may result in the non-capacity of the entity in respect of ability to pay the suppliers of the entity.
5). The limitation that is being presented by present value as a method used for measuring the assets and the liabilities of the company are significant in nature. The users of the financial statements of the entity are not to be neglected by the shareholders of the company. The reason being that the valuation that is being conducted by the entity in respect of the assets and the liabilities of the entity can lead to significant alterations that are being made to the economic decisions by the entity (Ramirez 2015). One of the most significant disadvantages that are being presented by the use of the present value of the entity is the sensitivity of the results to the discount rates that is going to be used for the purpose of valuation. The reason for this is that the net present value computations are the summation of the numerous discounted cash flows. The cash flow that are going to be generated by the assets or the cash flow that are going to flow out of the company in the future in respect of the liabilities are being converted into their present value under this method at the same point of time. For this purpose, the discounting rates are being used in the denominator of the each present value computation. This is a critical step for the purpose FO determining the present value of the assets and the liabilities that are being generated by the company. Any small alteration that is being made in the value of the discounting rate can have an immense impact on the results that are being obtained in respect of the valuation (Martin and Roychowdhury 2015).
Another major flaw in case of the present value method is that the management of the company needs to estimate the amount that is going to be generated in respect of the company from the use of the assets that are being concluded by the company. The problem with the estimate is that the nature of the estimated figure is subjective and not objective. The reason for this is that the cash flow that is being presented by the management of the company in respect of the assets and the liabilities that are owned by the company, is that the cash flows have been predicted by the company on the basis of the judgement that has been exercised by them in the matters that were adjudged as significant one to influence the cash flows that are going to be generated by the entity (Nilsson and Stockenstrand 2016). If the judgment that is exercised by the company in respect of the determination of the future cash flows that are going to be generated by the assets and the cash outflow that is going to be incurred in respect of the liabilities of the entity is wrong, then the value recognized in the financial statement of the company will also be wrong.
6). Several limitations are present in the AASB 138 in respect of its ability to provide useful and relevant information to the users of the financial statements. Some of the most significant of all the limitation that are present within the standard that describes the intangible assets are as follows:
a). The definition of the intangible assets-
Under the definition of the intangible assets, the scope of the same is very limited. The reason being that the concept of seperability restricts the recognition of the significant amount in respect of the intangible assets that are being currently recorded by the company. The potential assets could have bene the human resources, reputation of the company, the relationship with the customer, labor relations and the meaning that is conveyed by the job to the society (Barron et al. 2016).
b). There has been a significant restriction placed by the standard in respect of the recognition of the brands that have been generated internally, mastheads, titles that Aare being published, the lists of the customers and all the items that are very similar in nature and substance. It has been clearly notified in the paragraph 63 that for recognizing the intangible assets the company cannot recognize the internally generated brands, mastheads, publishing titles, customer lists and the items that have the same substance (Romer and Romer 2015).
c). As per the provisions that have been stated out in the accounting standard it can be seen that it allows the recognition of the assets in the financial statement at fair value if the same have been acquired by way of business combination. This is allowed by it even if the active market is not present for the assets that have been acquired in respect of them. For increasing, the relevance of the data that has been presented by the entity in this respect the standard must ensure that it records the same at a value that is being ascertained as per the method of fair value measurement as laid down by the standards that have been laid out by the AASB 13 (Christensen et al. 2016).
d). In the case of the valuation of the assets that are under development or the ones that are internally generated intangibles the standard suggests that the same must be recorded only if the following terms and conditions are being fulfilled and the following demonstration can be presented:
1.The technical feasibility in respect of conducting such activities that will lead to the completion of the intangible asset for making it available for use or sale.
2.The intention of the company in relation to making use of it and selling it.
3.The ability of the company for the purpose of using and selling the intangible asset.
4.The availability of the adequate resources, financial and other sorts of resources for ensuring that the project is being completed and the intangible asset is being used or sell.
5.The ability of the company in respect of the ability to allocate the costs that have been incurred in respect of the development of the asset in its development phase to the intangible asset (Narayanaswamy 2017).
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