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Harmonization In IFRS & Australian GAAP

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Discuss about the Harmonization in IFRS and Australian GAAP.



With the changes in economic and increasing implication of accounting policies and standards in reporting frameworks of organization, it is observed that financial reporting practice of listed companies have changed vastly throughout the time. However, there are several problems and conflicts which are faced by listed companies and Australian government while establishment of proper level of harmonization’s in GAAP accounting standard and IFRS rules and regulation. This report has reflected the problems faced while establishment of harmonization’s in GAAP accounting standard and IFRS rules and regulation. In addition to this, adamantine study has been prepared to provide advantages and disadvantages of application of IFRS rules and regulation in reporting frameworks of organizations. In order to provide proper nexus between application of IFRS rules and regulation and GAAP accounting standard, Woolworth Company has been taken into consideration (Soderstrom & Sun, 2007).  This company has been running its business in super market industry in Australia. However, with the ramified economic growth, this company has opened up its business in other international market. It could be inferred that International financial reporting standards is set of accounting standard developed by an independent not for profit IASB. However, there are several corporate bodies such as united nation, International accounting standard Board and other legal authority which has made mandatory for the Australian listed companies to comply with IFRS rules and regulation for reporting of their financial statement.

Reason for Harmonization

This report has reflected how IFRS and domestic accounting standard differ in different countries due to their different policies and norms.

Reducing complexity of multinational companies

It is evaluated that International financial reporting standard has been issued with a view to mitigate the problem of complying with dual accounting standards due to international business functioning. However, reporting standards are applicable in Australia to increase the transparency of business information to company’s shareholders. For instance, if company is running its business in USA and having reporting headquarter in Australia then in that case company would have to comply with accounting standard of two countries. Company in Australia has been following Australian GAAP and IFRS rules and regulations while preparing and filing its annual report with Australian and international authority (Annual report, 2016). However, there are several challenges faced by companies while establishment of harmonization’s in GAAP accounting standard and IFRS rules and regulation such as implementing impairment test, valuation of goodwill and other intangible assets and determining the market value of assets of company (Haller & Wehrfritz, 2013).


Globalization of financial market

International investors who make investment in Australia face problem in interpreting the financial results of company if company has followed GAAP rules and domestic accounting standard in preparing its financial statement. These problems arise due to the complexity of two accounting standard and two different methods. However, companies could mitigate these problems if they could bifurcate the financial data computed and shown in the books of accounts as per the IFRS rules and regulation.

Reducing complexity in reporting of financial statement of companies

 There are other several issues which are faced by companies while complying with IFRS rules and Australian GAAP such as make financial statement of one country comparable with other country, using of different accounting model and methods while valuing assets of company as per IFRS rules and conflict in adoption of historical cost method and market value method for determining the true and faire view of assets as per the IFRS rules and Australian GAAP accounting standard (Haller & Wehrfritz, 2013).

Increased level of transparency

There are many other entities and stakeholders that can get benefit from harmonization like tax authorities as they need not to deal with foreign income and it can reduce the complications of their work. It can save a lot of time and money in consolidation of diverse financial information when there is more than one data (Wu & Lin, 2014). If companies adopt international accounting standard then it will also increase the overall transparency of financial statement to stakeholders.

Adoption of IFRS by International accounting firm

International auditing firm are indulged providing services in all over the world. It makes simplicity in following accounting procedures and accounting standards. Preparation of financial reports and accounting reports become so easy after establishment of harmonization in IFRS and GAAP rules and regulations (Tschopp & Nastanski, 2014).

Increased and effective interpretation of financial information to stakeholders

It is evaluate those traders and investor’s needs opportunities and exposure to all over the world but there is a problem related to different accounting methodologies. This affects comparisons and various analyses related to different investment options Mintz, 2010). This becomes helpful for the investors who wish to invest outside their country as they use accounting and finance related information in decision making. This results in effective utilization of resources and good decision making. Without worldwide accounting system, it is very difficult to judge various investment plans and analyze benefits of alternative investment opportunities. Uniformity of such systems helps in removing such disparities (Júnior, Hein, Wilhelm, & Kroenke, 2015). For instance, Consolidation of Financial statement is also one example. If companies follow IFRS rules and standard then it will increase the transparency of financial information and includes cash flow statement in its books of account (Skoglund, 2014).

Issues in harmonization

As per European Union, harmonization refers to the process of creating common standards that are applicable across the market. The main motive for harmonization is to create a consistency of laws and regulations so there should be common rules for a business that operates in more than one state (Akgün, 2016).

Conflict in recording of financial transactions

It is true to say that if company wants to prepare one consolidated financial statement and one annual report for all of its domestic and international transactions then it has to follow IFRS rules and standard in proper manner. However, if company follows IFRS rules and regulation in determining the value of assets and recording entries then it may result to changes in value of amounts shown in its balance sheet. Company could justify this difference in amount by showing the complying and applicable IFRS standards details in notes to account of company.

Complying with other applicable rules and regulations while establish harmonization in IFRS and domestic reporting standards

Other problems which companies on international level  could face while reporting its financial statement on international level such as different tax system, applicability of two different accounting frameworks, valuing plants and machinery of company and using different accounting concept (Tschopp & Nastanski, 2014). Great expansion of world trade and investment on international basis has been increased due to harmonization. If everything has become international then it will become easy to meet needs of international users (Srivastava & Gupta, 2014). It is evaluated that multinational companies has to prepare their financial statements for each and every country differently as per their different requirement. However, there are several countries in which no proper accounting standards are followed. Therefore, with the help of harmonization, these companies could adopt readymade international accounting standards and get the benefits out of this. (BPP LEARNING MEDIA., 2016).


Application of international rules and regulations

Adoption of IFRS involved a lot of cost as there is a change in all the standards. It required too much disclosure and some of their benefits are more than the cost for the same. One problem is related to wrong interpretation of financial statements between the creators and the auditors. (Palepu, Healy & Peek, 2016). Another issue is related to interpretation of newly issued rules and standard by IASB. Companies in Australia and other stakeholders get confused with new IFRS standards while modification and changes issued by IASB on international level. In addition to this, other problem is faced by company while filling of consolidation of financial statement with international authority (Yu & Wahid, 2014).

There are several issues faced by Companies in adopting IFRS rules and regulation for preparing and filing of its annual report with international authority (Vidal-García, & Vidal, 2016).

Cultural differences

Harmonization does not consider political, social and cultural differences between different countries that impact in the implementation and interpretation of various things.

Acceptance of IFRS rules and standards all over the world

There is a lot of interference of politicians in National standards of accounting. Decisions of such politicians create a lot of impact in decision making related to acceptance of accounting standards.

Training and development for employees and stakeholders for interpretation of new rules and standards

When a country harmonizes its standards then it creates a problem because in such cases training should be provided to auditors and accountants. Colleges and institutions also have to change their curriculum in such case.  It is difficult for people to adopt these changes as it is not necessary for everyone to become comfortable in every system. ("Standardisation, Accreditation And Harmonisation", 2014).

Country level analysis (Australia)

Australian GAAP and IFRS rules carry same aim of increasing transparency of financial information to company’s stakeholders (Nnadi & Tanna, 2016). The main concepts of both are same when consideration is made at micro level at the individual standard level. However, consideration is made at micro level differences at the individual standard level. (Mintz, 2010). There are several differences which could be considered while following IFRS rule and Australian standards such as statement of principle allows use of historical cost while recording assets. Australian government has issued various compliance programs to make mandatory adoption of IFRS rules and regulation to establishment of harmonizations in GAAP accounting standard and IFRS rules and regulation for better level of transparency of accounting and financial information. However, companies face conflict between both standard while valuing assets and recording transition then IFRS rules and standards will prevail. In case of conflict between both standard, companies have to comply with the standards and rules given under international financial reporting standard.  As per IFRS rules both methods such as purchasing pool and merger accounting could be used by company. On the other hand, in case of Australian GAAP only fair value method could be used (André, 2017).

Australia has adopted IFRS as there were several benefits with the same like to lower the cost of capital, decrease in cost for auditors, creators and users of financial reports, to remove gaps in Australian GAAP etc. There were some disadvantages also like there was a lot of cost include in acceptance of such standards, loss of guidance, loss of freedom to create own standards. There were different outcomes of adaptation of IFRS like Australian accounting statement has become more simplex as well as understandable by everyone, recognition of financial statement has become easy etc. (Walton, 2010)


After the adoption of IFRS, the quality of reporting has been improved. There are indications of positive impacts on the economy of Australia. There is an organization named Woolworth plc. It has adopted IFRS and that affects a lot in the functioning of the organization like-

  1. IFRS considers intangible assets only if it has a future value or we can say future benefit but in case of GAAP, intangible assets are recognized as per its fair value (Mulyadi, S., Soepriyanto, & Anwar, 2012).
  2. Under IFRS , the method of inventory calculation ‘Last in first out (LIFO)’ is not allowed and under GAAP ‘Last in first out’ and ‘First in first out’ can be used for inventory calculation (Walton, 2010)
  3. Under IFRS, if there is a written down in inventory, then in future there is an option of it reversible but in GAAP if inventory is written down, then it cannot be reversed in any case (Mintz, 2010).
  4. There is a concept called going concern. In GAAP going concern is not as much developed but In IFRS, all such principles like going concern and accrual concept are well developed (Bohušová, 2014).
  5. In case of GAAP, the main motive or objective of providing financial statement is to give appropriate and segregated information to stakeholders as it has separate objectives for business and non-business entities. (Kang & Gray, 2013)
  6. In GAAP, there are some standard guidelines for financial accounting need to be followed and in case of IFRS; there are some common international standards that allows international entities to understand each other in a more detailed way.
  7. GAAP are used in only United States and IFRS are used in approximately 110 countries.

Company level analysis (Woolworth Plc)

Woolworth is an international company running its business in Australia and other countries. However, company has been following Australian GAAP and IFRS rules and standards in preparing and filling its annual report with concerned authority (Annual report, 2016).

Impact on Valuation of assets and liabilities of Woolworth after harmonization of IFRS rules and standards

Woolworth Company has established proper level of IFRS rules and Australian accounting standard for strengthening its reporting frameworks (Annual report, 2016). Ideally, companies face problem related to valuation of assets while complying with IFRS rules and standards in their reporting frameworks (Jamal, et al. 2008). Woolworth has recorded all of its fixed assets at its book value or market value which ever is higher.  As per the Australian GAAP, valuation of tangible assets should be based on the historical cost and impairment test. If Woolworth has followed GAAP rules then it would have shown deducted all of impairment losses from it profit and loss account and also resulted to less value of shares. On the other hand, as per the IFRS rules and standard, valuation of these assets should be made on the basis of cost value and market value whichever is less (Bohušová, 2014).  Therefore, due to the different requirement and contradiction, Australian government has passed regulations for all listed companies to follow IFRS rules and regulations over Australian GAAP in case of any conflict and problems follow proper level of IFRs rules and Australian GAAP standards then it would strengthen its reporting frameworks. However, Woolworth has faced problem in reflecting the value of assets and liabilities. Woolworth finds difficulty in complying with common accounting standards then it could record its assets value in books of account at their market value or cost value whichever is less (Yu  & Wahid, 2014). On the other hand, GAAP Australian standard focus on determining the value of its assets as per the impairment tests (Srivastava & Gupta, 2014).  Another problem which Woolworth has faced while valuing of its assets is related to separate methods to book entries in the financial books of accounting. It creates conflicts in valuation of assets while recording the assets and liabilities of company in books of accounts (Odia & Ogiedu, 2013). This has shown that all the assets of Woolworth have been recorded at their cost value after implementing proper provisions. IF GAAP rules are adopted by Woolworth then assets shown in the financial statement should have shown at the less value and profit and loss should be shown at less value after deducting impairment loss (please see the Annual report of company for more details)  (Annual report, 2016).



In this report, study has been prepared over how government of different countries could establish proper level of harmonization in IFRS rules and standard for the better level of transparency of financial information to stakeholders. Nonetheless, Australian government has passed newly introduced rules and regulations for strengthen the reporting frameworks of listed companies. All the listed companies have to comply with IFRS rules and regulations to make proper level of international reporting frameworks. However, in case of conflict between Australian GAAP and IFRS rules and regulations company should be more inclined towards following IFRS rules and standard for preparing and reporting of financial statement. Now after evaluating all the facts and secondary research from various sources, it could be inferred that all the listed company should follow international financial reporting standards. Woolworth Plc has followed proper level of IFRS rules and standard in formulating balance sheet and accounting books. If Woolworth plc does not comply with international financial reporting standard then it may result to destruction of foreign clients trust and they would face difficulty in interpreting financial statements (Jeanjean & Stolowy, 2008


It is observed that due to the complexity in international reporting frameworks, company has to establish proper level of harmonization in Australian GAAP accounting standard and IFRS rules and regulation while reporting its financial statement and other document with its stakeholders. Nonetheless, there are several companies around the globe such as GE capital, Wesfarmers, Morrison plc and so on which are facing problem of harmonization in complying with domestic and international accounting standard in formulating and reporting of financial information with stakeholders for better transparency. Woolworth should follow international accounting standard in order establish proper harmonization between domestic and international accounting standard.



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