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Impact on Accounting Quality

Discuss About The Implications Of International Accounting In Australia.

The issue that has been presented in the question is that the impact of the accounting standards that have been utilized for the purpose of regulating the financial treatments in Australia have undergone much changes post the adoption of the International Financial Reporting Standards. This is because the emergence of the International Financial Reporting Standards have resulted in significant changes in the particular field of accounting treatment and regulations.

This adoption of the International Financial Reporting Standards in Australia in the year of 2005 has resulted in changes in the various aspects like the relevancy of the value of the accounting information that has been presented in the financial reports, the decrease in the number of companies that have engaged themselves in regards to the management of the earnings, relative conservatism of the accounting practices and other related factors.

This particular study aims to present a review of the impact of the adoption of the International Financial Reporting Standards by the corporate entities of Australia post the period of adoption that is the financial year of 2005.

The particular impact in regards to accounting quality that the adoption of the International Financial Reporting Standards has on the Australian Accounting Standards is inconclusive in nature. Certain studies that have been conducted in this regards have resulted in positive outcomes that can be evidenced from the fact that there has been a decrease in the number of firms that have been adopting the techniques in regards to the management of earnings, increase in the relevancy of the value of the accounting reports post the adoption of the International Financial Reporting Standards and other positive outcomes in regards to the changes in the deferred tax accounting (Newberry 2015).

Some other studies that have been conducted have reported the fact that the particular results that have been derived from the change in the accounting treatment in regards to the particular process of the impairment of goodwill have been positive in nature. Other studies have suggested the fact that the shift from the traditional accounting method to the adoption of the International Financial Reporting Standards has resulted in the reduction in the quality value of the financial reports in Australia. Therefore, it can be understood that there has been mixed reaction in regards to the changes in the accounting standards of Australia. The shift in regards to the changes in accounting treatment of goodwill impairment will result in other consequences that will result in an increase in the purchasing price proportion that has been allocated by the firms to the goodwill in relation to the other assets. In addition to this the firms are   more likely to recognize the accounting treatment of asset impairment under the rules that have been provided by the International Financial Reporting Standards. However, it has been observed that the firms do not comply with the impairment of assets requirement (Newberry 2015).  

Features Affected by the Adoption of IFRS

The particular features of an accounting report that has been affected are as follows:

Conservatism – the concept of conservatism refers to the tendency of the accounting firms to delay the process of recognition of the bad news in regards to earnings. This is one of the most important concepts of financial reporting and refers to the omission of the prompt reporting of the firms in regards to the losses that have been incurred by the particular firm on account of the fact that the stakeholders of business will be the most benefitted by the clarified disclosure of the losses in the accounting report of the corporate entity in the current financial year. Potential researchers have found out the fact that the conservative accounting practices had begun to rise from the financial year of 1993 in Australia. However, it had been found out that the rate of conservatism had decreased post the adoption of the International Financial Reporting Standards (Bradbury 2015).

Management of the earnings – Researches that have been conducted resulted in the identification of the fact that the adoption of the International Financial Reporting Standards has led to the decrease in the number of firms that have engaged themselves in the process in regards to management of earnings. The irregularity in regards to the distribution of the earnings is a major issue that has been highlighted under the domain of earnings management. Another research or survey study that had been conducted in regards to the different firms in Australia resulted in the revealing of the fact that there had been 1146 firms in the country to be precise that had been having issues in regards to management of the earnings. However, the adoption of the International Financial reporting Standards reflected that the propensity of the firms to manage earnings and incur losses had invariably decreased (Bradbury 2015).


The relevancy of value in regards to equity and earnings – several researches that had been conducted in order to investigate the fact that what influence did International Financial Reporting Standards have on the relevancy of value in regards to equity and earnings. The research had been conducted in regards to the Australian Stock Exchange which revealed the fact that there had been no particular transition in regards to the adoption of the International Financial Reporting Standards. Further, it has been found out that the relevancy of the value in regards to earnings and equity have not resulted in any kind of improvement in regards to the quality of the equity or the particular component of earnings.

Conclusion

The relevancy of the book value along with the component of earnings in regards to the valuation of the equity – several researches that have been conducted result in the identification of the fact as to whether the relevancy of the value in regards to the total book value and earnings have been influenced by the adoption of the International Financial Reporting Standards. It has been found out that the value relevancy feature is not affected by the adoption of the International Financial Reporting Standards (Bradbury 2015).

Management of the benchmark at the time of transition – The particular standard established by the Australian Accounting Standards Board (AASB 1) has mandated the restating of the benchmarks of Australian companies. This particular co had been carried out for the purpose of the finding out whether the corporate entities had exploited the opportunities for the purpose of managing the benchmarks. It was found out that a majority of the companies had resulted in the provision of the erroneous information that has been included in the nature of materiality in regards to their reconciliations (Huber 2017).


Impairment of goodwill and the capitalization of the intangibles that have been generated internally – In regards to the fact that whether goodwill would be amortized or should be impaired depends on the treatment of the intangibles that have been internally generated has been an issue of controversy. It had been found out that the adoption of the International Financial Reporting Standards has resulted in a significant impact on the relevancy of the values of the intangibles. Furthermore, it has been found out that the intangibles have been more relevant to the values in the firms in which the intangibles that have been reported have been assumed to improve upon the quality of reliance post the adoption of the International Financial Reporting Standards (Huber 2017).

The relevancy of the values in regards to deferred taxes – the relevancy of the values in regards to the deferred taxes that have been increasing under AASB 112. Moreover, is has been found out that the income statement component of deferred taxes have been disclosed much more clearly post the adoption of the International Financial Reporting Standards.

Reliability – the particular feature of reliability focuses on the reliability of the financial statements in regards to the financial information that has been reflected by the accounting report of the firm. The analysis had been conducted for a number of 7509 Australian listed corporate entities for the financial year of 1998 to 2008. It had been found out that the results that have been derived reflects the fact that the reliability of the accounting reports of the firms have improved post the adoption of the International Financial Reporting Standards. Therefore, it can be concluded that the fair value that has been reflected by the accounting reports have been enhanced by the adoption of the IFRS (Huber 2017).

Conclusion

It has been found out that the adoption of the International Financial Reporting Standards have resulted in the enhancing of the values of the firms in regards to the financial reports that have been produced by the management of the corporate entities. Thus, it can be reliably stated that the adoption of the IFRS by the firms in Australia in 2005 have been a wise decision.

References

Bradbury, M., 2015. Capital maintenance in a contemporary context.

Cordery, C.J. and Sinclair, R., 2016. Decision-Usefulness and Stewardship As Conceptual Framework Objectives: Continuing Challenges.

Dunbar, K. and Laing, G., 2017. Deconstructing the Accounting Standard AASB 13 Fair Value: Exit vs Entry Price for Assets. Journal of New Business Ideas & Trends, 15(2), pp.12-19.

Huber, W.D., 2017. Irreconcilable differences? The FASB's conceptual framework and the public interest. International Journal of Critical Accounting, 9(5-6), pp.514-523.

Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. The Journal of New Business Ideas & Trends, 15(2), pp.1-11.

Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill Impairment Loss and Goodwill Impairment Test-Related Disclosures in Australia.

Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), pp.371-376.

Yong, K.O., Lim, C.Y. and Tan, P., 2016. Theory and practice of the proposed conceptual framework: Evidence from the field. Advances in Accounting, 35, pp.62-74.

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