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The Current Lease Obligation

Discuss about the New Accounting Issues for New Trends in Accounting.

This paper aims to analyze the new lease obligation, and the new revenue recognition requirements with their rationale. It also looks at the role of stewardship accounting on the public institution, the significant of International Accounting Standards Board (IASB) and the reasons behind Australian adoption of IFRS o its local authorities. It productively evaluates the contributions of Stewardship accounting to the public offices. From the study, the IASB has a significant role to play in economies. The notion of cartels in the programs of IASB should not hamper its objectives. Australia has achieved significant from the implementation of IFRS in its system, thus should embrace adoption of the standards to improve equity and surplus capacity. 

Australia is on the verge to adopt the new discussed lease rules as contained in the new revenue standard IFRS 16. The country has placed measures to facilitate the implementation of the new trend in the accounting system. The accounting practices are aimed to remain uniform and similar in concepts. The new program has to be effective beginning 2019. The new lease recording will factor contracts in the balance sheet for the record, apart from short-term and low-value leases. The new trends on lessee account recognize an obligation on the lease liability by lessees to pay for the use of an asset (Carson et al. 2016). The determination of the commitment value is at the start of the trading period. During the payment of the liability cost, the considered issues are;

  • Fixed payments arrived at after deducting lease incentives
  • Payment amount by the lessee as outlined in the residual value guarantee
  • Price determined on the purchase option

The needed are above listed requirements for the first phase of measuring lease liability in the company. After finding the obligation on contract liability, the reflection of the lease payments and duties through the application of standard AASB 116. The requirements of the AASB 116 outlines the depreciation value on the use of property. The new trends allow for the adjustments of the lease liability that happen due to the depreciation expense on the asset. The aggregation of the interest on the asset depreciation earns interest expense on the lease liability (Carson et al. 2016). Upon re-measuring the contract liability, adjusting other factors, the recording of the changes in the outcome as an adjustment on asset usage. In the balance sheet, the lease assets and liabilities are recorded separately from the primary assets and liabilities. Or they are registered in the notes different with other particulars. The separate recording also involves depreciation on expenses and interests.

The Implications of the New Lease Obligations

Application of the new contract regulations will have the following consequences in Australian firms;

Treatment of operational contract as a separate recording in the balance sheet. Therefore, treated as an expense without being eliminated in the balance sheet (Carson et al. 2016). Through the use of a single model, operating lease also will get covered in the statement. The use of a single model will require firms to record liabilities attached to lease payment and intangible assets within the period of trading (Carson et al. 2016). Consequently, all contract's treatments treated are as a capital lease. Rentals of 12 months and below will not be relevant for the financial statements. However, the treatment of the rest regardless of the form of the contract. The primary concern of the new trend is the requirement of lessees to recognize its lease liabilities. In the process of identifying a lease liability, the current balance sheet may appear unappealing.

The main point of the new trend is to improve transparency and accountability in the reporting of leases in the books of accounts. The current contract trend does not capture concepts on the operational lease. Therefore, it recorded operational contract on the executive agreement, not on the balance sheet but in the commitment note. Another important reason demonstrates the need to have a single model that reports all the leases and other particulars of the company. Using a straight line system will help in decision making by having finance and operating leases on a single accounting model (Carson et al. 2016). The importance of universality of the new trends is dwelling on the dynamism when dealing with emerging accounting issues which must globally.

IFRS 15 stands for the views of both International Accounting Standard Board (IASB) and Financial Accounting Standards Board (FASB) of US. The new obligation contains the identification stage of the contract, recognition of separate performance obligations, determination of the price, allocation of the price to a contractual obligation, and finally recognition of revenue once an obligation has been satisfied. Among the industries affected by the new requirement are real estate and construction. The new revenue recognition covers the areas;

In the vendor contract, the seller is required to honor the income at the completion of the contract not over the end time of the deal. The recognition is applicable if there is no law enforcing the vendor to get payment over a work completed to date.

The Rationale Behind the New Trend

The method used is either output or input.  In case, the preferred method is input then resources used should not relate to the performance of the vendor. For example; there is no inclusion of mobilization fees in the model of calculating costs incurred. However, in the charge captured there is an exception because of customer's mobilization over the period of the contract.

The done procedure may demand to put deals in a bundle or unbundle the bundled contracts. The right way is determined depending on the contract's obligation performance.

Values the extra charge only. The rest are amortized and capitalized.

Covers the cash receipts with different timing to revenue recognition probably over a year. Such scenario demands determination of finance income or finance expenses.

The importance of revenue to investors in evaluating business performance is one of the reasons behind new trends. Due to inconsistencies over the recognition of income brought by principles designed by Generally Accepted Accounting Principles (GAAP) and IFRS. The global accounting bodies; GAAP and IFRS saw the need to have the standard guidelines on revenue recognition.  The common standards created a framework more elaborate to address revenue issues.

Another factor was the need to provide users with useful information on statements through the usage of relevant disclosure requirements and finally simplifying the financial statement preparation by reducing requirements.

Accounting plays vital roles in the management of public funds. The local government authorities perfect their control by the help of accounting guidelines described by IFRS. If whatever demonstrated in Murphy's article is true then I agree with the view that there will be a failure in the management of funds in public institutions.

The management of public funds is more of a reporting system that requires recording particulars in the books of accounts for evaluation at the end of operating period. To effectively report accurate and reliable figures, accounting has been the center of funds management in the public sector. Politicians hold most of the public offices. These are guys who channel funds through the government to the public agencies with different targets. The rate of corruptions in public sector denounces the removal of IFRS regulations on the stewardship of the funds in local institutions.

Stewardship accounting ensures good governance by promoting accountability through efficient and procedural management of transitionary activities in an institution. It also entails reliable recording (Carson et al. 2016). The whole process requires a trained and qualified personnel with vast skills and knowledge to detect discrepancies and curb loopholes leading to funding misappropriation.

The New Trend on Revenue Collection

To ascertain propriety and conformity of the transactions happening in the institutions accounting is applied. The Established rules and regulations are used by accountants to check the consistency between allocated amount and the expenditure. It is appropriate to take an action if an inconsistency is detected thus discouraging any intention to misuse funds in future.

The incorporation of accounting in the management of local institutions helps in planning purposes. The future of the organization is based on the current performances. When a company uses the current figures to predict the uncertainty in the future, it can sail through and efficiently succeed. It is the accounting that helps an organization to make such plans work, without it the planning is impossible.

Accounting offers a basis for managing many activities of the business. If the managerial department fails to control the operations, strategically it cannot realize any goal. Therefore, accounts being a significant contributor, its elimination will leave managers with a shaky grounds to support effective control in the business.

The process of decision making is critical in an organization. Investors and other users depend on accounting information to know about the firm's operation. The accounting information plays crucial in the stages of decision making.

Performance evaluation is a management activity that has to exist in a firm.  Financial viability and probability can determine the best route to take for future growth. Thus performs requirement in the management sector of business.

In general, removal of stewardship accounting will hinder public institution's performance due to the pillar roles it offers to the sector.

The complaint in the sentence is not realistic. The global accounting world is only universally demonstrated through the IFRS. IASB helps the countries to have guidelines and standards to meet during operation. At the end of a financial year, the stakeholders of the company and other users depend on the financial statement to make concrete and projective decisions.

The body has contributed positively to ensuring that the countries' in their practice do not have different financial statement concepts. It also does research on the current global issues that have an effect on the existing regulations (Zeff 2016).  IASB ensures full discretion of IFRS and helps in developing new standards that can help accounting achieve its transparency and accountability value.

It assists in the issuance of IFRS to the countries. IASB works with an outlined standards contained in IFRS, thus it not easily manipulate the prescribed conditions. The Board does the research to at least understand the global dynamism that comes with new requirements.

The Role of Accounting in Stewardship of Public Funds

Global accounting cannot survive effectively without IASB taking full charge to monitor firms' regular performances on daily monthly of yearly basis. IASB facilitates the interpretation of the IFRS to firms. The following can happen at the expense of IASB;

An exploitation of stakeholders by accountants. It is the role of IASB to regulate on the both current and new regulations and their implementation. Once firms realize that it's no longer functioning, a majority of the accounting department will manipulate the statements.

Lack of universality. IASB champions the universal use of standards. Universal application of the obligations is a role of IASB (Zeff 2016). Some countries are not ready to follow global set standards due to their costs and complexity. If such a country gets a possibility of ignoring the guidelines on the preparation of the financial statement, they will happily welcome the idea.

If there are cartels in the IASB, most countries will not pressurize their departments to adhere to regulations strictly; instead, they negatively manage the system by corrupting the body through paying some amount to operate on the free accounting system.

Hinder transparency and accountability in firms. Cartels work best for their masters and self-interest. They don't consider the public even though they pretend to care (Zeff 2016).  By using cartels, the Board will provide an assumptions cover on its duties though weak to ensure implementation of the regulations as contained in IFRS. Countries may sort for their on methods of application. Some can deliberately assume the defined conditions in the absence of a watchdog body to keep track on the commitments.

Furthermore, most countries will violate the principles of accounting as outlined by IFRS. The principles are maintained only if the countries are watched and kept on track by IASB in coordination with the country Australian's Board of accounting. Reliability and accuracy, being the critical accounting practices are always cost-effective to achieve. They help investors with genuine information on the business customer base. Once ignored, the business future is indeterminate, a possibility that discourages users from trusting companies.

Some entities give wrong information in the market to lure investors and buy more shares in the market. Thereby take part in control of the market's production capacity. The provision of wrong information is a misleading practice enjoyed by companies though discouraged by IASB. In such an incident, a firm does not represent the real things it controls but fabricates on activities. Such a market kills investors and stakeholders, though managers and accountants benefit unprofessionally.

The Reasons for a Failure in the Administration of Funds of Local Authorities

Therefore, IASB collaboration with cartels is a non-issue that should not brainwash the mind of society by believing.

The Facts Supporting Adoption of IFRS Regulations by Australian Local Authorities

Australia should adopt the IFRS in its local authorities. The International Financial Regulations and Standards has impacts on Australian local government. It has an impact on the surpluses, equity, assets and liabilities within the local public government.  Countries implementing the use of IFRS by the public institutions are enjoying various advantages over unwilling countries. The benefits circulate transparency and accountability, the effectiveness of the system, reliability of the information, linkage of the practices and actions and materiality (Glassford et al. 2016).

The debate over usage of IFRS on local institutions paralyzed some country's desire to adopt the requirement.  The infrastructural system of Australia has benefited most from the IFRS. The sectors have effectively ensured appropriate allocation and use of resources to build roads, bridges, and parks. The preparation of financial statements lenient to the standards of accounting perfected the public sectors development's objectives.

Though implementation of IFRS is complex, Australian government successfully ironed differences between its accounting standards as outlined by AASB to rhyme with the IFRS requirements.  The adoption of IFRS in the country helped to capture areas such as Property Plan and Equipment (PPE), intangible assets and the written value of property sold. The areas are so critical to an economy that their streamlining generates more revenue and cost to the government.

From the results obtained by the country since 2005 to date, the country though experiencing challenges using IFRS in local authorities, it has improved its revenue collection transparency. The claim is evident in the equity and surplus reports. The small scale sectors have to some capacity realized reduced surplus with increased capital a concept almost similar in big organizations (Glassford et al. 2016).

In the reconciliation books, the comparison of the two standards; ASSB and IFRS, shows some slight differences in the surplus and equity accounts. The outline vote heads such as amortization, depreciation, employee benefits among others in the IFRS with a noted improvement in assets in local authorities.

In the large public sectors, the use of IFRS has contributed to the growth in both the surplus and assets. The debt capacity of local governments has reduced to a significant percentage as revenue collection rises (Carson et al. 2016). The contribution the country has been achieving from the adoption of IFRS is significant to the country's performance. It outlines real figures and accounts for all activities through financial books. Evidently, it is the rationale for the Australia to adopt the IFRS.

References

Carson, E., Fargher, N. and Zhang, Y., 2016. Trends in Auditor Reporting in Australia: A Synthesis and Opportunities for Research. Australian Accounting Review, 26(3), pp.226-242.

Glassford, N.J., French, C.J., Bailey, M., Mârtensson, J., Eastwood, G.M. and Bellomo, R., 2016. Changes in intravenous fluid use patterns in Australia and New Zealand: evidence of research translating into practice. Critical care and resuscitation: journal of the Australasian Academy of Critical Care Medicine, 18(2), pp.88-88.

Zeff, S.A., 2016. Forging accounting principles in five countries: A history and an analysis of trends. Routledge. 

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