International Developments in Accounting - Essay Example

Economies have developed different accounting standards and use it based on the need and requirements of the economy. The accounting standards which has been identified by economies has been developed around international standards so that there is comparability and ensures better reporting. This essay will look at identifying the accounting system which is used in Australia. The paper will then look to compare the Australian Accounting Standards with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and look at identifying the differences and impact it has on different stakeholders. This will help to understand the differences which different accounting standards have and will provide a framework through which better standards can be developed. The paper will also look to present the future expected changes and the impact it will have on different stakeholders. The analysis will thereby help to analyze the different dimensions and will provide a framework through which better analysis can be carried out. Corporations carrying out business in Australia are seen to follow Australian Accounting Standards which is used for financial reporting. The Australian Accounting Standards Board which is an Australian government agency looks towards maintaining the standards which will govern financial reporting. Continuous changes are being made on timely basis to strengthen the Australian Accounting Standard so that better reporting can become possible (Nobes & Parker 2010). The developments which are taking place keep in mind the international requirements are amended time and again so that better comparability becomes possible. This has resulted in ensuring that the accounting standards are used in such a manner which will help to increase the overall value and relevance of reporting and will provide the required dimensions through which comparability will be better. Since, January 1, 2005 a large number of companies especially in Australia and Europe have started to use standards which are equivalent to IFRS. This has resulted in better comparability between the financial statements and improved the manner in which reporting is being done. Adopting the IFRS has resulted in making changes in the accounting standards being followed by companies in Australia as certain standards had to be amended, some have to be omitted and some new have been added (Kvaal and Nobes, 2010). This has thereby resulted in widespread changes in the accounting standards and requires consideration of different factors based on international requirements. There are widespread differences between the Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) which impacts different stakeholders differently and is as Business combination which involves businesses or entities under common control is included in the Australian Accounting Standards under AASB 3 where business needs to report the same and therefore has to use the purchase method. These transactions are excluded from IFRS 3 and are recognized based on the book values which the transaction have. Australian corporations looking to deal with the international framework are required to carry out additional work like identifying the acquirer, determining the fair value of assets and liabilities (Alexander, Britton, Jorrison, Hoogendoorn and Mourik, 2014). This might result in different outcomes for listed companies as combination of business transactions will result in the fair value of assets to rise which would mean higher profitability will be recognized due to high rate of depreciation, amortization expenses and impairment of assets. This is different in case of IFRS and helps to ensure that the value of the assets and transactions are correctly recognized. Australian Accounting Standards don’t permit true and fair override even if certain aspect of the transactions could make the financial statements to be incorrect. In very rare situations override from the standards is allowed and the same has to be provided in the additional disclosure which has to be provided. IFRS allows override from standards in case the situation or transactions misleads and conflicts with the actual objective of the financial statement. This thereby makes Australian Accounting Standards to be more stringent and follows a set of rules and procedures but IFRS is more flexible and allows changes so that the objective of the financial statement is protected. Australian Accounting Standards has laid down certain norms before rounding of financial information. The Australian Accounting Standard has stated that regulatory framework must be followed while looking to round off material information and the different conditions should be met. IFRS allows rounding of financial information but the same needs to be disclosed and no material information should be omitted (AASB, 2008). Despite different ways of recording information significant impact on financial information is not seen which thereby ensure better comparability. Australian Accounting Standards requires that the cash flow statement should be prepared using the direct method as cash flow needs to be recognized from the operating activities. IFRS permits both the direct and indirect method of presenting cash flow from operating activities (Conversion. 2007). This allows more flexibility but consistency has to be maintained in whatever method corporations choose to use. Despite different ways of recording information significant impact on financial information is not seen which thereby ensure better comparability. In addition to it Australian Accounting Standard has also stated that dividend which is paid needs to be recognized under cash flow from financing activities whereas IFRS allows the flexibility to recognize the same under operating activities or financing activities. This results in differences being created as Australian entities will highlight higher cash flow from operating activities whereas other entities using IFRS will be highlighting the same either under operating or financing activities (Choi, and Meek, 2014). Despite different ways of recording the final value of cash flow will be the same for both and it will not highlight any significant differences. With regard to the scope it is seen that Australian Accounting Standard is applicable for all profit entities who prepare financial statement for reporting purposes whereas IFRS is applicable to equity and debt securities publically traded companies (Doupnik and Perera, 2009). This thereby results in non public Australian entities to submit more disclosures and documents which thereby increases the overall cost and results in more detailed reporting. This has an impact on the overall cost as it rises and results in the entity to publish more information which the rules require. The Australian Accounting Standards has also laid down the rule that the carrying value of government grants cannot be reduced and has to be shown at actual value. IFRS is slightly different as it allows the flexibility to reduce government grants in accordance with IAS 20 for which a disclosure has to be made (Transition. 2008). This thereby ensures differences between the accounting standards and results in changes in accounting values of assets and liabilities which thereby has an impact on the financial statement. The overall result is thereby different which thereby has an impact on the manner reporting is carried out. With regard to the non government grants Australian Accounting Standard requires that the same should be recorded at fair value whereas IFRS allows the same grants to be recorded at fair value or nominal value (IFRS. 2008). This results in differences in the value of assets as fair value of the grant will be higher than the nominal amount which would thereby make the value of the assets to be shown at a higher value which would result in greater depreciation in the future year. The overall framework will result in differences in the value of assets and liabilities thereby hindering the path of comparability of the financial statements. The accounting boards have also determined the manner in which grants related to assets will be recognized. The Australian Accounting Standard states that it has to be presented in the balance sheet as deferred income whereas IFRS allows the same to be highlighted either as deferred income or deducting the grants so that the carrying value of the asset can be ascertained (KPMG 2006). This results in differences in the value of assets as fair value of the grant will be higher than the nominal amount which would thereby make the value of the assets to be shown at a higher value which would result in greater depreciation in the future year. The overall framework will result in differences in the value of assets and liabilities thereby hindering the path of comparability of the financial statements. The accounting boards have also determined the manner in which grants related to income will be recognized. The Australian Accounting Standard states that it has to be presented in the income statement on the credit side whereas IFRS allows the same to be recognized either on the income statement on the credit side or deducting the grants against the concerned expenses so that correct value of assets can be recognized (Roberts, Weetman & Gordon, 2008). This results in differences in the value of assets as fair value of the grant will be higher than the nominal amount which would thereby make the value of the assets to be shown at a higher value which would result in greater depreciation in the future year. The overall framework will result in differences in the value of assets and liabilities thereby hindering the path of comparability of the financial statements. Continuous changes and developments are being in accounting standard governing IFRS and Australian Accounting Standard so that the risk for the stakeholders can be reduced. Different standards impacts different stakeholders differently which has thereby made global players to look at identifying ways through which reporting can be improved so that global comparability can be ensured (Stevenson, 2012). The standards are changed so that the impact can be reduced and stakeholders can be given better opportunities to ensure comparability. This has forced the standards to be developed in such a manner that it looks towards protecting the interest of the stakeholders and ensures that reporting improves. Further, the development and usage of standards have been based towards ensuring a global framework by looking towards having rules which are globally accepted. The framework has resulted in improving the overall value of reporting and will require continuous changes and developments so that better standards are developed (Walton, Haller and Raffournier, 2003). The future highlights the different changes and development which is bound to take place over a span of time and will look towards having international standards. This will ensure that the entities will be able to compare the financial statement all around the globe and will provide an opportunity through which the different dimensions which will ensure better reporting will be ensured. This essay identifies the accounting system which is used in Australia. The paper compares the Australian Accounting Standards with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and look at identifying the differences and impact it has on different stakeholders. This will help to understand the differences which different accounting standards have and will provide a framework through which better standards can be developed. The paper will also look to present the future expected changes and the impact it will have on different stakeholders. The analysis will thereby help to analyze the different dimensions and will provide a framework through which better analysis can be carried out. It has also be seen the different development and changes which the accounting standards are bound to take in the near future and the manner in which it will help to improve comparability and ensure that the financial information are being used in the most effective manner. References Alexander D., Britton A., Jorrison A., Hoogendoorn M,. and Mourik, C. V . 2014. International Financial Reporting and Analysis 6th Edition, Cengage learning Adopting IFRS, 2008. Preparing your first time IFRS financial statement. IFRS Readiness Service. Price Water House Coopers Audit & Assurance. 2003. First Time Adoption of International Financial Reporting Standards. Discussion Paper. Deloitte AASB, 2008, Business Combination, Accounting Standards, Australian accounting Standard Board Choi, FD. and Meek, GK, 2014. International Accounting, 7th Edition, Person Education Conversion. 2007. The conversion of UK GAAP to IFRS: Volume One Scoping the effort. Deloitte Doupnik, T., and Perera, H., 2009. International Accounting, 2nd Edition, McGraw Hill IFRS. 2008. IFRS & UK GAAP: Similarities & Differences. Price Water House Coopers KPMG 2006, International Financial Reporting Standards: Views on a Financial Reporting Revolution, KPMG International, London. Kvaal, E. and Nobes, C. 2010, ‘International Differences in IFRS Policy Choice’, Accounting and Business Research, 40 (2):173–87. Nobes & Parker 2010. Comparative International Accounting, 11th Edition, FT Prentice Hall Roberts, Weetman & Gordon, 2008. International Corporate Reporting: A Comparative Approach, 4th Edition, FT Prentice Hall Stevenson, K. 2012, ‘The Changing IASB and AASB Relationship’, Australian Accounting Review, 22 (3): 239–43. Transition. 2008. Managing the Transition to International Financial Reporting Standards. An Oracle White Paper. Oracle Walton. P., Haller, A. and Raffournier, B., 2003. International Accounting, 2nd Edition, Thomson Learning Read More