Australian Accounting Standards Board Accounting Standard Setting Process - Essay Example

Introduction AASB stands for the Australian Accounting Standards Board. It is mandated by the Australian Government under the act of parliament to carry out various legal functions. AASB is responsible for drafting abstract outlines whose role is to assess proposed standards. The Corporations Act 2001 mandates it to also develop Accounting standards besides devising them for other roles. Its mandate stretches further in is involvement in developing a solitary set of global accounting standards. Endorsement of methods that minimise capital costs, uphold investor confidence and enable Australian bodies to race with other parts of the world is also a role within the jurisdiction of AASB (Deegan 2007). AASB has a vision that targets being known as a hub of excellence and conveying truthful ideas that would lead to far above the ground monetary reporting standards. However, this cannot be realised with the political manipulation levels that bedevil this agency. It states clearly in its mission that its strategy involves use of headship and faculty to develop excellent standards and realise its vision, and that it is an all inclusive of the Australian community; this cannot be realised with political manipulation. AASB accounting standard setting process The process of setting up accounting standards is not supposed to be done by AASB alone according to their modes of operation. Australian individuals and corporations should be well represented. Moreover the ASSB are answerable to international standards organisations. AASB’s way of setting up accounting standards involves ten major steps. Firstly, an international organisation like International Financial Reporting Interpretations Committee (IFRIC), International Public Sector Accounting Standards Board (IPSASB) or International Accounting Standards Board (IASB) is supposed to spot a procedural issue. This step compels ASSB to include concerns of these international bodies in their schedules especially for those of ASSB and IFRIC. ASSB officials and affiliates can also be involved in identifying concerns that need to be attended to. Raised issues are handled differently, for example, issues related to entities geared towards making profit are usually handled by IFRIC or AASB. Issues concerning non-profit making organisations are handled locally by AASB and occasionally if need be internationally by IPSASB. Apart from AASB officials, Australian folks or corporations can also be involved in identification of practical issues. They give their views and advice to AASB and they are rightfully supposed to be considered when setting the standards whether locally by AASB or globally by the other international bodies. Most issues handled at this stage involve assessing the importance and dependability of the standards in question. Suggestions on reducing the expenditure tied to financial reporting are also handled in this stage. Having identified the procedural issue, the next stage is consideration of the issue in the programme or plan. This stage sees AASB come up with a scheme proposal which assists them to evaluate the importance of undertaking it by looking at both sides of the coin. The time schedule of the issue is also considered at this point and the reserves needed noted. The proposal is then reconsidered so as to determine its feasibility and if it qualifies it is set as part of their work plan. However, if the board does not consider executing the proposal, it explains so in writing through the notes of a meeting that they make such a decision. The same applies even if the scheme is considered. On consideration of the issue, schema documents are prepared by staff on that issue. The scheme papers consist of time plans, substitute courses that can be taken and the extents of the issue. After being prepared, the scheme papers are later presented to the AASB who probe further and engage in consultations. These consultations provide AASB chances to draw information of help from other international and other regional standard setters such as New Zealand’s standard setter. New Zealand Financial Reporting Board is mostly mutually involved with AASB given that they are able to raise common issues and hence they experience common needs. ASSB then confers with various stakeholders by receiving public comments and engaging stakeholders in discussion sessions. Discussions and interpretations involve sets of people influenced by financial reporting standards in one way or the other. After consideration, a pronouncement is documented mostly in proceedings of a meeting. The pronouncements issued should be consistent with international standards. The views of Australian folks are then incorporated to the issues surrendered to the international bodies. AASB then requests stakeholders to comment on their proposals and compare the proposals to drafts from the international bodies. Submissions acquired are noted and surrendered as well. The international corporations or standard setters may consider AASB’s findings and propose some adjustments to the current financial reporting standards or prompt AASB to review their local standards. AASB ensures that the international standards of reporting financial rerecords are followed in Australia while other bodies like the National Institute of Accountants (NIA), The Institute of Chartered Accountants in Australia (ICAA), the Australian Prudential Regulation Authority (APRA) and other Federal, State and Territory Government regulators closely monitor if Australia is complying with the set standards. Political influence on AASB The potential of community concern and theories developed by organisations is assumed to ensure that future accounting standards are of a high quality. This role is played by the Australian government through proposals. The Australian Government is mandated by the Corporate Law Economic Reform Program (CLERP) drafted in 1997. Concerned groups in the Australian society are taken note of as the proposals are developed and then they are considered when doing the reforms. But the government at times does not do its part as it is supposed to. For example, in 1st January, 1999 Australia was supposed to assume IASs without political manipulation but it did not happen. Political influence is evident at the look of how the government responds to the CLERP proposals. They usually do not receive the attention they need. The process of setting up authoritarian accounting standards has always resulted into differences between the private sector, the government and various accounting professional in Australia. The Australian Federal Government is unwilling to leave the mandate of setting accounting standards to the ICAA and ASCPA and to prove this point the government actually changed the formation process of developing accounting standards to its favour. The government have earned support from groups which have common benefits with it while the feeble have been left to follow the wave as they have less or no options. A proposal to accept acceptance of IASC standards of financial reporting was rejected by the law-making reformists. This was an open sign that the government is indisposed when it comes to delegation of duties to international bodies. Change imposed by the government is not gentle as compared to that of the professional bodies that set up these financial reporting standards. Political transformations in Australia and other countries have a direct impact on globalisation of accounting standards. The control of special interest groups has also been widely covered by many writers who write articles on Australian accounting standards. It is alleged that the stable platform of accounting policies is being destabilised and the IFRS union of Australia and other countries is political in one way of the other. Convergence has proved to be strong in terms of lobbying and is mostly done by multinational businesses and global accounting firms. International organisations through their product strength have been able to selfishly manipulate accounting standards by keeping the setting within a surprisingly constricted procedural sphere of influence. Standards-setting corporations are impeded from expressing the interests of concerned groups by the political forces which seem to dominate the exercise in Australia. Owing to this, the political standpoint ignores the opinion that accounting standards are set and presented within a societal or opinionated void. Political differences during the procedural process are not considered as limitations but as elementary requirements to the method of regulation and preference. This clearly elucidates why monitors should legalise their practices to the stakeholders in the process of setting the standards. Looking at the influence politically, it is easier to see how accounting standards can lead to societal and economic imbalance both locally and internationally. The platform’s stability is hence influenced to some extent by political influence on the process of setting the standards; this happens at an international level. The IASB’s indecisive approach is also a cause of the same. The vulnerability of the IASB’s is well seen by its verdict to set up an error group in 2007. Its mandate was supposed to be assisting in the control, array of activities and improving the answerability of IASB. This literary means that even the group itself was uncertain of accountability from within, leave alone the mistakes that come from without. AASB whose work plan considers the issues and opinions of IASB has its accountability ensured and checked by Financial Reporting Council unlike the international body that has an internal structure for answerableness (Ball et al. 2009). More political influence is fuelled by European Union (Hey-Cunningham 2002). IASB gives a very high priority to EU alarms, a fact that lead to unsteadiness of the stable platform. Moreover, among the EU countries, is a great disparity in the task of accounting standards. Though it is a single entity, EU is torn apart by the selfish entity welfare exhibited by its members. Setting up of the European Financial Reporting Advisory Group (EFRAG) has seen pronouncements of top ranks reviewed and withdrawn. This has resulted into even amendments of prevaricated accounting. The Technical Expert Group which is a group in the EFRAG is charged with the task of examination of all the pronouncements and endorsing the European Council (EC). The EC then outlines a bylaw that is then forwarded to the Accounting Regulatory Committee (ARC) which discards or accepts the proposal. This virtually shows that the EFRAG has a strong influence on EC and hence the standard setting process of IASB and hence AASB. US international political influence on IASB and hence AASB is through FASB which congregated with IASB in 2006 (Herbohn 2008). This further make matters worse given that they meet regularly so as to tackle pertinent issues. During these meetings, they discuss the way forward by proposing whether or not to get rid of issues marked with disparity such as duty on earnings, research and other areas of injury by creation of schemes with time plans which target use of the least time possible. The joint venture could involve even more political pressure as it goes to an extent of covering issues like combining of businesses, acknowledging revenue, realization of just value among other issues on a joint ideal platform. FASB’s problem is that it has dictatorial rules unlike the IASB whose scheme is cantered on values. Due to the fact that they converged, the US will always have it easy when trying to impose their individual interests and hence IASB is not sovereign (Patton & Mosso 2009). IASB-FASB convergence is still bedevilled by problems like uncertainty of the level of even-handedness of values, scope of intricacy of monetary reporting and even the consistency of interpretation. The IASP added the theoretical scheme to its agenda with an aim of developing a scheme that is absolute and internally reliable. But as it has been seen earlier, this has not been the case and hence experts argue that the convergence may be of less benefit to local US companies. The mounting force on the IASB from both the EU and the US create improbability for future IFRS. USA and EU welfare seem to be very well represented while the other countries face a challenge as they are less likely to be represented when technical issues are being taken into consideration. This literary means that nationalized standard setters will often have to implement what the IASB/FASB has already endorsed which is totally unfair. Australian Financial Reporting Council is also politically driven. Even in the middle of high criticism, it still endorsed the approval of the IFRS in 2002 without conferring with the relevant stakeholders as it is supposed to be done. The AASB was influenced by announcement by IASB that from 1st of January 2005, it would implement reviewed standards and come up with stable policies. Though some transformations have occurred in the government segment, there is still political manipulation. The government finance statistics (GFS) and the generally accepted accounting principles (GAAP) still disagree in their opinions on asset and liability worth. AASB which is not allowed to undertake any reforms on GFS coverage cannot oppose any move of political manipulation by the government. The government through GFS has continued to produce double sets of financial reports, another inconsistent accounting standard practices. Standpoint on AASB standards I agree that the statement referring to the Australian Accounting Standards Board that “accounting reports which are compiled in accordance with these accounting standards will not be free of bias or neutral” holds. This is tied to the fact that AASB is susceptible to political manipulation both locally and internationally. The Australian Government do not allow AASB to change their finance statistics and hence the statistics are likely to be faulty and in favour of political leaders. The GFC is said to give different statements on assets and liabilities from those given by independent qualified bodies. Another loophole where bias and misstatement comes in is the influence of international states such as the USA and the European Union. USA is able to politically manoeuvre AASB accounting standards through FASB and IASB. IASB adoption in Australia has never led to a steady scheme and it works in an environment where international and regional desires are the talk of the day. The IFRS itself is bordered by political argument. Continuous alterations have also been seen to have an increase in costs in places where IFRS has been adopted. Accounting reports are hence subject to selfish interests of super powers and high profile companies. Change in Australian politics causes change in accounting standards as well given that the government has so much to offer in the reforms that are made on the operating accounting standards. For example, Australian individual and corporations viewpoints are not represented if their views as seen as political threats. This results to standards favouring legislators’ interest which in turn leads to unfair accounting reports. Neutral accounting records are only going to be realized if the Australian government is going to give more mandate to the independent professional organizations. Answerability is the foundation of accounting (McCaIl & Klay 2009). Conclusion AASB is supposed to work with Australian organizations and individuals and is accountable to international standard setters such as IASB, IFRIC and IPSASB; all these parties are involved in the ten step processes that AASB uses to set accounting standards. Setting up AASB is directly influenced by political manipulation by the Australian government through the Australian Financial Reporting Council (AFRC) and the government finance statistics (GFS). International political manoeuvres can be attributed to the fact that AASB’s work scheme is inclusive of IASB’s procedural issues. IASB on the other hand is subject to international manipulation by dominant firms and regions such as the USA and the European Union. AASB standards are therefore not reliable given that they are susceptible to both international and local political manipulation. This means that financial statements reported as per these standards will not be free of material misstatement as they are not set under political or social vacuum as is required of true and fair accounting standards. References Ball R, Kothari SP & Robin A 1999, ‘Social Science Research Network: The Effect of International Institutional Factors on Properties of Accounting Earnings’, Tomorrow’s Research today, vol.99, no. 12, Deegan, C M 2007, Australian financial accounting, McGraw-Hill Australia. Herbohn K 2008, ‘Wiley; ineterscience: Accounting for SGARAs: A Stocktake of Accounting Practice Before Compliance With AASB 141 Agriculture’, Australian Accounting Review, vol.162, no. 39, pp. 62–76. Hey-Cunningham D 2002, Financial Statements Demystified, Allen & Unwin. McCaIl S M & Klay W E 2009, ‘Accountability Has Always Been the Cornerstone of Accounting’, The Journal of Government Financial Management, vol. 58, no. 3, pp. 52-57. Patton J & Mosso D 2009, ‘Is the Federal Accounting Standards Advisory Board Independent? Can the Federal Accounting Standards Advisory Board Be More Independent?’, The Journal of Government Financial Management, vol. 58, no. 3, pp. 60-65. Read More