Accounting Theories and Current Issues

The assignment deals with the effectiveness of financial reporting for the Australia units which include Conceptual Framework and the implementation of the International Financial Reporting Standards (IFRS). It compares and contrasts the implementation of IFRSs in Australia and the United States. The analysis was undertaken to find out the reasons behind following it and the benefits that are being gained through this approach. The assignment even comprises the consequences and the problems that are being faced by the user.

Running head: ACCOUNTING THEORIES AND CURRENT ISSUES
Accounting Theories and Current Issues

ACCOUNTING THEORIES AND CURRENT ISSUES
Table of Contents
Abstract............................................................................................................................................3
Introduction......................................................................................................................................4
Discussion........................................................................................................................................5
1. Relevance of Conceptual Framework in Financial Reporting.................................................5
2. Compare and Contrast the Implementation of IFRSs in Australia and the United States.......6
i. Reasons for the National Accounting Body Adopting IFRSs and When It Was Adopted. .8
ii. Transitional Issues Faced..................................................................................................10
iii. What Challenges Were Faced By Reporting Entities upon Adopting IFRSs..................11
iv. What Were the Benefits of Adopting IFRSs by Reporting Entities?...............................12
v. Similarities and Differences in Adopting the IFRS by Australia and United States.........13
3. Based on your findings, do you think the adoption of IFRSs were successful in the two
countries? Explain your answer.................................................................................................14
4. Provide two recommendations to the national accounting setting bodies (incl. AASB) on
ways to ensure the IFRSs continue to be relevant to users’ needs and to all sectors of the
economy.....................................................................................................................................14
Conclusion.....................................................................................................................................14
Bibliography..................................................................................................................................18
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Abstract
The assignment has generally been created with the aim to gather knowledge on the effectiveness
of financial reporting for the Australia units which include Conceptual Framework and the
implementation of the International Financial Reporting Standards (IFRS). The paper deals with
the possibility of IFRS being adopted by different countries. The paper also compares and
contrasts the implementation of IFRSs in Australia and the United States. The analysis was
undertaken to find out the reasons behind following it and the benefits that are being gained
through this approach. The assignment even comprises the consequences and the problems that
are being faced by the user. This paper can thus prove to be helpful for those countries which are
willing to incorporate the IFRS approach for their accounting theories.
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Introduction
The International Accounting Standards Board (IASB) developed a conceptual framework
during 1989. It has been set up with the aim to regulate and manage not only the national but also
the international standard-setters. The main task of this conceptual framework was to set
standards, assist preparers and examine as well as regulate their formation, thereby dealing with
potentially identifiable issues. Many dedicated, cooperation units and standard-setting bodies
from all around the world were considered a part of the framework of International Standard-
Setting. The trustees of the committee were provided with certain rights such as to select the
associates of the IFRS Advisory Council, the IFRS Interpretations Committee, which was
previously known by the name of IFRIC and the IASB among others (Shodhganga, 2018).
The conceptual framework has been formed to set out the fundamental rules and regulations for
the purpose of financial reporting that can help in managing the creation of IFRS standards by
the board members. It also helps in ensuring that the standards are theoretically operated so that
they can be managed using a similar approach. This will further help in providing the lenders,
investors and creditors with useful and proper information. The conceptual framework can help
the company with the guidelines for developing the accounting policies in case IFRS Standard
proves to be of no use in any of the particular transactions of the business. It further encourages
the stakeholders to recognize and understand the standards in the long run (IFRS Foundation,
2017).
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Discussion
1. Relevance of Conceptual Framework in Financial Reporting
The main purpose of developing the Conceptual Framework was to prepare the guidelines and
provide assistance to the IASB, which is engaged in the enhancement and in bringing about
effective changes. It was even developed to create consistent accounting policies for some of the
cases, which are not included in the accounting standards and even to provide guidelines to the
parties for acquiring knowledge for interpreting IFRS. In some of the transactional cases, there
are no standard rules present, which can be applied in the transaction. Hence, the management
needs to make use of proper judgments in creating and applying for accounting policies that can
further help to derive effective outcomes. The management must consider IAS 8.11 to obtain
information on the definitions, the value of assets, along with the liabilities, income, as well as
the expenses associated with the structure of the business. With the increase in the importance of
IAS 8.11, the Framework was included in IAS 8 during the year 2003.
The foremost scopes of the conceptual framework comprise the framework to deal with the aim
of certain general objectives of financial reporting. It provides the values of the company’s
financial aspect. It also helps to describe the parts of the financial statement, thereby enabling the
user to recognize and derecognize the facts associated with the financial statement. It even
contributes to deriving the qualitative value by analyzing the financial information. It clearly
defines the capital part of the finance and provides the guidelines to maintain the capital in the
near future (DTTL, 2019). The Conceptual Framework of financial reporting also plays a useful
role in measuring the uncertainty in its performance after revision. Moreover, the board members
stated that measurement of uncertainty is one the important factor that creates an impact on
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effective representation of financial statements. For example, it has been analyzed that in some
of the cases, the important information reaches a level of utmost uncertainty that contributes to
reducing its utilization level at least to some extent. Hence, in this scenario, the information with
less importance can be considered preferable as well as useful for conducting the measurements.
2. Compare and Contrast the Implementation of IFRSs in Australia and the United States
According to PwC (2019), it has been found that the majority of the capital markets in various
countries incorporate the IFRS for the purpose of effectively maintaining their financial
statements, which must be presented by the companies amidst the public. The primary reason for
adopting the IFRS in the US is that, in the year 2012, a government body of the US named the
SEC (Securities and Exchange Commission) had presented its report finally on the IFRS work
preparation. It was mainly undertaken with the intention to assist the SEC so as to measure the
implications in the accounting report of the region. The staff members of the US government
supportively helped the adoption of IFRS system with respect to the US guidance. However, it
was found that the staff received extensive support in discovering the different techniques and
other methods for integrating IFRS that will help the US committee to achieve its objective in
obtaining a high-quality accounting standard globally (PwC, 2019).
However, it was unexpected to opt for a compulsory change in IFRS in association with the US
public companies in the near future with the aim to continuously enhance the implementation of
IFRS in the US. The National Conference on Current SEC and PCAOB developments were
initiated by the AICPA on December 2016, which was announced by the authorized member of
the SEC’s Office of the Chief Accountant’s i.e. Wes Bricker. The announcement was made on
the fact that he was unable to determine the use of IFRS with respect to the local registrants in
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the upcoming years. He also announced that the Financial Accounting Standards Board (FASB)
as well as IASB must work together to remove the gaps of interest in the capital market (PwC,
2019).
The outgoing SEC Chairperson had issued a public statement in the month of January, 2017,
which highlighted the aim of developing as well as maintaining superior-quality of the
accounting standards, so that people across the globe could accept it without any hesitation. He
also played the role of motivating the people regarding the implementation of FASB and IASB
standards to provide further support and effective suggestions in enhancing the quality of
accounting standards as the financial report to be prepared must be of high quality and
comparability. However, it was found that the SEC was still in the dilemma as to whether there
was a chance of providing the domestic issuer with the permission to willingly submit IFRS
financial information. Moreover, the information must be conceptualized without reconciliation
which will be placed as per the GAAP financial statements of the US (PwC, 2019).
According to the research of Barth et al. (2012), it has been stated that the SEC and the FASB
department were working with their international counterparts on a union effectively to extend
high-class, internationally similar financial information that was found by the investors as
valuable enough for decision-making in terms of international money markets. The convergence
of hard work has focused on synchronizing the standard-setting and dropping dissimilarity in
accounting standards. To this conclusion, the FASB and IASB are still functioning to accomplish
the standard-setting target specified in their Memorandum for understanding an objective of
developing a unit of high-class accounting standards. According to the conceptual frameworks
which are used for financial reporting, the FASB and IASB recognizes the comparability and
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verifiability that are the parts of the qualitative feature of financial information and provides the
users with the permission to recognize and realize comparison in and dissimilarity among the
other staff (Barth, Landsman, Lang, & Williams, 2012).
The IFRS standards were issued and developed in Australia in accordance with the public
interest of the IASB. This board is regarded as one of the high-level setting units of the
foundation of IFRS which is a self-governing body and runs as a not-for-profit organization or a
private sector. The standard of accounting has been adopted mostly by all the companies of
Australia even for the for-profit organization. This generally includes the companies whose
shares are issued in public. At the time of implementation of IFRS standards of accounting in
Australia, the Australian Accounting Standards Board (AASB) brought about certain
transformations, which included the removal of the options of accounting policy and adding
disclosures in the accounting principles. In the year 2007, the AASB gave clearance and
permission for amending the standards. The changes, which were initially made by the AASB at
the time of implementing IFRS as Australian Equivalents could be withdrawn after the
implementation of the policy on 1st of July, 2007 (IFRS Foundation, 2018).
i. Reasons for the National Accounting Body Adopting IFRSs and When It Was Adopted
The national accounting body of Australia adopted IFRS with the motive to enhance the
conceptual framework with so as to manage the projected accounting standards of Australia.
They even adopted this standard to become a part of the development process of the global
accounting standard’s single unit and to design the accounting standards for varied other
principles. It was also undertaken with the aim to enhance and encourage the primary objectives
of Part 12 of the Australian Securities and Investments Commission (ASIC) Act, which intends
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to reduce the cost of capital, promote effective completion in Australian companies with that of
overseas company and to manage as well as maintain the interest of investors associated with
Australian economy (IFRS Foundation, 2018).
It was further found that the IFRS accounting standards were implemented in Australia on the 1st
of January, 2005. However, the initialization of issuing the standards by the board members and
its supports was initiated in the year1996 by the IASC Board. For the very first time, this
adoption and implementation of IFRS had started in the year 2005. During the process of
adoption, the requirements of transitional disclosure were illustrated in accordance with AASB
1047, i.e. “Disclosing the Impacts of Adopting Australian Equivalents to International Financial
Reporting Standards” (IFRS Foundation, 2018). However, some of the disclosures were not
accomplished i.e. the Australian includes two tiers in accordance with reporting requirements.
The Tier 1 consists of the Australian Accounting standard while the Tier 2 entails the Reduced
Disclosure Requirements (Treasury.gov, no date).
The National Accounting Body of the US adopted IFRS because of certain reasons. The IFRS
Standards possesses the ability to deal with the challenge being faced by the accounting
department by providing superior-quality of accounting standards which are accepted worldwide.
This helps in bringing about accountability, clearness, and effectiveness in the global financial
markets. IFRS Standards even helped in enhancing the level of transparency by bringing about
improvements in the international comparability, thereby augmenting the financial information’s
quality to enables the investors and other parties of the market make an effective economic
decision in the market. The IFRS Standards supports strengthening accountability through the
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process of decreasing the gap in the information among the person, who provides the capital and
the person to whom it is being provided.
One of the reasons to go for this accounting standard is that it provides the management with
enough information that is required to manage the account. It is regarded as a source for
obtaining comparable information from across the world, thereby helping to manage the
information as well. It has also been adopted to help in increasing the capital allocation process
as it contributes to improving the economic efficiency that enables the investors to become
familiar with the opportunities as well as the risks associated with the capital market. It has also
been found that by using a single method of accounting internationally, the business will help to
lessen the charge of capital and even that of international reporting. It was further issued in the
US in the year 201, but was legally applied during the year 2013.
ii. Transitional Issues Faced
There were many issues that were faced by the Australian government during the process of
transition such as the entities of Australia are found to almost accept the cases of IASB standards
and that too with no changes in it so as to ensure that they go in accordance with the rules and
regulations of the Australian legal and institutional environment. Under the act of the ASIC Act,
the implementation of IFRS can only be taken into consideration as it serves the public and
private sector of Australia in the best possible manner. The termination of any IASB standards
by Australia can lead to extreme erosion of the advantages, which are gained from the common
accounting language. In accordance with IASB, the Australian companies accepted the financial
statement of any other overseas company as well (Treasury.gov, no date).
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The problems that were faced by the US during the process of transition contributed largely in
adopting the infrastructure of the rules and regulations and the culture of accounting standard in
the western regions. Many changes took place with the change in accounting standards that
created confusion in the minds of the entities. It even leads to a decrease in accounting and
auditing practices. The other difficulties that were faced at the time of transition include the
structure of the international standards, which were complex to enough be understood by the
user. Lack of knowledge and the lack of ability to apply the new accounting structure was also a
problem for the entities and they were even facing the problem of enforcing the same. In order to
accept the IFRS accounting structure globally, it is important to make the necessary changes in
its legal, regulatory and economic structure with the aim of being easily accepted by the entities
of the westernized culture (Zakari, 2014).
iii. What Challenges Were Faced By Reporting Entities upon Adopting IFRSs
The challenges that were faced by reporting entities upon adopting IFRSs in the US were
primarily posed by the law creators. It has been found that although the SEC provided full
support to the global accounting standards, there always remains certain extent of uncertainty
from the end of the management, who are directly linked with the political leaders of the United
States. The US GAAP is found to be ruled by the SEC who has the power to lead in the US and
they have been averse with the method of the union as they are not in accordance with the rules
of the IFRS. The secondary challenges came up from the Human capital readiness such that the
US had to pay a lot of funds just for the sake of understanding the new accounting system and
even had to spend on making it understandable to the entities of US as there was a shift in the
accounting process. In accordance with the change in the accounting curriculums, the costs were
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also incurred in the schools and universities with the aim to provide the academicians with
proper knowledge and techniques of multinationals financial statement. The students were also
provided with the knowledge of adjustments on preparations, knowledge of investor’s
reorientation program and the tax authorities in order to develop strong knowledge among the
students about the accounting standards of IFRS. The last challenges that came up were from the
process of independent standard-setting. With the implementation of the accounting standard of
IFRS, all the powers and authority of the FASB has been waved off as it was only responsible
for setting and making decisions related to the accounting standard in the U S. The process of
sharing the accounting standards with the IASB cannot be considered as the power of the US
accounting culture (Silungwe, 2018).
iv. What Were the Benefits of Adopting IFRSs by Reporting Entities?
There are innumerable benefits of adopting IFRSs by reporting the entities of Australia as it
contributes in enhancing the quality of Australian financial reporting to a large extent. It can also
be stated with the support of one of the research papers of Financial Reporting Council (FRC)
and AASB that IFRS poses a positive impact on the economic condition of Australia and it was
found to be beneficial with respect to the perspective of the investors and public-listed Australian
companies. The chief executive associated with the Chartered Accountant of Australia and New
Zealand mentioned “Australia as a capital importer and IFRS enables the rest of the world to
have confidence in what our financial reports are showing” (Chartered Accountants Australia
and New Zealand, 2019). Although the adoption of IFRS was costly at the initial stage later on it
was found to have significant benefits such as its cost-beneficial attribute.
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The benefits that are gained by US reporting entities for adopting the IFRSs are such that it leads
to the creation of a single unit of accounting system all around the world. The US had also faced
the minimum cost of transition as compared to the other countries, which further lead towards
implementing an easier method to pose control on the foreign business of the country. It has
reduced the chaos and confusion in the accounting process as the same methods are followed by
the whole country. It has also increased the flexibility in the accounting process, thereby making
it easier for the local companies to trade overseas and to earn a higher return on the investment
(Regoli, 2019). It was also found that the US was able to achieve the commitment of G20 by
adopting the IFRS as a uniform method of accounting (HLB Gross Collin, 2019).
v. Similarities and Differences in Adopting the IFRS by Australia and United States
The similarities as well as differences in the implementation of the IFRSs are faced by Australia
and United States are such that both the country was posed with a certain amount of impact of
cost at the time of implementing the IFRS accounting system in the country. Both countries
mainly focused on the quality of the financial report (Fiori, Donato & Macciocchi, D., 2014).
The accounting system of IFRS typically contradicted with the old accounting standards that
were used in Australia and the US (Howieson & Natoli, 2016). The Australian public sector
further consisted of the three-tier system as it was not associated with the US public system. The
US government incurred a cost in providing knowledge to the public about the new accounting
system but this initiative was not undertaken by the Australian government (Ahmed & Alam,
2012). It was further found that both the countries had the advantage of standard local accounting
standards with regards to IFRS and this also created a sense of harmonization in the overseas
world of trade and commerce (Trimble, 2017).
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3. Based on your findings, do you think the adoption of IFRSs were successful in the two
countries? Explain your answer.
The adoption of IFRSs was successful in both countries. It can also be stated with the support of
one of the research papers of Financial Reporting Council (FRC) and AASB that IFRS poses a
positive impact on the economic condition of Australia and it was found to be beneficial with
respect to the perspective of the investors and public-listed Australian companies. It also enables
the users of the US to reduce time, effort, and the cost incurred at the time of preparing multiple
reports.
4. Provide two recommendations to the national accounting setting bodies (incl. AASB) on
ways to ensure the IFRSs continue to be relevant to users’ needs and to all sectors of the
economy.
It can thus, be recommended that the government can take initiatives to provide the entities with
the knowledge of IFRS accounting standards so as to make the process more fluent in nature.
The government is also required to have effective mentors and leaders, who can guide the users
adequately in undertaking the new process of accounting.
Conclusion
Conclusively, the adoption of IFRS standard of accounting proved to be beneficial for the
countries as it comprises a universal method of accounting and helps to easily undertake the
function of accounting with the foreign traders.
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References
Ahmed, K. & Alam, M. (2012) The effect of IFRS adoption on the financial reports of local
government entities. Australasian Accounting, Business and Finance Journal. 6(3), pp. 110- 120.
Barth, M. E., Landsman, R. W., Lang, M. & Williams, C. (2012) Are IFRS-based and US
GAAP-based accounting amounts comparable? Journal of Accounting and Economics. 54(68),
pp. 68–93.
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