Australian Financial Reporting Regulations: A Critical Review

This report provides a critical review of the current regulatory framework and regulations encompassing the preparation of financial statements by reporting entities in Australia. It also includes a case study of Harris Scarfe, a famous organization in Australia, to identify the reasons for fraud and suggest policies to solve the issue.

Australian financial reporting regulations: a
Critical Review
1

Contents
Contents...........................................................................................................................................2
ABSRACT.......................................................................................................................................3
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Current regulatory framework or regulations encompassing the preparation of financial
statements by reporting entities in Australia...............................................................................3
About Australian financial reporting environment......................................................................3
real-life ‘financial reporting accounting fraud’...........................................................................3
CONCLUSION................................................................................................................................3
REFRENCES...................................................................................................................................3
2

ABSRACT
Accounting is essential part of every nationals economy it provides basic framework for
organizations to prepare their financial statements. This report is considers the Australian
accounting regulations, theories of accounting and the case study of famous organization of
Australia, Harris Scarfe for identifying the reason of fraud and policies to solve the issue.
INTRODUCTION
Accounting is a process of recording and interpret transactions. Every country follow
specific rules and standard of accounting. In Australian every organization follows rules of
their regulatory comities. This report in prepared to provide information regarding
Australian financial reporting environment and also descrier the relevant polices of
accounting in Australian. This report includes case study of Harris Scarfe which proved
information regarding how the company face fraud scandal its reason and also this report
considers recommendations though which Australia regulation commit will able to
overcome these types of issue (Guastella and Hickie, 2016).
TASK 1
Current regulatory framework or regulations encompassing the preparation of financial
statements by reporting entities in Australia
Australia wants to enhance the confidence of their investors and maintain integrity in its
economic environment thus they formulate rules regarding preparation of financial statements .
In Australia it is essential for formulate the reports as per the legislative requirement. It become
essential role in every business fiancé corporation thus it will help in achieving organization
goals. And predetermine goal.
The Australian Securities and Investment s, commission is a regulator of its financial market.
Very Australian organization needs to formulate and lodge their financial statements with the
ASIC. They need to present their financial statements at the end of its financial year. All business
organizations are vital to audit their accounts and present the auditor’s report in the regulatory
office to recognized that whether they work in ethical way or not. Or follow all the procedure of
reporting or not. In Australia he accounting stand also regulate by ASIC and their standard meet
requirements of international accounting standard (Nurunnabi, M., 2014).
Australian Financial reports required following tools
3

 Director’s report
 Report of Audit committee
 Remuneration report
 Statement of profit and loss
 Statement of comprehensive income
 Financial position statement
 Statement of working capital
 Statement of cash flow, fund flow
 Financial statement notes
 Note of director’s declaration
 Auditor’s independence declaration
 Auditors report
Types of financial reports required
Financial report for general purpose which includes in their reporting
Financial report which reduce disclosure resume
Special purpose financial reports
According to the ASCI, companies which are listed entities, public companies, large soul
proprietary companies are required to prepared financial reports.
Prosperity company includes an organization which generated less than 25 million revenue per
year. Which has gross asset value 12.5 million and have 50employees considered as large
proprietary company.
For small proprietary company it includes that organization in which shareholders have 5 %
shares (Lodhia, 2015).
The Australian tiered framework is made for reducing the burden on certain industries
Tier 1 includes private sectors organization which is established for earning profits. General,
public sectors entities. And tier 2 includes non profit entities which are not adoptable and
established for social worker.
Financial reporting is help in companies all the general principal of accounting standard and
proved beneficial to business entities.
4

About Australian financial reporting environment
The corporate business information environment developed endogenous as consequence s of the
data asymmetric or problem of agency between investors, entrepreneur, and managers. Financial
reporting environment provides a systematic framework for identifying min decision which help
in shaping the essential corporate information in capital market settings it includes decision
regarding voluntary reporting , reporting which are mandatory for regulators of Australia
Decisions regarding third party Analysis. Financial environment is related with an environment
in which all hr procedure policies rules agenda standards are set up and every part of financial
environment are necessary by business organizations to full up(Liu, Wang and Wilkinson,
2016).
According to the Ian Ramsey the Australian financial environment is not over regulated as their
will be so many implementations required which will help in control their corruption cases and
also help plinachivignthei pbeji of effetely and transport financial accounting by Australian
organization which will help in build strong relations between traders and invert and also through
which investor gain confidence to business in the maker. According to the recommendation so h
the author to enhance the regulatory framework in Australia the country needs to increase their
adutodtoyhs in depends in the business environment it will help in reducing the gap few
precautions. He also describes that key points which will help in providing effective working and
financial reporting environment by focus on the internal and external auditors relationship.
According to their point of view they suggested that Australian financial reporting environment
is not overacted because they does not adopt and rigid policies and not charge high penalties for
the computed organization. Thus they suggested that it require to change the accounting
regulations and procedure and take amendments in the stands of Australia financial law for make
an effective financial reporting environment. As per the point of view the country’s financial
environment is not overregulated but it requires to change their adamants and build
(Guastella.and Hickie, I 2016).
real-life ‘financial reporting accounting fraud’
Financial accounting reporting fraud can be defend as illegal alteration, of organization’s
financial statements for manipulating organization’s health or to hide the real profits . In
Australia the case of prudent is raise in the era of1990 thus the ASCI committee change the
regulations and rules in order to prevent from fraudulent case.
5

Harris Scarf is one of the most famous business entities in the field of retail industry. The
company provides home ware, kitchenware electrical products to their customers It also delay in
e commerce trade. It was founded in 1849 by George Peter Harries and George Scarfe.10990 era
was golden era for this organization as their target market are cross territory of Australia. There
market acquire full line stores, they have strong retailers supply chain and in every city of
Australia they established branch of their organization. In 2001 April the company was listed as
Australian Stock Exchange but they are fell to pay debt legality of 160 million in 2001 thus
government sue case against the company and incurred chargers for unethical behaviour of the
company. Its financial officer Alan Houdon was sentenced for 6 years jail (Soltani, 2014).
Because of providing false information to government and fail to act as honest company differed.
The company suffers from biggest corporate fraudulent case in Australia. In March 2001
conflicts, were founded in the organization‘s stock position. As per the government instructions
auditors investigate its asset position to 6years. As per the auditor’s report it was founded that
there were no error and everything would be present is regards with the shareholders. The
conclusion that the organization hire voluntary administrations for the company. Main reason
behind the collapse is following
The company is not facing facial proems till 2000 but they faces problems during recoding
Maintain of transactions financial records. The main issue is arises regarding their audit firm.
They hide essential information regarding the company and did not provide relevant information.
The company faces from problems because its financial department does not work appropriately.
Positive accounting theory is used to provides their predications regarding any event the theory
covert those transaction into accounting terms (Sultana, Singh and Van der Zahn, 2015). Positive
accounting theory explains regarding the standard organizations needs to follow, reactions or
company to follow during the standards. Policies they choose to run their organization. Theses
theories help ineffectively work the organization in efficient manner. In the case of Hersey
Spenser they debt convenient accounting hypothesis theory as per this hypothesise higher the
business entities violating debt covenants of accounts the higher chances of that managers select
some accounting procedure which shift the revenues from future to current time period..
The case study of Harris Scarfe is related with this theory. Because in this case the company goes
into liquidation for 6 years of inflated capital assets valuation and for breaking of many others
regulations and rules of accounting standards. In this case nether the board of directors,
6

managing department or auditors noticed the debt and error of asset management. They want to
hide the real profits thus they did not showcase the real values of assets and organizations able to
earn higher rat for profits. As per the hypothesis the more they want to hide their profits and
localities off tut organizations current profits rate increase(Florou, and Kosi, 2015)
In the case of Harris Scarfe they did not follow various accounting regulations and standards.
SAS per the accounting standard it is required to prepared financial reports in ethic way and
present every essential information as working note for their shareholders. But in the Harsey
Spenser organization neither their managers nor their auditors focus on the errors and miss
matching of financial statements. They did not have effectual internal control system though
which they check the entire system.
The main objective of audit committee is to provide the directors of the organization information
regarding their responsibilities but in this case the case also sue ob auditors as they did not
follow the accounting standard framework.
Corporate governance s the policy which is used for manages all the track of business
organization. It is usded for fifinding true and faire for the organization and conduct a strong
relationship between managers and shareholders. In the case of Harse Scarfe limited they did not
represent the true and fair view of their financial statement besides that the management
department of the company coverts its expenditure as revenue they inflate their profits it defined
and shows that they did not use the correct framework of corporate policy. The act of
management regarding inflation of profit is known as the act of fraudulent of financial reporting.
Even the managed department does not shoe the true and fair view of their financial statements.
The company did not follow any ethical principle(Bach, Rauch, Mikkelsen, Mccarthy and
Deletic, 2014)..Ethics play essential part for accountants professionals. As per the accounting
regulation it is essential for the accounting professionals to stay reliable complete, regarding their
wok. Ethics help in make a good relation and combined society together. But it is relay hard for
auditors o provides their clients high matey of audits. In the case of Harris Scarfe the auditors
does not play their responsibility in actuated and reliable manner. They dies not briefly
explaining the reason of errors differences show amount comers and profits ratios, thus they did
not follow any regulations of accounting and sue for scandal of corporation.
7

The company also not prepared their profit and loss statement in proper way and does not how
the relevant of profit for the external parties. Harris Scarfe is a big organization still they faces it
the biggest scandal just because of their mismanagement ad fraudulent behaviours.
From the case study of Harris Scarfe many lesion has to be learn regarding accoutring .
It is necessary for any business organization to follow all the ethical rule and code of conduct.
They should be worked formulate their policies as per the General Accounting Principles and
ASCI rules.
Australian entities needs to prepared financial reports every year at the end of their financial
year.
 All the documented and data should be written in systematic format.
 Business organizations in Australia should be following a systematic rigid procedure of
preparation of accounting documents.
 There should be no violence and no breach of contract(Oulasvirta, 2014).
 Accounting statement should be accurate and provides reliable information to their
clients.
 Here should b no miss conduct during the preparation of financial statements.
 Business organizations need to obey all the direction and roles in a systematic manner.
 Financial statements prepared accord to the argues of accounting standard.
 There should be clear valuation of assets and liabilities
 There will working not regarding each amount and there must be collection of all the data
an bill of material as a proof document.
 The value of tax and deduction and executions should be deducted ass per the rules
 Assets should be valued as per the accounting stranded.
 The company need to show the financial stamen every year and audit should be
conducted.
 There will be no family relation in external auditor’s ad board of directors.
 All the details of employees should be prepared in a systematic manner(O’Neill, Sohal
and Teng, 2016).
Business organization must show true and fair view of their assets and liabilities for efficient
represent their information to shareholders.
8

For reducing the case of fraud in Australia following suggestions or recommendation help the
Australian regulator to control theses cases:
Management responsibility: It can be says that the main reason of this unethical issue aeries in
the case of Hersay Scargfe because of the management department they show the inflective
profit in the financial statements and conduct unethical behaviours with their external parties .
There should be external audit must be conducted by the firms for proving their fair view of
assets. Thus the regulatory board of Australia conduct every entity which comply for their
financial statement secondary companies listed in the stock exchanged of Australian the done
External Audit once in the financial year. The members of external auditors should be selects
independently and they not have any blood relation the the organizations ;s member. The
external audit committee should be check all the require statement n effective manger it will help
for the regulator to early find out the
Error and any organization engaged in fraudulent activity. They will easily recognized all the and
take action against those organizations. It will help n reducing the fraudulent act in Australia.
And they also charges penalty agents those who found engaged in fraudulent activities (Frias‐
Aceituno, JRodríguez‐Ariza and Garcia‐Sánchez, I2014).
The regulator of Australian also add some specific rules within their organization to control the
cases of fraud they need to formulated policies regarding corporate social responsibility. It will
help in increase the profit for government and it can control fraudulent case. The government
should start the scheme according to which every organization which cross the limits of specific
profits need to contribute in apart of their profits in corporate social representative work it will
help. Every business organization get benefits by government as they provides the help tax,
Australia benefits and also give freedom to clerk n any area and also provides financial
sustainable to expend their business target market. This sachems is helpful for removing the
problem of fraud cases in Australian as organization conduct fraud to hide their profits n order to
reduce their tax liability. By contributed in corporate social responsibility governments provides
hem tax relief and it will attract the organization as well as they also offers them lots of benefits
to extent their markets. By using these policies the regulators of Australia will be able to control
their case in the counter fraud and corruption and help in providing ethical and courtly(Alves,
2014).
9

CONCLUSION
From the above analysis it has been found that Australia is one of the popular countries for
their wok and policies but due to some reasons the case of fraud is increase in the past year.
TO overcome the problem they need to change their accounting standard and amendments
new policies through which thy able to increase role external audit for provide and it help
in reducing the chance of fraud case an help in build strong financial reporting environment.
10

11

REFRENCES
Leuz, C. and Wysocki, P. D., 2016. The economics of disclosure and financial reporting
regulation: Evidence and suggestions for future research. Journal of accounting
research, 54(2), pp.525-622.
Guastella, A .J. and Hickie, I. B., 2016. Oxytocin treatment, circuitry, and autism: a critical
review of the literature placing oxytocin into the autism context. Biological
psychiatry, 79(3), pp.234-242.
Sultana, N., Singh, H. and Van der Zahn, J. L .M., 2015. Audit committee characteristics and
audit report lag. International Journal of Auditing, 19(2), pp.72-87.
Bach, P .M., Rauch, W., Mikkelsen, P.S., Mccarthy, D. T. and Deletic, A., 2014. A critical
review of integrated urban water modelling–Urban drainage and beyond. Environmental
modelling & software, 54, pp.88-107.
Frias‐Aceituno, J. V., Rodríguez‐Ariza, L. and Garcia‐Sánchez, I .M., 2014. Explanatory factors
of integrated sustainability and financial reporting. Business strategy and the
environment, 23(1), pp.56-72.
Nurunnabi, M., 2014. The role of the Securities and Exchange Commission in a developing
economy: Implications for IFRS. Advances in accounting, 30(2), pp.413-424.
Liu, T., Wang, Y. and Wilkinson, S., 2016. Identifying critical factors affecting the effectiveness
and efficiency of tendering processes in Public–Private Partnerships (PPPs): A
comparative analysis of Australia and China. International Journal of Project
Management, 34(4), pp.701-716.
Lodhia, S., 2015. Exploring the transition to integrated reporting through a practice lens: an
Australian customer owned bank perspective. Journal of Business Ethics, 129(3),
pp.585-598.
Soltani, B., 2014. The anatomy of corporate fraud: A comparative analysis of high profile
American and European corporate scandals. Journal of business ethics, 120(2), pp.251-
274.
Florou, A. and Kosi, U., 2015. Does mandatory IFRS adoption facilitate debt financing?. Review
of Accounting Studies, 20(4), pp.1407-1456.
Oulasvirta, L., 2014. The reluctance of a developed country to choose International Public Sector
Accounting Standards of the IFAC. A critical case study. Critical Perspectives on
Accounting, 25(3), pp.272-285.
O’Neill, P., Sohal, A. and Teng, C.W., 2016. Quality management approaches and their impact
on firms׳ financial performance–An Australian study. International Journal of
Production Economics, 171, pp.381-393.
Alves, S., 2014. The effect of board independence on the earnings quality: evidence from
portuguese listed companies. Australasian Accounting, Business and Finance
Journal, 8(3), pp.23-44.
12