IFRS Adoption for Alex Chemicals

This assignment focuses on the implications of IFRS (International Financial Reporting Standards) adoption for Alex Chemicals Pvt. Ltd. It emphasizes the need for the company to adhere to the new disclosure standards issued by IFRS in March 2017. The assignment outlines the key changes introduced by IFRS and its impact on financial reporting practices. It also discusses relevant regulatory guidelines and resources, such as those provided by the AASB (Australian Accounting Standards Board) and IFRS Foundation.

Running head: ADVANCE ACCOUNTING
Advance Accounting
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Table of Contents
1) Memorandum..............................................................................................................................3
2) Letter...........................................................................................................................................7
References........................................................................................................................................9
Bibliography..................................................................................................................................10
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1) Memorandum
TO: All the Employees of Cruz Accounting Ltd.
FROM: XYZ
CC: Senior Accounts Manager
DATE: 22 September, 2017
SUBJECT: Issues with respect to initiative of disclosure undertaken by IFRS
The International Financial Reporting Standards (IFRS) can be regarded as the guidelines, which
are set for ensuring transparency in the style of financial reporting at the global level. These
standards are infact set by the International Accounting Standards Board (IASB) (Rouse, 2017).
During the year 2017, IASB was observed to pass disclosure initiative- principles (DP), so that it
would be possible to improve the communication between the users of financial report and the
ones who have prepared it. Precisely, the disclosure initiative provided better information
regarding the financial performance to the users. IASB has focused on the agenda of enhancing
the reporting standards for the period 2017 to 2021. The IASB proposes an inappropriate way of
preparing financial statements that can lead to errors with respect to making investment
decisions, as the investors may not be able to trace performance of a business. Moreover, the
board propounded that adding irrelevant information in the final accounts involves loss of time
and extra costs pertaining to the preparation of financial statements. Even, if relevant information
is provided in the financial statements, improper presentation can make it difficult for the
stakeholders to correctly interpret the performance of the business firms (EY, p. 1-2).
In paragraph 6.16 of the disclosure initiative, it is mentioned that the primary intention of this
particular initiative is to enable the organizations to get adequate insights about the aspects that
have to be disclosed in the financial statements. For example, IFRS makes it necessary to
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mention regarding the changes in financial items that have included in the report (IFRS, 2017, p.
62).
The disclosure policies of the IFRS state that disclosures enable the investors to have a better
understanding about the style of financial reporting standards. There is no such need for
disclosing financial information that is useless to the stakeholders. The entities must focus on
explaining, whether a property has been measured at cost of acquiring or at the market price
(IFRS, 2017, p. 60-67). It can therefore be stated that mitigation of disclosure issues will enable
the stakeholders to make comparison of the financial statements of a particular period with
others. On the contrary, it can further be stated that readability is critical pertaining to paragraph
6.22. This is because excessive sections and subsections have been used for describing the
disclosure principles. In part, b and c of the paragraph 6.16, mentions about category 1, 2 and 3,
which makes it necessary for the readers to focus on the previous paragraphs. These complexities
could have been avoided by directly mentioning about the categories in paragraph 6.16 (Deloitte
Global Services Limited, 2017; IFRS, 2017, p.64-66).
Paragraph 6.22, additionally mentions that entities have to decide regarding the place, where
disclosure of the accounting policies will be conducted. The policies can be disclosed either in
the footnotes of the financial reports or at the beginning. More precisely, the disclosure policies
states that all the disclosure on accounting policies can be given on a single note in a
comprehensive manner. It enables to trace the items that have been given due importance while
preparing of the financial statements. Another choice that is present before the entities is to give
information on accounting policies separately pertaining to separate heads. For example, at the
place where depreciation has been calculated, a note can be given on the method used for
evaluating the same (IFRS, 2017, p.64-66).
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Finally, the entities can provide a complete separate note, which will focus on mentioning the
accounting policies that have been used for the preparation of the financial statements. Thus, it
can be stated that the disclosure initiatives have provided wide range of guidelines to the
business entities, so that they can flexibly prepare the financial statements by disclosing
accounting policies in the most convenient (IFRS, 2017, p.64-66). However, the statement “but
disclose the rest in the same notes as the information to which they relate” is not well
comprehensible. This is due to the fact that it is not possible to trace, whether it implies towards
the need of disclosing information under a single note or under each specific items along with the
foot note. Hence, it can be stated that the paragraphs 6.16 and 6.22 can be better understood with
the support of higher level accountants as compared to those who work at the lower hierarchy.
The above mentioned developments of accounting disclosures are done as per the norms laid
down by the Australian Accounting Standards Board (AASB). It is observed that the disclosures
requirements are set by AASB are similar to the provisions mentioned in the paragraph 6.16 of
the disclosure initiative pertaining to IFRS. For example, AASB makes it mandatory to mention
about the basis of measurement that has been used while calculating investments. It can be done
on historical basis or at the fair value that prevails in the market. In case, if more than one
method is used, then it is necessary to mention about them. The AASB also states that the final
decision regarding the policies of accounting lies with the management. Additionally, the
standards of IFRS provide a scope of disclosures pertaining to the accounting policies that can be
presented. For example, in paragraphs 6.22, it is clearly mentioned that the information relating
to accounting policies can be given on a single note, under separate heads or completely a new
report can be attached with the financial reports that states about the accounting methods
(AASB, 2015, p. 24; IFRS, 2017, p.64-66).
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Pertaining to small business entities, it can further be stated that providing information on
accounting methods is feasible within a single note. Medium scale organisations can mention the
specific accounting policies under a separate head. On the other hand, large organisations that
have several subsidiaries or operate in multiple nations having a wide range of products must
disclose all the information on a separate note under specific headings. This will enable the
investors and other stakeholders to easily know about the policies that are used for the
preparation of financial statements.
Pertaining to Cruz Accounting Ltd., it can be inferred that the disclosure initiatives of 2017 will
enable in preparing financial statements more precisely for the clients. This is because
customized notes can be given on the financial statements pertaining to the policies of
accounting methods. As a result, the end users will be able to get sufficient information from the
financial statements. Thereby, the clients will place repeated orders with Cruz Accounting Ltd.
for preparation of financial statements, which can lead to rise in revenue earnings. On the
contrary, more time and cost will be involved in the preparation of the financial statements,
which can be set-off by increasing revenues (IFRS, n.d.; Deloitte Global Services Limited,
2017a).
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2) Letter
To,
The Senior Accounts Manager
Alex Chemicals Pvt. Ltd, Australia,
Date-22 September, 2017
Subject: Use of IFRS 2017
Dear Sir,
It is hereby informed that on March, 2017 IFRS has passed a Disclosure Initiative—Principles of
Disclosure, which mentions about the changes regarding certain criteria of disclosures in the
financial statements. These standards are duly important for the business entities, as it will enable
them to improve the mode of communication with the stakeholders. The same benefits are
applicable for Alex Chemicals Pvt. Ltd, so that it is possible to disclose the vital information in
the financial statements.
Alex Holdings Pvt. Ltd. will enable to obtain information that is to be included in the financial
statements. For example, being a chemical manufacturing organisation, it is important to
mention about the depreciation of machines in the financial statements. This will help the
investors to easily understand regarding the methods used for calculating depreciation and its
impact on the level of profit and return on shareholder’s wealth. It will boost up confidence of
the investors and provoke them to purchase more shares (IFRS, 2017a). The board committee of
Alex Chemicals Pvt. Ltd have wide range of options available pertaining to the disclosure
mechanisms. Previously, the AASB only stated about the need of mentioning changes in the
accounting policies that are brought about in an organisation along with the present ones that are
being followed. On the contrary, on March 2017, the initiative that has been taken by IFRS,
specifically mentions about the three types of options that can be followed during financial
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reporting. In case of quarterly annual reports, Alex Chemicals Pvt. Ltd can use single note
mechanism for reporting the accounting procedures. This is because quarterly reports contain
information only on three month time period, and so it is rational to mention regarding the
accounting procedures at one place. In case of an annual report, the same can be provided on a
separate attachment, as numerous policies are used for pertaining each of the items that are
present on the financial statements (AASB, 2015, p. 24; IFRS Foundation, 2017, p. 4).
The chemical industry and other sectors in Australia are observed to adhere to the policies that
are initiated by IFRS. It is thus logical for Alex Chemicals Pvt. Ltd to easily adapt the standards
of disclosure that have been prescribed in the disclosure Acts of IFRS in 2017. Hence, it is
advisable to proactively adopt the standards while preparing the financial statements, as it will
enable to get accustomed to the disclosure initiatives. It is possible that after a few years, AASB
will make it necessary to adopt accounting policies and disclosure requirements that are given by
IFRS on March 2017. Already, AASB has made certain regulations that make it necessary to
adapt the IFRS standards (Australian Prudential Regulation Authority, 2005, pp. 2-3).
Finally, it is to remind again that Alex Chemicals Pvt. Ltd must start adhering to the standards of
disclosure that has been passed by IFRS in 2017.
Yours sincerely
XYZ
Accounts Manager
Cruz Accounting Ltd
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References
AASB 2015, ‘Presentation of financial statements’ File, pp. 1-31.
Australian Prudential Regulation Authority 2005. ‘Adoption of international financial reporting
standards’ Lifs, pp. 1-19.
Deloitte Global Services Limited 2017, IAS 1 — presentation of financial statements, EN,
viewed 22 September 2017, <https://www.iasplus.com/en/standards/ias/ias1>.
Deloitte Global Services Limited 2017a, Background, EN, viewed 22 September 2017,
<https://www.iasplus.com/en/news/2017/03/dp-pod>.
EY 2017, ‘Disclosure initiative – principles of disclosure’, Publications, pp. 1-4.
IFRS 2017, ‘Disclosure initiative—principles of disclosure’, Media, pp. 1-110.
IFRS 2017a, ‘Snapshot: disclosure initiative—principles of disclosure’ File, pp. 1-16.
IFRS Foundation 2017, ‘Disclosure initiative – principles of disclosure’ File, pp. 1-113.
IFRS, No Date, Principles of disclosure. Work, viewed 22 September 2017,
<http://www.ifrs.org/projects/work-plan/principles-of-disclosure/>
Rouse, M 2017, ‘Definition IFRS (international financial reporting standards)’, Techtarget,
viewed 22 September 2017, <http://whatis.techtarget.com/definition/IFRS-International-
Financial-Reporting-Standards>.
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Bibliography
EFRAG 2016, ‘Disclosure initiative - principles of disclosure’ Activities, viewed 22 September
2017, http://www.efrag.org/Activities/322/Disclosure-Initiative---Principles-of-Disclosure>.
PwC 2016, ‘IFRS disclosure’ Assets, pp. 1-236.
Robinson K 2016, ‘Disclosure initiative’ An overview XBRL Europe, Luxembourg, pp. 1-17.
XBRL 2017, ‘Webinar about disclosure initiative from the IFRS foundation’ News, viewed 22
September 2017, <https://www.xbrl.org/news/webinar-about-disclosure-initiative-from-the-ifrs-
foundation/>.
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