Global accounting standards to test tee

Current Development in Accounting Thought
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Answer 1
The IASB (International Accounting Standards Board) develop accounting standards to
be used by business entities for developing the financial reports. The accounting standards have
undergone several changes in past decade. In this context, this section of the report undertakes an
analysis and examination of an accounting article related to the emergence of global accounting
standards. The article selected is ‘Global accounting standards to test tenants’ published in
August, 2017, in The Sydney Morning Herald. The analysis of the article is carried out to
develop a theoretical understanding of the issues discussed in the article on the behalf of the
senior accountant of a firm.
Article Analysis
The article has emphasized on the growing significance of accounting activities for
assessing the performance of a business entity. The business organizations around the world have
followed various accounting techniques that can ease their business practices (Pickard, 2007). In
this aspect, global accounting standard becomes significant. The article analyses the accounting
standards which are followed by the business organizations around the world and the issues
leading to developing a common set of universally accepted accounting principles. The key
issues discussed in the article are explained with the help of the significant accounting theories
related to development of accounting standards.
The new accounting standard IFRS/AASB16 has drastically changed the way of
accounting of lease related aspects. It has changed the way in which lease was recognized in the
financial statement of a business organization. This standard has significantly changed the way
of accounting being done in earlier times, in the same way it promises to bring out the best from
the leasing aspect of accounting in international accounting (Wagenhofer, 2009). The article,
Global accounting standards to test tenants (2017) has assessed various aspects of IFRS/AASB
in leasing and how it is going to affect the global financial accounting. The article has majorly
focused on the liabilities that were faced by the tenants and in addition to this, it also discussed
about the IFRS/AASB 16 Standard (Cummins, 2017). The standard has been widely accepted
and recognized by the organizations around the world. The article explains that although the
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standard is quite useful and dynamic for the leasing aspect but it has certain issues associated
with the same (Carmona and Trombetta, 2010).
The major issue related with IFRS/AASB16 in leasing is that it has increased the
paperwork which is concerned with leasing; in addition to this it has also laid emphasis on new
administration and new systems. The article discusses that the standard can have far reaching
financial implications on the financial statements of a business organization (Cummins, 2017).
The major change in the financial statement is that it will be recorded in the same as asset or
liability for a period of one year. The advantage of this standard is that it has helped the tenants
in identifying their right of use of property or asset, but the article discusses that the right of use
of asset is determined on the present value which will also consist of all future known occupancy
costs which can cause loss to the tenants (Cummins, 2017). In addition to this, the article
explains that the asset may also include all the indirect costs that are associated with leasing such
as leasing fees, design fees and any estimated cost which can create obligation for the tenants to
be paid.
Accounting is a crucial part of an organsation, it is termed as the language of finance, and
its major function is to provide information about the working and functions of the organization
in an accurate and transparent manner. There are generally two theories that have dominated the
accounting process. Positive and normative accounting is the two theories on which accounting
were based. Positive accounting was followed earlier in which real life events and transactions
were examined so that management can design their practices according to those practices
(Arnold, 2009). However as the time change the procedure of doing accounting also changed
dramatically. It is evident that the international business has changed their ways of doing
business and in that phase accounting has also changed their procedures (Vorster, 2010).
Nowadays the management has shifted their attention to a fundamentally different approach. A
different kind of accounting theory has emerged which has gained the attention of the business
organsation and that is normative accounting theory. The theory focuses on the aspect of what
should be done in place of what is happening in the market (Chalmers et al., 2012). The article
explains the same and discussed that the business organsation has turned their attention from
positive theory of accounting to normative theory of accounting. The business organsation has
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done this in order to remain up to date in this dynamic environment. This theory has helped the
firm to remain competitive in the market (Cummins, 2017).
In respect to lease accounting, the theory followed by business organization is positive as
the incorporation of IFRS/AASB 16 has increased the paperwork, apart from this, it has also
included various other cost related with lease which has made lease accounting complex and
critical. IFRS/AASB16 has brought significant changes in accounting and it has also made the
process of accounting quite easy. The implementation of IFRS/AASB16, accounting procedure
has started to include aspects which are important and can have an impact on the financial
statement of the business organization (Carmona and Trombetta, 2008). As the article has
explained that apart from increased paperwork, various other costs such as lease fees, design fees
etc will also be included based on future cost , this approach has significantly helped the
organization in realizing the estimated future costing (Cummins, 2017). However this approach
on the other side has increased the burden on tenants, in addition to this all the aspects relate to
fees has also increased the complexities of the lease section. This issue is quite major as it can
make leasing more difficult. As the leasing section becomes difficult the organization will start
avoiding this aspect and the market for the same can face downfall. This can also hamper the
reputation and goodwill of the business organization (Gaffikin, 2005).
The article has discussed about various aspects of leasing, on such aspect is of incentive.
The aspect of incentive is applicable for rent free periods; this is also a major cause of concern
for the tenants. The article discussed that the standard IFRS/AASB16 has provided stability to
the tenants but on the other hand it has also increased the complexities and difficulties of the
leasing section. The standard IFRS/AASB16 and its implication has proved quite beneficial and
profitable around the world, the same is with the leasing , however there are certain areas in
leasing which needs attention so that the issues related to accounting can be addressed on time
effectively (Cummins, 2017). The IFRS/AASB16 standard is based on normative theory that is
why it is accepted by the firms operating worldwide because it has provided a dynamic approach
towards accounting which suits present changing environment (Ghanbari et al., 2016).
The article explains that IFRS/AASB16 has proved quite effective in the present day
changing and dynamic environment. Its incorporation in the leasing section is quite effective
however it has raised the complexities and difficulties in leasing due to various conditions
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