Impact of Literature Research on Financial Reporting in Australian Companies

The report reviews two research articles, one on accounting for contingent assets and the other on the impact of IFRS on goodwill accounting in Australia. The report discusses the research questions addressed by the articles, similarities and differences between the studies, and implications for accountants, accounting regulators, and investors. The report concludes that accounting of contingent assets and goodwill accounting in Australia are falling under a great deal of ambiguity while fulfilling the requirements of international accounting standards.

Impact of the findings of literature research on financial reporting process in
Australian Companies

Executive Summary:
A sound accounting policy and accounting standard is essential for a country for the proper valuation
of assets of the business of a country so that a proper valuation of the total D of a country willG P
be done his report describes that how the limitations of the different accounting standards that. T
are being followed for accounting the contingent consideration of assets and goodwill accounting are
affecting the accounting regulators accounting professionals as well as e ternal investors of the, x
country.

Table of Contents
ntroductionI :......................................................................................................................................4
ody of researchB :.............................................................................................................................4
a Reason of selecting the research articles. :........................................................................................4
b he research questions being addressed by the articles. T :................................................................5
c Similarities and difference between the two research studies. :.......................................................6
d mplications of the selected research papers for the accountant of Australian companies. I ,
accounting regulators and investors e ternal user of fi nancial reports( x )...........................................6
Reference:........................................................................................................................................9

Introduction:
he report is based on the review of the two chosen articles namelyT “IFRS 3, IAS 16 and IAS 37:
Contingent Consideration in an Asset Purchase and” “Implications of the IFRS goodwill
accounting treatment he fi rst article describes that how the accounting for contingent assets that”. T ,
is plant property and equipment to be done so that proper consideration for the assets to be,
purchased can be calculated for payment following the guide lines of the accounting standards of
RS AS and ASIF 3, I 16 I 37
his paper is being published by RS discussion group of the Canada wing in order to describeT IF
that how the business organization of the countries like Canada Australia that are following the,
guidelines of accounting standards of RS AS should account the consideration payable for theIF & I
contingent properties acquired by them.
he second paper describes the impact of conflict that arises due to the differences inT
requirements of Australian accounting standards and RS regarding goodwill accounting over theIF
accounting regulators professional and e ternal investors of Australia, x ( inesW et al., 2007).
Body of research:
a. Reason of selecting the research articles:
wo research articles are being chosen for describing the report he fi rst research article isT . T “IFRS 3,
IAS 16 and IAS 37: Contingent Consideration in an Asset Purchase is an article released by”
RS group of Canada wing and the article makes a detailed analysis regarding how the“IF ”
appropriateness of the accounting standard that will help the business owners to account the
consideration for accounted contingent assets in best possible way and what role the accounting
professionals should play in case of limitations of the accounting standards ( inesW et al., 2007).
Another article that has been used in this report is “Implications of the IFRS goodwill accounting
treatment and this is peer reviewed articles that critically e amine the impact of change in” ; x

accounting treatment for goodwill in Australian companies following the international fi nancial
reporting standards RSs(IF )().
hus the fi rst article describes that to what e tent the different accounting standards are helping theT x
accountants in evaluating the acquired contingent assets while complying with the accounting
standards of RS AS and ASIF 3, I 16 I 37().
he second research paper focuses upon the fact that how the nternational inancial ReportingT I F
Standards or RS has influenced the method of goodwill accounting with in Australian accountingIF
regime.
b. The research questions being addressed by the articles:
he question that has been addressed in the articleT “IFRS 3, IAS 16 and IAS 37: Contingent
Consideration in an Asset Purchase is that to what e tent the accounting standards of” x IFRS and
IAS are helping the accountants to properly account the cost of the contingent assets being
acquired the business More precisely the selected paper addresses the issue or question that. ,
how an entity should account for the contingent consideration payable here are several views as. T
well as ambiguity regarding the process that should be followed for accounting the contingent
assets (Cairns et al.,2011) ne of the views regarding the accounting of contingent asset is that. O
the accounting professionals must follow the view is that the contingent consideration to be paid
should be measured at fair value and should be recorded as part of the cost of the purchase.
Another view regarding the accounting process of contingent asset is that Contingent consideration
that has to be paid should be considered and recorded at some other point especially when the
conditions associated with the contingencies are being met . ( vaal and obesK N , 2010). Another
important issue or question that has been addressed by the paper is that what the accounting
professionals should do while conducting accounting for contingent asset following the RSIF
guideline where RS guidance is unclearIF . (Choi and Mueller, 1992).
his research paperT “Implications of the IFRS goodwill accounting treatment asks a specific”
question how the international fi nancial reporting standards RSs has influenced and changed the(IF )
oodwill accounting g treatment in Australia he accounting treatment for goodwill in AustraliaG . T

has challenged fi nancial report preparers and standard setters for decades as there are several
issues related to the valuation of goodwill in the conte t of a business organizationx (Ampofo and
Sellani, 2005).
his paper focuses on the various aspects of the recognition measurement and valuation ofT ,
goodwill and the issues related to preparing and assessing the fair values to assets and“ ”
liabilities(Street and arsonL , 2004 he paper also discusses the former Australian and new RS). T IF
policies for goodwill particularly in relation to the subjective aspects of the new standard he, . T
paper also raises questions regarding the various implications for fi nancial report preparers,
auditors and corporate governance who are engaged in goodwill accounting ( acterP , 2005).
c. Similarities and difference between the two research studies:
he paperT “IFRS 3, IAS 16 and IAS 37: Contingent Consideration in an Asset Purchase and”
“Implications of the IFRS goodwill accounting treatment is similar in this respect that both of”
them are reviewing the issues and problems related to the accounting standards practice in
Australia by the accounting professionals he difference between the papers is that the fi rst paper. T
is reviewing the issues related to the accounting of contingent assets being acquired by the
business following the relevant accounting standards under RS AS where the second paperIF & I ;
is only addressing the issues related to accounting policies of oodwill in AustraliaG (Cortese and
rvineI , 2010).
d. Implications of the selected research papers for the accountant of Australian companies,
accounting regulators and investors (external user of financial reports)
he articleT “IFRS 3, IAS 16 and IAS 37: Contingent Consideration in an Asset Purchase has the”
following two major implications with respect to the Australian Accounting Standards (Albu and
Albu, 2012).
An important fi nding of the research paper reveals that there are different views regarding the
valuation of the contingent assets that must be taken into consideration by the accounting
professional while accounting for the contingent asset.

he AS requires that while accounting the contingent assets the items property must beT I 16
initially recognized at cost where Cost is defined as the cash equivalent price at the ti me
of acquiring the assets, .
his is also being argued that the valuation of the assets to be included in the contractualT
arrangement for making payment for the contingent consideration.
Another important fi ndings of the paper are that contingent consideration should be measured at,
fair value and should be considered as the part of purchase.
Another important revelation of the paper is that those contingent consideration payments that are
dependent on actions of the buyer will not meet the definition of a fi nancial liability until those actions
are being actually being performed by the buyers and sellers of the asset.
he another important fi ndings of the paper is that due to insufficient guidelines provided by theT
RS accounting standard the accounting professionals has to apply their own judgments whileIF
accounting for the contingent properties acquired by the business.
he fi rst implication of the discussion of this research paper is that accounting of contingent asset isT
quite complicated as there are several views regarding the accounting of the contingent assets
and the accounting process to a great e tent is dependent over the situation in which thex
properties has been acquired.
he second implication that can be drawn from this research paper is that that there is a greatT
deal of proper application of the judgement of the accountants are being required as the
guideline given for accounting of the contingent assets are unclear( radbury and vanB , 2006).
hus this implication and implication is important for the accounting Australian regulators isT -1 -2
that as they always have to try to develop new accounting standards so that the ambiguity
regarding the procedure of accounting can be reduced ( r ggemannB ü et al.,2013).
hus this implication and implication is important for the accounting professionals as theyT -1 -2
always have to stay alert while accounting the contingent properties as it demands a grated deal of
proper application of the judgement of the accounting professionals

he above mentioned implications are also important for the investors as the valuation of theT
assets of the company may change with a change in the accounting policies which definitely will
influence the investment decisions of the e ternal investors with respect to a companyx .
he articleT “Implications of the IFRS goodwill accounting treatment has the following two”
major implications with respect to the Australian Accounting Standards.
Accounting of goodwill was a controversial issue for the Australian accountants since anuaryJ ,
since when the country has adopted the requirements following the international accounting2005
standards for goodwill accounting As per the new requirements of the international accounting.
standards when the goodwill to be assessed is coming from a combination of assets is longer will
be amortised but only will be tested for impairment annually he requirement to comply with. T
the new international accounting standard requires that for estimating the fair value value in use,
and recoverable amount the valuation process of the cash generating units will be based on
numerous assumptions for the estimation of the fait value of the goodwill which is an intangible
asset hus as the cash generating units are not actively related to the capital market so there is. T
every possibility that a considerable amount of ambiguity and subjectivity may take place while
valuing the intangible assets hus it can be concluded that the paper describes that major. T
implication for the Australian accounting standard is that Austrian accounting polices related to the
accounting of goodwill is falling under a great deal of ambiguity while fulfilling the requirements of
international accounting standards( ilcullenK et al.,2007).
he second implication that the paper has conveyed regarding the Australian accounting processT
in relation to goodwill is that the accountants has to follow the path of creative accounting where
factors of professional judgment and management capabilities and integrity and strong' ,
corporate governance mechanisms are to be used for generating a proper valuation of the
goodwill while fulfilling the requirements of international accounting standards
he above two implications are important for the accounting regulators as well as accountingT
professionals as they have to address.

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