Implication of IFRS on Government - Accounting Theory and Current Issues

The report examines the implication of IFRS in Australia after its implementation in different sectors of the government. It analyzes the impact of IFRS on the Australian government, especially in the financial report. The report provides diverse information that can be used as a guideline to implementation. The implementation of IFRS has been good and positive in Australia, apart from the few cases that have posed challenges, especially to the local government. The implementation of IFRS has resulted in the increase of assets in the situation where it has been used with the maintenance of the position of large organizations, unlike small organizations that mostly improved their position.

ACCOUNTING THEORY AND
CURRENT ISSUES
IMPLICATION OF IFRS ON GOVERNMENT
ARTICLE: IFRS AND THE PUBLIC SECTOR

Executive summary
• The aim of this report is to examine the implication of international accounting in Australia
after the implementation of IFRS standards in different sectors of the government most
especially in how the government generates it report with a focus of the relevant AASB.
• International Financial Reporting Standards (IFRS) introduction has been implemented all
over the world except for a few countries that use other standards such as US and GAAP.

• Literature review has shown that the implementation of IFRS has been labelled as positive
globally though there have been arguments in this sector.
• This report will examine the impact of IFRS on Australia government especially in the
financial report

• In general it can be detected that the implementation of IFRS in
Australia has been good and positive apart from the few cases that have
posed challenge especially to the local government.

• The implementation of IFRS has resulted in the increase of
assets in the situation where it has been used with the
maintenance of the position of large organization unlike
small organizations that mostly improved their position.

Introduction
• With the growth of standards globally an example of a standards implemented in Australia is IFRS
(International Financial Reporting Standards)
• IFRS are examples of accounting standards and they dictate how the financial statements are
reported.

• They were as a result of International Accounting Standards Board IASB and
IFRS foundation trying to harmonize the language used in financial reporting
• It started as an initiative of European Union

• IFRS in Australia has replaced International Accounting Standards IAS since it was mandatory for the
European Union nation .
• IAS was formed by IASC.
• They were implemented in Australia in the year 2005 after the Europen union commission made it a must for
all its members.

• As mentioned earlier the paper examines the implication of IFRS to the Australian
government recognizing that all organizations contribute to the progress or failure of the
nation.
• This report provides a very diverse information that can be used despite the country in
question as guideline to implementation.

Implications of IFRS on Australia
• The implementation of IFRS standards by organizations has had several challenges (Greuning,
2006) therefore this has led to questions on the impact of IFRS on the quality of reporting in
Australia.
• This report therefore looks at this implication in coming up with conclusion on the effect of
Australia.

• Australia is composed of three arms of the government that is the local
government, the commonwealth government and state government
• The implementation of IFRS has been difficult to the local government
(George, Ferguson and Spear, 2013) due to double decision making in
which, while making decisions they must ensure that the decisions they
make are beneficial to the people at the same time they are in line with
the standards.

• This local government has also had to implement a lot of finance in the employment of people as
salary to implement this standards and in teaching them to schools.
• They also have spent money in acquiring teaching resources and formulation of professional
development activities to help educate learners to embrace a standard that emphasizes on
principles rather than just the experience obtained in education (Bond, Govendir and Wells 2016).

• IFRS has led to the introduction of more rules emphasizing
principles and consistency in accountancy
• This is a move that will ensure that accountants in the
country produce quality financial statement without issues
like creative accounting (Ahmed, Neel, & Wang 2013).

• It has also encouraged transparency (Zeff & Nobes, 2010) in the
financial information provided enabling several investors to come to
Australia because this standards encourage ethical behavior
discouraging unethical behaviors.

• The strict regulations on the benefits that are received by the
staff on leave by IFRS example being accrued leave
• This has made it difficult for government officials because of
the size of their payment roll and because of the types of
leaves and the arrangements that are made in them.

• IFRS has established new derivative called embedded derivative in a contract
• This aspect within a contract changes the cash flow (Kirk, 2009) thus organization
within the government organization recognizes the host contract differently from
the embedded derivative.

• IFRS has been very significant to both the large and small
firms unlike some arguments that it wouldn’t before its
implementation
• Half of the small firms where it was implemented ended up
growing in their sizes while the large organization and in the
government maintained there position.

• The cost that the government used in the implementation of IFRS standards have
been high (Chen, Young, & Zhuang 2013) but they went ahead to implement it
anyway since it was a must for them.
• Their financial problems had an overall decreasing effect to the economy of the
government since they had to be supported financially.

• The overall effect of IFRS was conducted in a study amongst
Queensland and Victoria.
• It was observed that the adoption of IFRS resulted to an
increase in assets to almost $6.6 million as the liabilities
were at $1.89million (Landsman, Maydew, & Thornock
2012).

Conclusion
• The implementation of IFRS standards have resulted to promotion of the quality and ethics (Ball,
2006) in the accounting profession, though huge finances were required in changing to these
standards.
• A lot of investment and education should be done relating to the standards for its full implementation
for its objectives to be achieved

Reference
Ahmed, A., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary
evidence.
Ball R. (2006).International Financial Reporting Standards (IFRS):pros and cons for investors
Bond, D., B. Govendir and P. Wells (2016). “An evaluation of asset impairments by Australian firms and whether they were
impacted by AASB 136.” Accounting & Finance 56(1): 259-288
Chen, C., Young, D., & Zhuang, Z. (2013). Externalities of mandatory IFRS adoption: evidence from cross-border spillover
effects of financial information on investment efficiency. The Accounting Review, 88(3), 881-914

De George, E. T., C. B. Ferguson and N. A. Spear (2013). "How Much Does IFRS Cost? IFRS Adoption and Audit Fees."
Accounting Review 88(2): 429-462
Kirk, R.J. (2009). IFRS: a quick reference guide. Oxford: CIMA Publishing
Landsman, W. R., Maydew, E. L., & Thornock, J. R. (2012). The information content of annual earnings announcements and
mandatory adoption of IFRS. Journal of Accounting and Economics, 53(1-2), 34-54
Van Greuning, H. (2006). International Financial Reporting Standards: a practical guide. 4th ed. Washington: The
International Bank for Reconstruction and Development/The World Bank
Zeff, S. A., & Nobes, C. W. (2010). Commentary: has Australia (or any other jurisdiction) ‘adopted’ IFRS? Australian
Accounting Review, 53(20), 178-184.