AASB and IFRS Standard Amendments and Impact on Australian Accounting

This report is a comprehensive literature review examining the activities of the Australian Accounting Standards Board (AASB) regarding amendments to existing AASB and IFRS standards, and how the AASB undertakes the standard-setting process to meet stakeholder needs. The report highlights the importance of stakeholder involvement, including comment letters and direct discussions, in the AASB's process. It analyzes changes in AASB 116 and their impact on the industry, as well as the appropriateness of amendments made by the IASB for Australian-specific needs. Part A reviews the AASB's structure, standard-setting process, and stakeholder consultation methods, including exposure drafts, roundtable discussions, and project advisory boards. Part B assesses the potential impact of proposed changes to AASB 116, particularly the prohibition of using revenue-based models for depreciation, and the revised treatment of costs associated with bringing assets into working condition. The report also discusses the effect of these changes on manufacturing and mining companies. The report concludes that the standard-setting process is open, transparent, and balanced, with no single party holding absolute power, ensuring that stakeholder rights are protected and their views are considered, while the AASB board ultimately makes final decisions.

Literature review: Individual
assignment

Executive Summary
The research report is a look into the activities of the AASB as far as amendments are concerned
to the existing AASB and IFRS standards are concerned in Australia and how the AASB board
undertakes the standard setting process to fulfill the needs of the stakeholders etc. one of the
most important aspect of AASB standard setting process is how the board involves the
stakeholders in the process and asks for their comment letters and include them in a direct round
of discussion is quite interesting. Also, it is up to the board to examine the comments and
discussions put forward by the stakeholders before the same can be included in the amended
provisions. In the other portion of the report the changes made in the AASB 116 is examined
how the same would affect the industry participants is examined. There is also a discussion
regarding the appropriateness of the changes made by IASB and whether some of the
amendments can be undertaken by AASB itself to suit industry specific needs in Australia.

Introduction
AASB standards are set in motion as soon as they are approved with a given deadline for its
adoption by all registered entities in Australia. However, the accounting standards issued and
even the conceptual framework on which the framework of standards are based are never going
to be static and rigid documents. The provisions of accounting standards do keep on changing as
per the prevalent economic scenarios and market conditions. In this aspect, the role of the AASB
Board is quite important as the AASB Board is deemed as the primary standard setting board in
Australia (Roy, 2015).
Part A: literature Review
The AASB Board is a 11 member board including the chairman of the board. The chairman of
the AASB board is appointed by the Ministry of Corporate law and the members of the AASB
board are appointed by the FRC or the Financial reporting council. AASB is entrusted with the
opportunity of developing a general and widely applicable standard which is understandable in a
transparent and comparable manner so that general purpose financial statements can be presented
in an unbiased manner for the consumption of the users in Australia.
The changes in the standard can be made as a result of the technical issues being identified by the
IASB or the same can be identified by the IFRIC. Australian regulators have adopted the IASB
or the IFRS framework since 2005 and thus any technical issues identified by the IASB would
have a significant change in the AASB standards as well and would require modification as well.
Thus, any issue which is reported by the IASB board or the IFRIC would be required to be
addressed by the AASB board too. However, the degree of involvement in the change program
might be substantive or non-substantive on the part of AASB board. A technical issue might be
considered when identified by IPSASB. AASB board always monitors the working program of
the IPSASB and would undertake changes pertaining to financial reporting in the public-sector
organizations in Australia (Berry, 2011).

Issues of technical nature cn also be identified by AASB itself related to IASB consideration to
IFRIC consideration and once the issues are identified the AASB would go on to issue relevant
agenda related to the technical issue considered.
The agenda means a project proposal would be prepared by the AASB board including the
benefits that would accrue of the project is undertaken by AASB and the resources which is
estimated to be consumed on consideration of the relevant consideration. The project proposal
would also most of the time try to include a note as to how the non-consideration would affect
the relevant parties.
The project proposal would then be considered by the AASB board as to whether the same shall
be worthwhile to be acted upon and if the same shall be placed inside the work program or
Agenda of the board. If the board decides not to include the proposal in the agenda then the
board would proceed to issue a rejection statement citing relevant decision making criteria. The
minutes of the board meeting in which either the proposal is accepted to rejected would be
recorded appropriately (Picker, 2015).
The next step taken by the board is to consider the research proposal and do a methodical
research on the same. AASB board would proceed to have a detailed discussion on the materials
which are presented by the staff members of the AASB. The scope of the issue and any possible
alternative approaches would be included in the agenda papers and discussed. The AASB would
include possible information statements from the IASB board or even from the IFRIC and may
be form the NZASB etc (Deegan C. , 2015).
Sometimes the issues under consideration of the Agenda might be jointly considered with the
New Zealand board when the issues under consideration might be beneficial to both countries.
The next process in the change process is the consulting process with all the stakeholders
involved. Once the AASB board considers the agenda in detail and then the documents adopted
after considerable and detailed discussion would beamed available to the stakeholders concerned.
The documents which are made available to the stakeholders are:
a) Exposure drafts
b) Invitations to Comment and
c) Discussion Papers

The exposure drafts are papers which were discussed in the board meetings prepared to a
conclusion have been reached and the same includes the proposed standard or in the case of a
change being considered the amendments concerned.
Invitations to comment generally seek feedback on broad proposals. An ITC may contain a
discussion paper or a consultation paper. The invitations to comment are papers which seeks
feedback form industry professional and other participants to the exposure draft within a timely
framework. On the other hand, the discussion papers are the papers which are issued by the
IASB or AASB to seek industry feedback from the professionals working in specific or a broad
range of industries to discuss the whole range of topics in detail (Shirley Carlon, 2015).
The next step in the standard setting process involves a detailed consultation with industry
stakeholders etc. following methods:
a) RoundTable Discussions
The AASB in many cases of exposure drafts would like to invite constituents or provincial
institutions regarding a detailed discussion on the exposure draft in a formal meeting at a
designated place. For attending such formal roundtable meetings participants would be required
to register for the same in advance. Detailed discussion would be undertaken and presentations
form the participants would be accepted for further consideration and detailed review (Berry,
2011).
b) Focus Groups
Focus groups generally present the groups of users of the financial statements in Australia
including the shareholders and other investors, equity and other categories of analysis and credit
rating agencies etc. these groups would be used the analyze how the proposed changes in the
existing standards is intended to enhance the reporting standards and enhance the fairness of the
information contained in the statements men’s issued by entries under AASB and ASX.
c) Project Advisory Boards

The AASB on its part might consider appointing a project advisory panel by the relevant
stakeholders which would include people in a group with the requisite skill and knowledge base
to review and deliberate and present a report on the topic under consideration. The project
advisory panel would be required to prepare comments on the agenda papers submitted by the
AASB board (ALEXANDER, 2009).
d) Interpretation Advisory Panels
The AASB in some cases of deadlock might prefer to form panels known as Interpretation
Advisory Panels to help in the preparation of alternative views on specific topics (Peter Atrill,
2014).
Issue of the pronouncement documents
Once the agenda document is approved after the above mentioned due process the AASB would
issue a pronouncement to the effect in the form of a new standard or a interpretation statement
for the changes or in the form of a conceptual framework statement as required. AASB for this
purpose follows a transaction neutrality policy in general events of an issue of technical nature
would be dealt with similarly whether the same is related to for profit or not for profit
organizations ( unless the AASB is of the opinion that issues need different ) interpretations
(Melancon, 2002).
The technical issues once pronounced in the form of a change document would also be required
to be submitted to IASB so that a standard international document would be considered to be
used. Further the AASB would also solicit comment letters form the relevant set of stakeholders
and the comments submitted would be used in the submissions which would be presented to the
IASB etc. for formal international pronouncements.
Implementation and compliance with the issues pronouncements
AASB would then push for the implementation of the issued changes to an existing standard or
a new approved standard pronounced with a given deadline and the same set of deadlines would
be followed by monitoring organizations like the ASIC , APRA and CPAA and IPA etc. the

AASB also requires timely inputs form the above mentioned organization as to whether relevant
changes to the standards are required at all (Mclaney, 2013).
Concluding Remarks
From the above discussion, it appears that the review and standard setting (changing) process is a
quite open and transparent process and no party holds an absolute edge as far as standard setting
are considered. The AASB holds the most power but the same is not absolute. The stakeholders
also get their due consultative right and in case of any deadlock the advisory panels can be
formed to advise on a number of maters. Thus, the entire process seems to be a balanced one and
is not in the favor of a singular entity. However, the final decisions regarding the standard setting
and caging rests with the AASB Board (Elliott, 2014).
Part B: Report
The likely impact on company accounting if the recommended changes are written into IAS
116/AASB 116 is assessed as follows:
As a result of the exposure Draft for the changes in AASB 116, the clarification provided is that
the current use of calculating depreciation of an asset based on the revenue based model is not an
appropriate model. Thus, revenue is deemed an inappropriate base for estimating depreciation of
an asset and the revenue generation is also prohibited to be used as a method of depreciation
because the same does not reflect the economic benefits derived from the said assets (Dyson,
2007).
Paragraph 17 of the AASB 17 specified the directly attributable costs for the measurement of the
PPE. One of the example which was specified under the paragrpagh17 was that the cost of
testing is one of the costs to determine whether the asset is functioning in a proper manner and
the net cost of the asset would only be determined only after deducing the net sales figures which
were produced from the disposal of the item produced while testing etc. and while bringing the
asset into the installed location and working condition (Deegan & Ward, 2013).
Thus, the provision was misused and misinterpreted by many entities. Under the draft the
paragraph 17 was modified and it was prohibited to deduct such net proceeds from the costs of
an assets while the same being brought into working condition by an entity.

Because of this new provision an entity would report such net proceeds if any (accrued in the
testing phase) in the profit and loss account and would not make any adjustment to the cost of the
long term asset itself.
countries which are predominantly manufacturing concerns or mining operations would be more
affected by the proposed changes in the standard:
The AASB Board during the discussion came to the conclusion that the prosed changes and
required amendments to the existing standard would bring the required set of information to the
user groups involved by making it possible to include all revenue in the profit and loss
statements when they have occurred. Under the current provisions some of the revenues were
offset against the costs the PPE in certain cases and thus a clearer picture of the revenue would
emerge under the new amended regulatory provisions. This would make it possible to cast the
real value of PPE or the actual cost of the PPE would be shown in a better way. Both the revenue
and costs as per the view of the board was earlier distorted by the previous provisions which
were misinterpreted often (Dagwell, 2014).
Under the new amended provisions, the business entities would now be required to make sure
they identify the costs incurred which is related to the items of productions and which were sold
before the PPE is made available for use by the entity. Also, there shall be a distinction between
costs incurred in general and costs incurred before the data the PPE is made available for use.
Under the new proposed provisions, the costs incurred on inventories must exclude the
deprecation of the assets which is yet to be made available for use by the entity (Cottrell, 2012).
Should national accounting boards such as the AASB modify their own standards if the
need arises?
Basically the entities concerned would be required to make judgements regarding identification
of costs as to whether the said costs are costs related to inventory or related to testing of the asset
concerned or the costs which would be needed to be recognized in the income statement. The
new provisions also implies that the proceeds which were deducted earlier form the costs of the
PPE is not in excess of the full cost of testing the asset to determine the PPE is working properly
(Britton, 2012).

From the above discussion it appears that the said provisions were needed by the whole
manufacturing and mining industries and not just a particular section of the said industries in a
particular country. The proposed changes are definitely not a one size fits all strategy and can be
applied irrespective of the industry in which the entity is presently working. National accounting
boards can proceed to make such changes but hey would be required to notify the IASB
regarding the proposed changes and if the IASB board deems fit the same provisions can be
incorporated into international accounting standards as well. Thus, currently there is no
ambiguity as to whether the standards should be locally amended or amended and advised by
IASB. It can be done both ways and benefit in a standardized format of international reporting
(Berry, 2011).
Conclusions and recommendations
The proposed changes in the above standards as per the board is in conformance of the
provisions of IFRS 15. This is particularly because of the fact that the asset under consideration
is to be sued for the normal activities of production etc., there would not be any particular basis
under which it would be held that the inventory produced during testing of the asset would result
from non-ordinary activities and that can be presented as revenue in the income statements. As a
consequence the board believed that no changes would be required in the other standards
regarding presentation of the inventory and revenue and existing provisions would suffice.
Particularly the entity may be required to disclose the inventory as a revenue category under
para114 of the IFRS 15 and as the provisions of IFRS 15 as well IAS 2 is satisfied no further
disclosure would be required to be made and no change is therefore proposed (Barker & Schulte,
2017).

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