Report: Analysis of Recent Developments in Accounting Practices

This report delves into current developments in accounting, examining the impact of International Financial Reporting Standards (IFRS) and Australian Accounting Standards Board (AASB) standards on financial reporting. It analyzes recent changes, particularly IFRS 9 (financial instruments) and ...Read More

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Current Development in Accounting Thoughts

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Introduction
The present report is developed to examine and analyze the current accounting issues
from the perspective of a senior accountant who have been provided with the responsibility by
CEO to provide her with a deeper theoretical understanding of the accounting issues discussed in
a recent article. Also, the senior partner of the firm has provided the role of reviewing the
upcoming accounting standards and the opinions of other industry players in relation to it. As
such, the report analyses a current exposure draft developed recently for proposing accounting
standard changes and reviewing the comment letters developed for its purpose.
Answer 1
The article selected for the analysis purpose is ‘IFRS quarterly newsletter’ for providing a
global insight into the recent developments in the international financial reporting standards and
their impact on the business entities operating within Australia. This is because the changes in
the international accounting standards have a direct impact on the financial reporting process of
business entities within Australia. IASB (International Accounting Standards Board) have
undertaken the role of development the International Financial Reporting Standards (IFRS) to be
adopted by the business corporations across the world (Gwan, 2018). The compliance with IFRS
is proposed by IASB in order to maintain uniformity in the financial reporting to make the
financial information more comparable and understandable by the investors worldwide. This is
done mainly to improve the quality of financial reporting and for meeting effectively the
different needs and expectations of the global investors (Wasieleski & Weber, 2017).
Australian accounting Standards Board (AASB) has also directed the business entities to
comply with the IFRS standards for seeking the attention of the global investors. This in turn will
promote the growth and development of business entities operating within Australia by gaining
funds from the global investors. The adoption of IFRS standards tends to improve the
transparency in the financial reporting process with its conceptual accounting framework
principles. The accounting framework mandates the business entities complying with IFRS to
develop the financial statement having the characteristics of reliability, faithful presentation,
comparability, understandability, verifiability and timeliness. The qualitative characteristics have
been developed on the basis of normative accounting theory that has provided the theoretical

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knowledge in relation to the standard accounting processes and policies. The theory is based on
the value judgments and moral principles that need to be present within the accounting policies
for protecting the interest of end-users. Thus, the Australian business entities by adopting the
IFRS standards will also tend to comply with the conceptual accounting framework and thereby
improving the integrity in the financial reporting (Riahi-Belkaoui, 2004).
The article in this context has stated that the changes in the IFRS will have a direct
impact on financial reporting process of Australian corporations. The changes that are discussed
in the article are about the two major new accounting standards that have come into effect from
January 2018. The standards are IFRS 9 relating to financial instruments and IFRS 15 relating to
revenue from contracts with customers. The significant change in these international accounting
standards need also to be complied by AASB and therefore have to reform its financial reporting
system as per the new proposed standards. The Australian business corporations tend to develop
their accounting policies and guidelines as per the new standards to comply with the IFRS
standards changes. The standard has included the requirements of recognition, measurement,
impairment, de-recognition and general hedge accounting to be disclosed in the financial reports
for the financial instruments. In this context, the recent changes in the IFRS 9 is relating to the
significant changes in the financial reporting process for loan losses to meet the interests of end-
users (IFRS, 2018).
The changes in the IFRS 15 is relating to disclosing more information about the process
of revenue recognition in the financial statements. It is expected from the companies to identify
and recognize the revenue on the basis of the contract the entity has with the customers and
identifying the transaction price. There is wide impact of the IFRS 15 standard on the
construction companies as it requires the entities to provide detailed information on contract
costs and expenditures made for fulfilling the contract. This requires the business companies to
review their revenge recognition practices and implement the necessary changes by reviewing
their contract practices for complying with the new regulations (Gwan, 2018).
Therefore, the Australian business entities need to review the practices of revenue
recognition and measurement of financial instruments to comply with the changes in IFRS. This
may be quite challenging task for the business companies as they need to completely review the
accounting systems and processes. This would require significant expenditure for the companies

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as they have to develop an action plan for implementing the required changes. The action plan
consists of identifying, measuring and implementing the proposed changes in the accounting
processes so that it can comply with the international standards. Thus, it requires significant
funds required the hiring of skilled accounting professionals that can increase the operating
expenses of the company. Besides financial resources the successful implementation of the
proposed changes would also require consumption of time and thus can distract the managers
from focusing on the core business areas. The business entities need to overcome all these
significant challenges for meeting the wide interests of the global investors and ensuring their
sustainable growth and development by continually seeking funds. The wide number of
complexities and challenges associated with complying changes of IFRS standards is restricting
the business entities to implement them (Ordelheide, 2016).
As such, it has been reported by ASIC (Australian Securities Investment corporation) that
only few number of entities listed on ASX are complying with the required changes proposed by
IASB in the accounting standards. There is no disclosure made by large Australian corporations
at present about the impact on their financial reporting process as per the new recommended
standards. This can be regarded as major issue of concern for the companies as it can negatively
impact their attractiveness to the global investors. The global investors on receiving the
information about the changes in the accounting standards tend to examine the financial results
in accordance with the changes. As such, the absence of disclosures reading the significant
changes can cause ambiguousness in the mind of investors that can impact their decision
regarding investment in the business corporations of Australia. As such, the limited availability
of funds from the global investors can reduce the chances of potential growth and success in the
long-term. Therefore, it is recommended to the business companies operating within Australia to
develop effective strategies and systems for complying with the proposed AASB changes
(Parker, 2013).
The article has also discussed the changes that can occur due to the decision of UK to exit
for the European Union. It has been stated in the article that exit of the UK from EU would cause
changes in the financial reporting of taxes by the entities. IASB at present is engaged in
developing proposals for implementing changes in the reporting of tax information to meet the
interests of the end-users. The significant changes implemented by IASB for reporting the tax

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issues could result in causing the respective changes within the Australian financial reporting
environment also for complying with the international standards. The business entities within
Australia also need to comply with new standards of leases proposed by IFRS 16 that will also
increase the complexity in the financial reporting process of business entities. The new standard
requires reporting more information about the leases on the balance sheet in comparison to that
stated by the present accounting standards. Thus, it can be said that the changes in IFRS is
causing the significant changes in AASB standards that will significantly improve the quality of
financial reports developed by Australian business corporations. However, they also need to
implement effective accounting systems and processes for overcoming all the challenges
associated with their adoption (Gwan, 2018).
Answer 2
Exposure Draft
Exposure draft refers to the changes that are proposed by the accounting boards or
regulators to make changes in the relevant accounting standard. The purpose of exposure draft is
to put the proposed changes in front of the public for open invitation to comment on the exposure
draft. The comment provided in the letters can be against or in favor of the exposure draft.
Comments letters are generally given by accounting bodies, accounting professionals, accounting
regulators and other individuals who uses accounting standard for the purpose of financial
reporting. In this segment of the report the current exposure draft on the proposed changes to the
accounting standard IAS 16: Property, Plant and Equipment (Exposure draft, 2017).
The current changes that have been proposed in the exposure draft
The exposure draft that has been selected for the report purpose is given on the IASB
portal and it is related to changes that have been proposed in the accounting standard IAS 16
which is related to the accounting of property, plant and equipment. This exposure draft is
provided on the web portal of IASB in June 2017 and comment letters are invited on the same till
19 October, 2017. The International Board of Accounting Standards has received many requests
from many business entities and accounting professionals to make some changes in the IAS 16
so that they represents the financial statements in more precise manner. The industries involved
in mining and pharmaceuticals sector are facing problem in accounting of sales of goods that are

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produced during the testing phase of assets before they are actually put for intended use. As per
the existing provisions of the accounting standard IAS 16 (Para 16), cost of item of property,
plant and equipment must include all the expenses that are incurred to bring the assets to the
place of actual use as intended by the management (Exposure draft, 2017). In this regard the para
17, provide various examples of the cost that has to be included in the value of assets before they
are put to use. Among these examples the one is testing expenses that have been occurred to test
the assets in order to check whether they are fit for the production or not. Many of the business
entities have no issues to add the cost of testing in the total value of item of property, plant and
equipment but they argues on the treatment of the sales proceeds from the goods produced
during the testing phase. As per para 20 of the IAS 16, sales proceeds from the goods produced
during the testing phase of assets before they are put to actual use must be subtracted from the
cost of assets. Many of the business entities have argued that treatment of sales of goods as a cost
of assets as it violates the principle for recognition of revenue in the books of account. The board
committee has taken all the concerns of all the affected business entities and decided to amend
the respective para of the accounting standard IAS 16 (Wiley IFRS, 2008).
The changes in the accounting standard IAS 16 has been done mainly to address the
issues faced by the two main industry sector, namely extractive and petrochemical industries.
The committee has reviewed the changes that has been reported by the various entities and
provided the board proposal to change the respective para of the IAS 16. The changes has been
incorporates in the exposure draft and it has been publically open to invite the comments on the
relevance of changes in this accounting standard (Epstein & Jermakowicz, 2008).
Para 17 of the IAS 16, has been amended to provide the certain changes in accounting of
the sales proceeds from the goods that are produced during the testing phase of assets. After the
changes has been done in para 17, the sales proceeds from the sales of goods produced during the
testing phase are not being subtracted from the cost or value of assets that has been put to use,
and instead the sales proceeds are being taken to the profit and loss account (Wahlen, Jones and
Pagach, 2015). All these changes to the IAS 16 will help the business entities to represent the
items of property, plant and equipment at their actual cost and take the sales proceeds into the
profit and loss account. This will satisfy the recognition criteria of sales revenue in the profit and
loss account instead of taking it to the cost of assets as deduction from the cost of testing

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(Exposure draft, 2017). After changes has been made the financial statement present clearer
picture and fulfill the requirement of other accounting standard (Christian & Lüdenbach, 2013).
Critical analysis of the exposure draft on the basis of the public interest theory
The public interest theory provides that any rules and regulation that has been drafted for
public use and it impact the public at large than due care must be taken. The rules and regulation
must be such that it promotes the well being of people at large not the specific class of people or
industry. The accounting regulators that are responsible for development of the accounting
standards or those who are in charge of protecting the rights of people must take care that any
addition and modification to the accounting standards must in compliance with the requirements
of people at large not to benefit the small section of the society. The unfair practices in
development of the accounting standard will provide benefits to the special class of people and
will create disadvantage for other people (Alexander& Archer, 2008).
On the basis of the analysis of proposed changes to the IAS 16 Property, Plant and
Equipment it can be said that changes provided are in public interest and does not benefit any
particular class of people as it wide open for all (Camfferman & Zeff, 2007).
Analysis of the views that are presented in the comments letters in regards to the
agreement and disagreement with the exposure draft
Various comment letters have been received from the accounting professionals and
regulators all around the world to express their opinion on the exposure draft. Comment must
provide whether they are agree or disagree with the changes that have been made in the exposure
draft. Four comment letters have been selected on random basis from the list of comments letters
provided on the IASB portal (Comment Letters, 2017).The comment letters have addressed the
questions that are being asked in the exposure draft. The four comments are provided below:
 Comment Letter 1 (Given by the Financial Reporting Council established in United
Kingdom): The management at FRC United Kingdom has critically evaluated the
exposure draft and has reached on the opinion that exposure draft is not favorable for
public interest as it provide benefits only to some category of people those are engaged in
mining and pharmaceutical business. They argued that he proposed changes are specific

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to the special category of people and do not benefit the people at large. There has been no
clear definition of the goods that can be taken into profit and loss account.
 Comment Letter 2 (Given by the Certified Public Accountant Australia): According to
the information given in the comment letter it can be said that CPA Australia favors the
proposed changes in the accounting standard IAS 16. They welcome the changes and say
that such changes will help to recognize the sales proceeds in the profit and loss account
which helps in making the clear representation in financial reporting.
 Comment Letter 3 (Given by the Association of Accounting Technicians): As per the
comments provided by the AAT, it seems that they favor the proposed changes. They
further add that such changes will bring more clarity in treating the sales revenue from
the sales of goods produced during the testing phase of assets.
 Comment letter 4 (Provided by the Brazilian Accounting Committee): The comments
provided by this accounting body favors the changes the proposed by the IASB as it helps
in presenting the financial information more precisely while performing the financial
reporting (Comment Letters, 2017).
Opinions Gained From Comment Letters in Support and Against for Exposure Draft
The exposure draft in relation to proposing changes in the accounting standards for
recognition of property, plant and equipment have received support from 3 comment letters.
However, 1 comment letter has provided the opinion in against of the exposure drafts is it
intends to support the growth of some specific business entities (Comment Letters, 2017).
Theoretical Context of comment letters
The opinion derived from comment letters can be supported with the theories of private
and public interest. The private interest theories applicable to the comment letters as they support
the proposal of exposure draft by not considering the impacts of the changes at a wide level.
However, only one comment letter have provided the opinions on the basis of public interest
theory regarding the exposure draft by considering its impact at a wide level and not only on
specific business entities (Comment Letters, 2017).
Conclusion

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The report has provided a deeper understanding of the accounting article selected with
the application of relevant accounting theories. The article selected relates to the latest changes
that are occurring within the financial reporting environment of Australia as per the changes in
the international financial reporting standards.

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References
Alexander, D. & Archer, S. (2008). International Accounting/Financial Reporting Standards
Guide 2009. CCH.
Camfferman, K. & Zeff, S. (2007). Financial Reporting and Global Capital Markets: A History
of the International Accounting Standards Committee, 1973-2000. OUP Oxford.
Christian, D. & Lüdenbach, N. (2013). IFRS Essentials. John Wiley & Sons.
Comment Letters. (2017). Retrieved 6 May, 2018, from https://www.ifrs.org/projects/work-
plan/property-plant-and-equipment-proceeds-before-intended-use/comment-letters-
projects/ed-property-plant-and-equipment/#comment-letters
Epstein, B. & Jermakowicz, E. (2008). Wiley Ifrs: Interpretation & Application of International
Financial Reporting Standards. John Wiley & Sons.
Exposure draft. (2017). Retrieved 6 May, 2018, from
https://www.ifrs.org/-/media/project/property-plant-and-equipment/exposure-draft/
exposure-draft-property-plant-equipment-june-2017.pdf
Gwan, M. 2018. IFRS quarterly newsletter. Retrieved 6 May, 2018, from
https://www.grantthornton.com.au/insights/technical-publications--ifrs/ifrs-quarterly-
newsletter/
IFRS. 2018. IFRS 9 and IFRS 15 are now effective. Retrieved 6 May, 2018, from
https://www.ifrs.org/news-and-events/2018/01/ifrs-9-and-ifrs-15-effective-this-year/
Ordelheide, D. (2016). Transnational Accounting. Springer.
Parker, R. (2013). Accounting in Australia (RLE Accounting): Historical Essays. Routledge.
Riahi-Belkaoui, A. (2004). Accounting Theory. Cengage Learning EMEA.
Wahlen, J., Jones, J. and Pagach, D. (2015). Intermediate Accounting: Reporting and Analysis.
Cengage Learning.
Wasieleski, D. & Weber, J. (2017). Stakeholder Management. Emerald Group Publishing.

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Wiley IFRS 2008: Interpretation and Application of International Accounting and Financial
Reporting Standards 2008