Impact of Accounting Standard Changes (AASB & IAS) on Businesses

This report examines the critical role of accounting standards in business operations, focusing on how the Australian Accounting Standards Board (AASB) incorporates changes from the International Accounting Standards Board (IASB). It explores the standard-setting process, including the identification of technical issues, stakeholder consultation, and the eventual issuance of accounting standards. The report delves into the impact of changes in IAS 116/AASB 116, which deals with Property, Plant & Equipment and how this impacts financial reporting and accounting treatments for businesses, particularly those in manufacturing. The report also assesses how these changes affect countries with significant manufacturing operations, considering the economic and operational implications of standard adoption. The report concludes with recommendations for navigating the complexities of accounting standard changes and their impact on various stakeholders.

Table of Contents
Executive Summary 3
Introduction 4
Literature Review
Australian Accounting Standard
- How AASB incorporate Changes to International Accounting Standard 5
- How AASB incorporate Australian issues to Accounting Standards 7
Report
Impact on Accounting
- Changes in IAS 116 / AASB 116 8
Impact on Countries
- Exposure to Manufacturing Operations 9
Proposed Changes
- International Standards or National Standards 10
Conclusion and Recommendation 11
References 12
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EXECUTIVE SUMMARY
Accounting Standards plays very crucial role in the accounting process. It provides the path as to
how the accounting will be done depending upon the nature of transactions and the business of
the company. The accounting standard is prepared by the board and is made available as the
guidelines for the companies to perform the accounting as per the defined norms. The main aim
of the report is to assess how the accounting standards are changed and how the Australian
Accounting Standards incorporate the changes made by the International Accounting Standards.
The second major aim of the report is to consider the exposure draft of the Australian
Accounting Standard 116 and how the company accounting will be affected and how the
countries with higher exposure to manufacturing operations will be affected. With these
considerations, the report has been prepared and divided into different sections and headings.
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INTRODUCTION
Accounting plays very important role in the success of every business. Without the accounting
no company can run smoothly and effectively. To maintain the accounting on uniform basis, the
accounting standards board has been developed and it provides the guidelines as to how the
accounting will be done and presented to the users of the financial statements with appropriate
disclosures. In the given report, the main aim is to identify and ascertain how accounting
standard is changed and what pushes the accounting board to change the accounting standard.
With this aim, the report has been started with the executive summary detailing the aims of the
report. Thereafter, the literature review has been conducted and detailed. In this it is mentioned
as how Australian Accounting Standard Board incorporates the changes if any made by the
International Accounting Standards and how the local issues specific to the country is considered
by the respective accounting standard board has been detailed. In the second part, the light has
been focused on the Exposure Draft of Australian Accounting Standard 116 and it has been
detailed as to how the same have impacted the accounting of companies and how it has majorly
affected the companies with the high exposure to manufacturing companies. Thereafter, the
report has been ended up with the proper conclusion and the appropriate recommendation.
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LITERATURE REVIEW
With this literature review, the process relating to changes in the accounting standards has been
explained and the discussion has been mainly for the Australian Accounting Standards and how
it incorporates the changes of International Accounting Standards and also change according to
the local issues of Australia itself.
AUSTRALIAN ACCOUNTING STANDARD
1. How AASB Incorporate changes to International Accounting Standard–
AASB is defined as the Australian Accounting Standard Board which sets the accounting
standards prevalent and mandatory for the companies operating in Australia. As per the
accounting principles, financial statements of all the companies whether operating within
Australia or outside the Australia, shall be inconsistent with the International Financial
Reporting Standards so as to give uniformity in the prepared financial statements of the
companies (AASB, 2017).
At the very first, when the Australian Board has adopted the International Financial
Reporting Standards as the Accounting Standards, the Australian Accounting Standard
Board has accepted the accounting standard with few modifications with deleting the
extra disclosures and adding some options. The first adoption has been started in the year
of two thousand and five and thereafter the process of adoption has started with the
modifications. But in the year of two thousand and seven, the Australian Accounting
Standard has decided to adopt the International Financial Reporting Standard as issued by
the International Accounting Standard Board as it is without any reductions but have
decided to adopt them with the additional disclosure requirements (Zeff and Nobes,
2010).
The Australian Accounting Standard Board has the defined standard setting process. The
process starts with the identification of the issue which has come across the business
community and the other communities at large as to how the same is required to be dealt
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with the accounting purpose and the preparation of the financial statements thereon.
Although there are three ways through which the technical issues are addressed. In this
heading, two ways have been discussed. First is the identification of technical issue by
the International Accounting Standards Board or the International Financial Reporting
Standards Interpretations Committee. The Australian Accounting Standard has adopted
the International Accounting Standards in the year of two thousand and five and
accordingly if any technical issue arises from the International Accounting Standard
Board, it gets included in the Australian Accounting Standard Board and gets embedded
in the Work program. The work of the Australian Accounting Standard Board is that it
closely monitors the activities of the International Accounting Standard Board and
considers the relevant issue accordingly. The second way through which the technical
issue of consideration is defined is that the Australian Accounting Standard Board itself
identifies the issues and these are normally identified by the staff and members of the
accounting standard board. Thereafter, the issue so identified is referred to the
International Accounting Standard Board or the International Financial Reporting
Interpretations Committee for the consideration. The second that comes into place is the
adding of issue to the agenda of the meeting when it will be held (AASB, 2017). The
adding of issue to the agenda will help the board members and the staff to discuss the
issues in detail in conjunction with the happenings at the International Accounting
Standards Board and forward the issue for further. The third stage that comes into picture
is to research the advantages and disadvantages of the issue and disclosing whether the
same will be in benefit for the country or not like in order to have the relevant financial
information the accounting standard one hundred and one on presentation of the financial
statements have been issued so as to equip the users of the same to have more and more
information of the company. After researching about the issue and considering the same
in detail, the issue is then made available to the stakeholders, business communities,
Government and other individuals in the form of the Exposure Draft (Gordon and
Gallery, 2012). Stakeholders are defined as the persons or group of persons including the
body corporate and the artificial judicial person who are concerned with the issues and in
normal terms have stake in the issue. Through this exposure draft, all the stakeholders
including the Government give their suggestions on each and every clause that is
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mentioned in the exposure draft and each and every suggestion of the stakeholders are
discussed in detailed (Nobes 2011 and Nobes 2012). After having the due discussion and
consideration of the issues of the stakeholders and their suggestions also, the Australian
Accounting Standard Board issues the Accounting Standard. One stage is also there after
consulting with the stakeholders and before finalizing it as the accounting standard. This
stage includes the reference to the International Accounting Standards Board.
Simultaneously if the International Accounting Standards Board passes all the discussion
and the arguments then the accounting standard is made applicable with all the necessary
modifications as per the need of the stakeholders and necessary modifications made by
the International Accounting Standards Board (Christenen, 2015 and Stoddart, 2011).
In this manner, the Australian Accounting Standard Board incorporates changes to
International Accounting standards into the Australian Accounting Standards so as to
bring the uniformity in the preparation and presentation of the financial statements across
the globe (Tutticci, 2014).
2. How AASB incorporate Australian issues to Accounting Standards: In this heading the
third way as to how the Australian accounting standard is developed and made applicable
for the business community of Australia is discussed. Under this, the identical issue is
identified by the companies and the organizations of the Australia including the
individuals who are working under the proprietary firms. They provide the Australian
Accounting Standard Board with the issue which they are facing in the accounting
treatment of some transactions like how to value the property plant and equipment and
how much useful life shall be taken so as to depreciate the value of the asset over the
period of time. These local issues are addressed by the Australian Accounting Standard
Board in the same manner in which they have themselves identified the technical issue.
They again made the issues and draft of the Australian accounting standard available to
the stakeholders including the Government and individuals as to come up with the proper
suggestion and the considerations (AASB, 2017 and Hail, 2010). After having the due
considerations and suggestions, the Australian accounting standard board incorporates the
same into the accounting standard and made it applicable from that date only.
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REPORT
IMPACT ON ACCOUNTING
Accounting Standards are backbone of every entity’s accounting to maintain the uniformity in
Financial Reporting. Every country has its own accounting standards which have been originated
from International Accounting standard with certain changes to it according to the geographical
and economical condition of that particular country. Accounting treatment defines in the
Accounting Standards has to be complied by entity while doing accounting in relation to the item
for which Accounting Standard formed. Any change in Accounting Standard results in change in
accounting treatment and thus, accounting of an entity also changes. One of the major examples
to analyze this change has been taken into consideration in preparation of this report i.e.
Australian Accounting Standard Board 116 / International Accounting Standard Board 116
(SACE, 2011).
Changes in IAS 116/ AASB 116
AASB 116/ IAS 116 deals with Property, Plant & Equipment and it helps the different users of
accounting to understand the funds invested by an entity in its Fixed Assets- Property, Plant &
Equipment. This standard provides the accounting treatment for major portion of investment of
an entity on this basis the different users are able to ascertain the security level of their interest in
the entity. This standard provides how much will be the carrying amount of Property, Plant &
Equipment and how much is the depreciation on them along with the impairment calculation on
that asset at a particular point of time.
AASB 116/ IAS 116 have coverage on the major portion of the accounting of any entity and any
changes in these Standard impacts the major accounting treatment and accounting policies of any
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company. Changes in AASB 116/ IAS 116 not only impact the accounting treatment related
Property, Plant & Equipment but also impacts all the accounting policies related to other
incidental things to Fixed Assets in any organization (AASB 116, 2017).
As per Exposure Draft for Amendment in AASB 116 on the basis of IAS 116 changes is about
the treatment of sale price of items produced from property, plant & equipment during testing
phase of that equipment or plant. The IAS 116 has amended the treatment of sales proceeds from
capital receipts to revenue receipts by not allowing the same from deduction of cost of asset
rather showing them as revenue receipts in Income statement.
IMPACT ON COUNTRIES
Changes in International Accounting Standard and its incorporation in any countries accounting
standard has impacted the economic operations in any country and also the major operations of
big industries in that country. The Accounting Standard Board of the particular country has to
think about the pros and cons of changes before their incorporation in accounting standard in that
country according the working condition and financial condition of the country.
Exposure to Manufacturing Operations
Manufacturing Industries covers more than 50% of the industries in any country and Property,
Plant & Equipment are the major and main item in the Financial Report of any manufacturing
company. Any changes to Property, Plant & Equipment has high impact on the accounting policy
of the manufacturing company and thus effect the manufacturing operations of the company and
in turn effect the overall manufacturing industry in any country.
The proposed change which has been done by IASB in ascertainment of cost of property, plant &
equipment has high impact on the value of Property, Plant & Equipment which has been shown
in the Financial Report of Manufacturing Company. With the exclusion of the sales proceeds the
cost of Property, Plant & Equipment in particular company has increased the value of the Assets.
The net worth of that company will increase results in more funds from the investors and
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inclusion high and new technologies in manufacturing operations of that company (Ahmed,
2013). Also, by considering the sales proceeds in testing period increases the revenue of that
particular year and the manufacturing company can use this revenue in doing the operating
expenses of that year which enables the manufacturing company to have more profits that can
ploughed back in the business next year. All this changes will help in manufacturing industry to
grow in the particular country.
PROPOSED CHANGES
The proposed changes by IASB in International Accounting Standard have framed keeping in
mind the economical and financial condition of world as a whole. The requirement of different
users from Financial Report and understandability from Financial Report about the particular
item enables the IASB member to identify the need for changes in accounting standard and
account policy of any particular item (CPA, 2015).
International Standards or National Standards
The environmental and economical condition has being changing with the passage of time and
changes in accounting standard are also necessary. As the time passes, accounting people who do
accounting understand the flaws in the accounting standard and try to misuse them procedures by
doing manipulation and misguide the different users of accounting data and influenced their
decisions indirectly. As change in treatment of income earned during testing period change the
accounting and economic event in relation to cost of assets to be recognized in the books of
account which saves the manipulation of done by different accounting professionals in the
showing the low costs of Property plant & equipment. The consideration of income earned
during testing period as revenue income also helps the users to understand the clearly the testing
period length along with non occurrence of this revenue over other period and helps the
stakeholders to take efficient and effective decisions in relation to PPE (AASB 116, 2017 and
Street, 2012).
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Accounting Standards of Australian country has be formed in compatibility with International
Accounting Standard and implemented with the motive to make Australian companies financial
statement comparable and meaningful across the Globe. Any changes in International Standard
made it necessary to changes Australian Accounting Standard so that Australian standard are
compatible with International standard and the information can be used by any users from any
country.
CONCLUSION AND RECOMMENDATION
Accounting Standards are the guiding tool for the organizations to maintain their financial
statements in true and fair manner so that the users of the financial statements can have better
view of the functioning of the company. Through this report the adoption of accounting
standards have been detailed along with them process as how the same is bought into
consideration and the made available for the users. Secondly the light has been thrown on the
accounting standard 116 on the Property plant and Equipment. To conclude the report has been
the detailed one with all the relevant facts and procedures.
It is recommended to have the consideration of the International Accounting Standards in the
country specific standards so as to give uniformity on the preparation and presentation of the
financial statements.
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REFERENCES
AASB, 2017, “Official Website” available at http://www.aasb.gov.au/ accessed on 18/08/2017
AASB, 2017, “Standard Setting Process” available at http://www.aasb.gov.au/About-the-
AASB/The-standard-setting-process.aspx accessed on 18/08/2017
AASB 116, 2014, “Property Plant and Equipment” available at
https://www.legislation.gov.au/Details/F2005B00678 accessed on 16/08/2017
AASB 116, 2015, “Property Plant and Equipment” available at https://jade.io/j/?
a=outline&id=500099 accessed on 16/08/2017
AASB 116, 2016, “Property Plant and Equipment” available at
https://www.legislation.gov.au/Details/F2017C00296/Download accessed on 16/08/2017
AASB 116, 2017, “Exposure Draft – Property Plant and Equipment” available at
http://www.aasb.gov.au/ accessed on 18/08/2017.
AASB 116, ““Property Plant and Equipment – Fact Sheet” available at
http://www.johnwiley.com.au/highered/aas2e/content029/fact_sheets/AASB116_ch10.pdf
accessed on 16/08/2017
Ahmed A, 2013, “Does Mandatory adoption of IFRS Improve accounting quality”,
Contemporary Accounting Research, 30(4), pp 1348 – 1365.
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around IFRS adoption?” European Accounting Review, 24(1), pp 33-58
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https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/
ifrs-factsheets/factsheet-ias16-property-plant-and-equipment.pdf?la=en accessed on 16/08/2017
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IAS, 2017, “Financial Reporting Framework in Australia”, available at
https://www.iasplus.com/en/jurisdictions/oceania/australia accessed on 19/08/2017.
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Nobes, C., 2011. Accounting classification in the IFRS era. Australian Accounting
Review, 18(3), pp.191-198.
Nobes, C., 2012. Auditors' affirmations of compliance with IFRS around the world: An
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SACE, 2011, “Asset Accounting – Policy Statement”, available at
https://www.sace.sa.edu.au/documents/652891/e3c3644b-109e-404a-af87-2a114bb6651e
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