Applied Business Research BUS707: Australian Accounting Standards

This literature review examines the evolution and impact of accounting standards in Australia, particularly focusing on the role of the Australian Accounting Standards Board (AASB) and the adoption of International Financial Reporting Standards (IFRS). The review synthesizes findings from four acad...Read More

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Accounting Standard in Australia
Summary
According to the four articles, it was discovered that being an Australia government agency, the
AASB (Australian Accounting Standards Board) is responsible for developing and maintaining
the financial reporting standards. These standards are applied in both the private and public
entities. The AASB helps to facilitate the participation of the Australian community in standard
setting globally.
Common themes across the articles
The global financial standards are contributed by different bodies and AASB being one of them.
The AASB plays an important role in Australian Accounting Standards, which include
Interpretations that are applied by governments in preparation of financial statements for the
whole of government and the General Government Sector (GGS).
The Australian Accounting Standards has incorporated requirements which are specifically
applicable to the Australian entities. These requirements are designed in such a way that, they are
either restricted to the non-profit or the public sectors. (Robb, Rohde and Green, 2014)
Originally, the Australian Accounting Standards was not applicable to the bodies which are
regulated under the Corporation Law while the Australian Accounting Standards Board was
applicable to those sectors which were regulated under the Corporations Law.
Primary findings
The accessibility of information related to financial reports has been made more available in the
IFRS compared to the Australian accounting system. It has also reduced the cost of information

processes since most of the processing is done by the IFRS. According to most of the research
findings, the adoption of IFRS in Australia is very appropriate and has been of benefit to
Australian economy and it creates a friendly environment to the foreign investors and analysts
who in turn boosts its economy.
The Monitoring Board, International Financial Reporting Standards (IFRS) Foundation,
International Accounting Standards Board (IASB), IFRS Advisory, and IFRS Interpretations
Committee work together to ensure that there is quality in accounting in Australia. The IRFS acts
as an oversight body of several existing boards that include the IRFS interpretations committee.
Different themes across the four articles
The IFRS foundation works independently and it is not-for-profit private sector organization that
works for the benefit of the public. The main objectives of this body are to focus on high quality,
and to come up with understandable globally accepted international financial reporting standards.
It also enhances the application of the set-up standards, and also accounting on the financial
needs of upcoming economies which includes the small and medium-sized entities (SMEs). This
foundation also ensures the facilitation of IFRSs. (Sims and Cullis, 2009)
The IFRS adoption has been reported as positive by the researches done. It has been said to have
improved the value of importance of accounting reports. It has also been proved to have reduced
the number of firms engaging in earning management roles. There is also evidence that has
supported the IFRS adoption and has reported that this type of regime has improved the quality
of accounting in Australia however some studies state that the measure of accounting quality has
continued to adopt the Australian accounting standards.

Most of the studies have reported the positive results of IFRS stating that it enhances the
comparability of Australian Financial Reporting practices that are practiced globally.
The investors and analysts have also benefited from the IFRS adoption by the Australian
companies since the body is geared towards improving the analyst forecast accuracy and even
the dispersion.
Other studies have found out that the adoption of IFRS by the Australian companies has the
benefits of the accounting convergence. The studies have tried to examine all the possible
impacts of IFRS adoption in Australia and on the financial statements. The IFRS is preferred
compared to the Australian General Accepted Accounting Principles (AGAAP). The IFRS can
easily and consistently predict bankruptcy for the bankrupt firms compared to AGAAP. The
Altman’s (1968) model under IFRS has adopted the conservative accounting rules to improve the
bankruptcy prediction.
It has also been proven that the there is an improvement on the quality of information that are
contained in the financial statements for bankruptcy prediction. The adoption of the IFRS has
benefited the Australian government in that the Australian government can be able to apply the
accounting standards which are also applied by other countries worldwide. (Standish, 2009)
The IFRS adoption in Australia is associated with an important paradigm shift. The way of doing
things changed and also with the development of technologies and merging of financial
accounting standards. These principles are very helpful in making sound financial and economic
decisions while considering the investors. The IFRS has been associated with achievement of
higher degree of disclosure and accountability.

The investors and analysts have benefited from the adoption of IFRS by the Australian
government in various ways. The IFRS acts as an umbrella to the companies. Under this
umbrella the companies are able to follow the standards and principles which have been stated in
the IFRS protocol. According to the recent studies, there is a cost-benefit advantage to the
investors because they are been protected by the IFRS principles.
Analysis of the findings
The graph below represents the total number of articles publicized in different years. The number
of publication increases yearly.
Year 2009 Year 2010 Year 2011 Year 2012 Year 2013
0
2
4
6
8
10
12
14
16
18
No.of publications
No.of publications
Managerial implication of the articles
Since accounting is shaped by the political and economic patterns, harmonization of accounting
principles can have consequences on the investors and the analysts. The guidelines and rules in

the four articles especially IFRS govern the companies so that they can provide services while
considering equality in service provision. The adoption of IFRS has been significant in
Australian economy since it has led to attraction of investors and analysts.
The Australian government has merged its accounting principles with the IFRS and through this,
it has enabled the government to move away from the traditional way of accounting to the
modern accounting standards which has been proven to be more accountable and transparent to
the companies and also the investors.
The IFRS implementation has encouraged responsibility by the companies under these particular
rules. Sharing of rules with other countries under IFRS has created a common business language
between the Australian government and other countries that are under the IFRS regulations.
Moving away from the Australian traditional way of accounting has resulted to positive
outcomes and one of the being the ability to trigger investors’ ability to make informed choices
on matters to do with financial decisions. As a result, this has led to reduced risk for investors
and it has also lower the cost of capital for companies.
Investors and analysts find it easier working in environments that are under the IFRS standards
compared to working under the local accounting system (Pan and Perera, 2012). Australia has
gone a step forward by incorporating the IFRS standards in its system so that it can guard against
fraud and irresponsibility by the companies.
Many journals have argued that IFRS adoption positively affects information comparability.
Further arguments have shown that information is more comparable in an IFRS environment
compared to when the local accounting standards are applied.

Since the financial reports are prepared by the IFRS according to the already sets of standards,
the costs that are related to the preparation of capital information is automatically reduced. The
allocation of resources in Australia and worldwide has also been made easier by the IFRS. (Palm
and Bisman, 2010)
The Australian accounting system is significantly influenced by the political and fiscal issues but
the fact that its system is anchored on the IFRS, its economic transactions and economic gains
and losses are detected in a more timely and appropriate manner allowing for adjustments.
The IFRS provides better accounting information that are beneficial in reducing amount of losses
and discretion that the tradition Australian accounting system had. (Njaala, 2015) the setbacks
that companies faced in the Australian accounting system manipulated provisions, exaggerated
outcomes and also obscured losses.
When you compare the IFRS and the Australian accounting system, there has been improvement
in information use, the quality of information and the accounting standards. Before any major
financial decisions are made, the government must consider so many factors including the IFRS
standards (Jackson, 2018)
The set of the standards of IFRS uses a measurement that reflects on the economic reality of the
companies allowing increased quality and comparability of financial statements in accounting.
The IFRS increases access to accounting standardization that has not been set up in Australia.
Study limitations and future research direction proposed
The local standards differ from the IFRS in terms of information transparency and comparability
which hugely affects the companies which are based in countries whose accounting standards

greatly differ from those of the IFRS. (Islam, Khan, Hughes and Ali, 2017) the difference
between the Australian accounting systems differ from the IFRS depending on the enforcement
level. The adoption of IFRS by Australian companies have had a positive impact on credit
market in terms of cost and the way they give out loans to attract the foreign investors and
creditors.
The effect of IFRS on Australian financial reporting and its companies is greater on companies
with lower risk of litigation, companies with higher risk of non-compliance with debts covenants
and companies that are less frequently monitored by analysts (Hanif, 2013)
The IFRS has focused on coming up with strategies that increase transparency and
accountability. The differences between the Australian traditional accounting system and IFRS;
the information quality and comparability have been a reported as a setback to the analysts. The
analysts’ find it difficult to predict any future financial activities. However, the adoption of IFRS
has had a positive outcome on the foreign analysts in prediction hence attracting new analysts in
Australian economy (Dinh, Kang, Morris and Schultze, 2018)
Most findings have discovered that investors are more positive to IFRS adoption due to
convergence benefits. However, there has been a report on less positive market reaction for
companies with higher litigation risk. This is consistent with investors’ perception towards
higher percentage of discretion and less implementation guidance under IFRS.
Under IFRS has come up with standards that cut across the borders despite the geographic
boundaries.

References
Dinh, T., Kang, H., Morris, R. and Schultze, W., 2018. Evolution of intangible asset accounting:
Evidence from Australia. Journal of International Financial Management & Accounting,.
Hanif, M., 2013. Ijarah Accounting: A Comparison of International Accounting Standard-17 &
Financial Accounting Standard-8. SSRN Electronic Journal,.
Islam, J., Khan, H., Hughes, M. and Ali, M., 2017. Politicization of the accounting standard-
setting process and the influence of key-players: An investigation into the withdrawal of the
mandatory status of the Statement of Accounting Concepts No. 4 (SAC 4) in
Australia. Accounting History, 23(3), pp.296-313.

Jackson, D., 2018. Accounting and Finance Graduate Employment Outcomes:
Underemployment, Self-employment and Managing Diversity. Australian Accounting Review,.
Njaala, P., 2015. Comparative Analysis of International Public Sector Accounting Standard 23
and International Accounting Standard 20. SSRN Electronic Journal,.
Palm, C. and Bisman, J., 2010. Benchmarking Introductory Accounting Curricula: Experience
from Australia. Accounting Education, 19(1-2), pp.179-201.
Pan, P. and Perera, H., 2012. Market relevance of university accounting programs: Evidence
from Australia. Accounting Forum, 36(2), pp.91-108.
Robb, D., Rohde, F. and Green, P., 2014. Standard Business Reporting in Australia: efficiency,
effectiveness, or both?. Accounting & Finance, 56(2), pp.509-544.
Sims, M. and Cullis, K., 2009. USING A PROPORTIONAL ODDS MODEL TO ANALYSE
THE FACTORS THAT INFLUENCE ACCOUNTING STANDARD SETTING LOBBYING
IN AUSTRALIA. Accounting & Finance, 35(2), pp.175-195.
Standish, P., 2009. ACCOUNTING EDUCATION IN AUSTRALIA: 1982-83. Accounting &
Finance, 23(2), pp.1-30.