Accounting Theory & Contemporary Issues: IFRS Implementation Analysis

This report analyzes the implementation of International Financial Reporting Standards (IFRS) in Australia and India, examining the relevance of Positive Accounting Theory (PAT) and comparing the adoption processes, challenges, and successes of each country. The report delves into the adoption of IFRS by national accounting bodies, transitional issues faced, and challenges encountered by reporting entities. It highlights the benefits of IFRS adoption, explores similarities and differences between Australia and India's approaches, and assesses the success of IFRS implementation in both nations. Finally, the report offers recommendations to national accounting setting bodies to ensure the continued relevance of IFRS to users and all economic sectors. The report concludes that both countries have successfully implemented IFRS, with Australia showing a higher rate of success in adoption.

Running Head: ACCOUNTING THEORY & CONTEMPORARY ISSUES
ACCOUNTING THEORY & CONTEMPORARY ISSUES
Name of the Student
Name of the University
Author Note

1ACCOUNTING THEORY & CONTEMPORARY ISSUES
Abstract
IFRS adoption and plans for the harmonization or convergence widely differs by
jurisdiction. IFRS has the goal for providing globalized framework for the way public
entities discloses and prepares their financial statements. It helps in providing
general guidance for financial statement preparation in comparison to setting rules
for industry-specific reporting. Hence, this report will include the discussion on PAT
relevance, IFRS implementation in Australia and India, success of the IFRS adoption
in these particular countries and recommendations will be given based on findings to
national accounting setting bodies on the ways for ensuring IFRS continues to be
relevant to the needs of users and to all the economy sectors. Further, this report
concludes that both the countries Australia and India have adopted IFRS standards
and both the countries are successful in its implementation, but the rate of success
in adoption of IFRS standards is more in Australia.

2ACCOUNTING THEORY & CONTEMPORARY ISSUES
Table of Contents
Introduction...................................................................................................................3
Discussion.....................................................................................................................3
Relevance of “Positive Accounting Theory”..............................................................3
Implementation of IFRS............................................................................................4
IFRS adoption by National Accounting Body........................................................4
Facing of Transitional Issues.................................................................................5
Challenges faced by Reporting Entities upon IFRS Adoption..............................5
Benefits of IFRS Adoption by Reporting Entities..................................................6
Similarities and Differences in IFRS adoption by Australia and India...................7
Success of IFRS Adoption........................................................................................8
Recommendations to National Accounting Setting Bodies......................................8
Conclusion....................................................................................................................8
Reference...................................................................................................................10

3ACCOUNTING THEORY & CONTEMPORARY ISSUES
Introduction
Financial reporting is consisting of financial information disclosures to various
stakeholders about financial position and the financial performance of organization
over specified time-period. The stakeholders include creditors, investors, public,
government agencies, government and creditors. The financial reporting frequency
in case of the listed entities is annual and quarterly. Usually, financial reporting is
considered as the end product of accounting. Reporting are vital and integral part of
the organizational Accounting and reporting system. However, considering various
involved stakeholders and other requirements of regulatory, financial reporting is vital
and critical task of the organization. This is vital part of the corporate governance.
According to IASB, financial reporting has objective to provide the information
regarding financial performance, position and the changes in enterprises financial
position, which are useful to the wider ranges of users in making the economic
decisions (Chen, Ding and Xu 2014).
Hence, this report aims to discuss Positive accounting theory and comparison
of IFRS implementation in Australia and India. Further, discussion will be on how
much successful is IFRS adoption in both of the countries. Lastly, recommendations
will be given to national accounting setting bodies on the ways for ensuring that IFRS
continue to be relevant to the needs of users and all economy sectors.
Discussion
1)
Relevance of “Positive Accounting Theory”
PAT is described as predicting actions as choices of the policies of accounting
by entity and the way entities responds to new proposed accounting standards. The
positive accounting theory came into practice for referring to developed accounting
theory and it was named by the Watt and Zimmerman. It is concerned with
explanation of accounting practices, the designing of which is for explaining and
predicting that entity will not be using particular method (Sharma, Joshi and Kansal
2017). It focusses on relationship in between various involved individuals for
providing the resources to the entity and the way accounting is used for assisting in
the functioning of these particular relationship. It is based on the central economic-
based assumption, which all the actions of individual are driven by the self-interest
and that the individuals acts always in the opportunistic manner to the extent that
actions will be increasing their wealth. This theory helps in reconciling efficient theory
of market with the economic consequences. This asserts that contracts entered by
the companies for driving the concerns of management about the policies of
accounting. The three hypotheses on which PAT is based is consists of “ bonus plan
hypothesis”, “debt covenant hypothesis” and “political cost hypothesis” (Moser 2014).
Following are the two perspective of PAT and the example of each perspective:
 Efficiency Perspective: It has been argued from efficiency perspective of the
PAT that practices of accounting, which is adopted by entity are explained
often based on fact that these methods reflect best underlying entity’s
financial performance. Further, various features of organizations are used for
explaining that why entities adopt methods of accounting such as goodwill.
The entities adopt particular method of the accounting because it best reflects
entity’s underlying performance. This is argued that financial accounting
regulation imposes the unwarranted costs on the reporting companies such

4ACCOUNTING THEORY & CONTEMPORARY ISSUES
as if any new standard of financial reporting is released that bans the method
of accounting from being used by the specific entity, then this will lead
towards inefficiencies, as the resulting financial statements will not be
providing best reflection of organizational performance (Chen, Ding and Xu
2014).
 Opportunistic Perspective: This perspective of PAT takes consideration
regarding firm’s negotiated contractual arrangement and seeks for predicting
and explaining certain opportunistic behavior, which will occur subsequently.
The opportunistic perspective considers the opportunistic actions, which could
be undertaken once different contractual arrangement is in place. For
instance, in endeavor for minimizing costs of agency, contractual
arrangements might get negotiated, which helps in providing managers with
the bonus based on profits generated by entity (Phang and Mahzan 2017).
2)
Implementation of IFRS
i)
IFRS adoption by National Accounting Body
IFRS Adoption in Australia
The adoption of IFRS by Australia was with effect from January 1, 2005.
Further, in year 2015, AASB has commenced review of adoption for assessing IFRS
relevance to the Australia for profit as well as not for the profit reporting firms. The
identification of significant message as part of the review includes that process of
transition has been smooth reasonably for almost most of the sectors. IFRS are
considered to be the appropriate basis for developed standards of NFP by the
AASB, but there is requirement of further modifications relating to quality and the
cost-efficiency of the reporting. IFRS adoption across all sectors has enabled
preparers and users for moving between sectors and between the countries with the
transferable skills and knowledge. The internationally active companies have
experienced cost savings in the preparation of financial reports. Lastly, small and the
medium-sized companies and NFP companies have the concerns relating to costs of
the fully compliance with the new standards, particularly regards to requirement of
disclosures (Ifrs.org. 2020).
Adoption of IFRS in India
The announcement has been done by Institute of Chartered Accountants
regarding its decisions for adopting IFRS with the effect from April 1, 2011. Indian
accounting standards are based on and is converged substantially with the
standards of IFRS as issued by board. India has not adopted the standards of IFRS
for reporting by the domestic entities and has not committed formally yet for adopting
the standards of IFRS. This country issues Ind AS that are based on standards of
IFRS. Further, permission of voluntary adoption of the Ind AS is for all the entities
that is other than insurance entities, non-banking financial entities and banking
companies. For all the entities, which is other than these entities, for them there is
mandatory adoption of the Ind AS (Ifrs.org. 2020).
ii)

5ACCOUNTING THEORY & CONTEMPORARY ISSUES
Facing of Transitional Issues
The country Australia is first market that has made full transition to the IFRS.
The IFRS adoption is assisted for reducing the cost of capital and leveraging cost of
capitals. Its adoption has lowered the preparation cost and it has made financial
statement useful for the multinational companies. It has been confirmed by the
Australian regulatory body that adoption of IFRS has helped in filling lags of GAAP in
disclosures of financial statement. Further, there was review of almost 1,250 annual
reports of the required disclosures of pre-transition that is conducted by the ASIC
has found that all the companies have able to effectively provide required level of the
disclosures of IFRS impacts by explanation of key differences in practices of
accounting. However, smooth IFRS transition still leaves the questions unanswered
that whether the adoption of IFRS has brought the tangible benefits. This vital and
long pending reform has gone (Schroeder, Clark and Cathey 2019).
Indian Financial reporting is going through momentous transformation owing
to Indian Accounting standards adoption, which are converged with the IFRS.
Further, after going through years in making, now it has able to become reality for
the Indian entities with the notification of almost 39 standards of Ind AS and roadmap
implementation in February 2015 by the Ministry of Corporate Affairs. It is with Ind
AS notification, various gaps that existed in the Indian framework of accounting have
been filled up relatively, which has made financial reporting standards of India
virtually and contemporary on the par with leading global standards. The vital and
long pending reform needs to go long way in order to help India for improving its
global rankings on the transparency and corporate governance in the financial
reporting (Cdn.ifrs.org. 2020).
iii)
Challenges faced by Reporting Entities upon IFRS Adoption
The reporting entities of Australia has faced various challenges upon the
adoption of IFRS. Australian entities before IFRS adoption was following GAAP. This
was considered to be more principles based in comparison to IFRS, which was
liberal. Inclusion of more choices under IFRS accounting standard resulted into
raising of high professional understanding and judgement requirement. This created
great level of difficulty in the path of IFRS adoption. IFRS is thought to be more
comprehensive in the acknowledgement, ascertaining of post-employment benefits
and evaluation (Oulasvirta 2014). Further, requirement of the additional
implementation cost and freedom loss of Australian entities were biggest challenges
in its adoption. The entities faced the challenges of lack of the training and
education. The concern was raised regarding compatibility of Australian law with
IFRS adoption including the format of presentation. The entities were concerned on
uncertainty of the tax treatment. For instance, the base of evaluation of the major
items of financial statements in the IFRS was fair value (Beneish, Miller and Yohn
2015). The standard “AASB 13-Fair Value Measurement” was identified as costly for
the application without meeting the needs of users. Further, presentation of results
under the accounting standards of IFRS was quite different, which has taken off the
domestic standards due to contracts of business was required to be re-negotiated
with respect to the depiction of exact IFRS valuation. These are the factors that
evolve great amount of challenges with the new provision. The companies who
adopted IFRS was required to have higher utilization of fair value and altering
mechanism of the calculation and interpretation of assets and liabilities (Christensen,
Nikolaev and Wittenberg‐Moerman 2016).

6ACCOUNTING THEORY & CONTEMPORARY ISSUES
In India, practices of the accounting are mainly governed by the Indian GAAP
and Companies act 1956. The existing laws, for instance “Indian Banking Laws &
Regulations”, “SEBI” and “Foreign Exchange Management Act” provides the
guidelines on financial statement preparation in the India. The IFRS does not
recognized presence of particular laws and accountant of reporting entities will be
required to follow the standards of IFRS fully with the no overriding provisions from
these particular laws. In addition Indian laws makers are needs to make important
amendments for ensuring smooth IFRS transition (Ionascu et al. 2014). The next
challenge faced by the Indian reporting entities was uses of fair value for measuring
majority of the financial statements’ items. This has been quite tough for the Indian
reporting companies because they have been preparing financial statements on
historical cost. Further, next challenge was system of financial reporting. IFRS helps
in the basis of providing complete set of the reporting system for entities in order to
make financial statements (Li and Yang 2016). In India, there are various acts and
laws that provides system of financial reporting but it is not as comprehensive, which
IFRS provides. The Indian entities are required for ensuring that they have amended
existing model of business reporting for suit the IFRS requirement. Further, adoption
of IFRS has affected most financial statements items and as a consequent of which
tax liabilities has undergone changes. The specific areas of accounting such as
financial instrument and business combination has become more complex (Bryce, Ali
and Mather 2015).
iv)
Benefits of IFRS Adoption by Reporting Entities
For purposes of the financial reporting, economies across globe have
benefitted by the adoption of IFRS. The prior studies have suggested that there has
been various benefits from the IFRS adoption such as improved financial information
for the shareholders, enhanced comparability, improved financial information for the
regulators, better management of the global operations, better transparency of the
results, greater ability for securing listing of cross-border and decreased cost of the
capital (Cai, Rahman and Courtenay 2014).
There has been the opinion that the adoption of the standards of IFRS was
the right decision for Australia in relation to the position of Australia in world. For
using the standards of IFRS, there was general support as starting base for NFP
reporting company with the development and modification of the guidance. The key
benefits of adoption of the IFRS standards were identified as follows:
 There has been savings of cost for those entities, which has previously
required multiple national GAAP for applying across group.
 IFRS standard’s adoption has facilitated access to international capital
markets for larger private entities.
 IFRS adoption has facilitated analysts’ activities for the listed entities by the
enhancement of financial statement comparability across the borders.
 The IFRS adoption by the companies has enhanced the ability for readily
assisting subsidiaries in the jurisdiction in recent years.
In respect of reporting entities in India, there are some benefits gained by the
country. India has emerged as the strong economy on map of global economy. The
companies of India are expanding rapidly, which results in requirement of funds at
the cheaper cost for not only setting the plants in overseas but they also require

7ACCOUNTING THEORY & CONTEMPORARY ISSUES
funds for acquiring the other firms all across globe. There are availability of funds at
cheaper cost in “Japanese capital markets”, “American capital markets” and
“European capital markets”. Hence, for meeting requirements of the regulatory of
these particular market, entities of India require to report their financial report
according to IFRS. IFRS adoption helps Indian companies for accessing the global
capital market and funds at the cheaper cost (Cameran, Campa and Pettinicchio
2014).
The preparation as well as presentation of the financial statements that is
based on IFRS assits the companies for getting easily accessibility to the overseas
capital markets. Indian companies are getting listed on “American capital markets”
and “European capital markets” by raising the funds from these particular markets.
There are few companies of India that have raised their funds by “ European capital
markets” have initiated to prepare their financial statements according with IFRS
(Doukakis 2014). The concept of fair value in IFRS has helped Indian companies for
reflecting real worth of their assets held in the financial statements. There are
various large companies in India who are registered in India and outside of the
country. These firms prepare their accounts according to accounting standards of
India and those registered in the other countries, prepares their financial statement
according to reporting requirements of that country. Hence. IFRS adoption ensures
eliminating multiple standards of financial reporting and adopting single set of the
financial reporting (Neel 2017).
v)
Similarities and Differences in IFRS adoption by Australia and India
The similarities are that both of the country have adopted IFRS. However, the
dissimilarities are that there was general support by Australian NFP reporting entities
for IFRS adoption. However, in case of India, there has been convergence of IFRS
with Indian accounting standards. All the reporting entities of Australia are required
for preparing their financial statements based on standards of the IFRS. However, in
case of India, entities can voluntary adopt Ind AS for the periods of accounting that
begins on or after the period of April 1, 2015 with the comparative for period ending
by March 31, 2015 or thereafter. Moreover, mandatory applicability is in two phases
(Capkun, Collins and Jeanjean 2016).
In first phase, there will be mandatorily applicability of Ind AS to the entities
whose listing of debt or equity securities are in process on any of the Indian stock
exchange or outside the India and they are having 500 crore net worth, companies
having 500 crore net worth or more than that and subsidiary, holding and joint
venture of these entities, for periods beginning on or after the period of April 1, 2016
with the comparative for period ending on March 31, 2016 (Ifrs.org. 2020). In the
second phase, there will be mandatorily applicability of Ind AS to the entities whose
debt or equity securities are listed or it is in the process of getting listed on Indian or
outside stock exchanges, who have net worth of less than 500 crores INR, unlisted
entities that is other than covered in the phase one and two that have net worth more
than 250 crore INR, however less than 500 crore INR and lastly, subsidiary, holding
and joint ventures of these companies. This is applicable for periods that begins on
April 1, 2017 with comparatives for the periods ending by March 31, 2017 (DeFond
et al. 2015). The IFRS standards adoption in Australia was since January 1, 2005.
The convergence with standards that is issued by board and its predecessor, IASC
board has been since year 1996. Adoption of IFRS standards was by the IFRS 1

8ACCOUNTING THEORY & CONTEMPORARY ISSUES
application. However, in India, ICAI has made the announcement regarding its
decisions for adopting IFRS in the India from April 1, 2011. The similarities of IFRS
adoption for both the countries is to improve comparability and quality of the financial
statements (Christensen et al. 2015).
3)
Success of IFRS Adoption
In case of Australia, the evidences suggest that adoption of the standards of
IFRS has been mostly positive for the listed entities. There has been improved value
relevance of the financial statements and some entities engaged in the earnings
management. IFRS deferred taxes and goodwill impairment were linked with the
improved quality of accounting. The research has suggested that the annual reports
have turn out to be longer but it is easier for reading. The comparability has been
improved with the global peers for the practices of financial reporting of the
Australian entities (Ball, Li and Shivakumar 2015). Transition process of IFRS
standards in Australia has been smooth for most of the sectors. However, the
standards of IFRS are the suitable basis for the standards of AASB developed for
the NFP entities, any further modifications are required for improving quality as well
as cost efficiency of the financial reporting. IFRS adoption success can also be
described as it has helped in enabling preparers and users for moving between the
countries and sectors through the transferable skills as well as knowledge (Cascino
and Gassen 2015).
In India, implementation of Ind AS has able to prove better insights into
companies’ financial affairs and financial statements based on Ind AS reflected
underlying economies of events or transactions in unbiased or transparent manner.
This has improved benchmarking and comparability of financial of the Indian entities
with the global peers. This has improved accessibility of the Indian entities to the
global capital markets (Florou and Kosi 2015).
4)
Recommendations to National Accounting Setting Bodies
Following are the two recommendations that can be given to the national
accounting setting bodies including AASB on the ways for ensuring that the IFRS
continues to be relevant to the needs of users and to all the sectors of economy:
 The national accounting setting bodies should make their effort for setting
higher-quality standards of accounting that helps in meeting requirements of
entities and they should set standards on areas that are basically not covered
by international standards. They should also try for consulting with the report
preparers, users, regulators and auditors (De George, Li and Shivakumar
2016).
 The national accounting bodies should not be indulged in political lobbying.
Conclusion
This report concludes that PAT helps in making good predictions of the events
of real-world and it translate the, to the transactions of accounting. In addition, it has
been analyzed that standards of IFRS contributes towards economic efficiency by
assisting the investors for identifying risks and the opportunities across the world,
therefore improving the allocation of capital. Further, IFRS adoption leads towards
undergoing of drastic change in the entire financial statements set. The difference is

9ACCOUNTING THEORY & CONTEMPORARY ISSUES
wide as well as very deep routed. This has able to brought challenges about IFRS
awareness and its impact among financial statements users. Moreover, this report
has analyzed that both Australia and India have adopted IFRS and they both are
successful in the implementation of it. However, the rate of success in adopting IFRS
is more in Australia. Lastly, it can be said that the national accounting setting bodies
should make their best effort to set higher quality of standards of the accounting and
they should not be indulged in political lobbying.

10ACCOUNTING THEORY & CONTEMPORARY ISSUES
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