HI6025 Accounting Theory - Impact of IFRS on Financial Statements

This report examines the changes in financial reporting following the adoption of International Financial Reporting Standards (IFRS) in Australia, replacing Australian Accounting Standards. It highlights the challenges faced by organizations during the transition, including the length and expense of implementation. The report details the effects on assets, liabilities, and surplus, providing a clearer picture of financial statements. It also covers the impact on local authorities and the preparation of various account sets to assess the adoption's consequences. The analysis compares annual reports before and after IFRS adoption, focusing on areas like depreciation, inventory valuation, borrowing costs, income recognition, tax treatment, employee benefits, and leasehold improvements, ultimately emphasizing the need for accountability, readability, and transparency in financial reporting at a global level. Desklib offers a wealth of resources, including solved assignments and past papers, to support students in their academic pursuits.

HI6025 Accounting Theory and Current
Issues
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Executive Summary
The report deals with the various changes that have been seen by the companies after adoption of
the International Financial reporting Standards instead of Australian Accounting Standards. The
various problems were faced by the organisations as this process was bit lengthier and expensive
to implement. The changes which were seen in the assets, liabilities as well as the surplus are
also highlighted which will provide the true picture of the financial statements in the report.
Besides this the local authorities were also affected by the change in the accounting policies.
There are various sets of the accounts which were prepared so that the consequences of the
adoption can easily be determined.
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Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Implications of IFRS...................................................................................................................................5
Changes in the behavior of reporting for financial statements.................................................................5
Comparison of the IFRS reporting...............................................................................................................7
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12
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Introduction
The main aim of the report is to discuss about the impact of the IFRS in Australia before and
after the adoption of International Financial Reporting Standards. The major impact on that is the
impact of it on the companies. The regulation of the financial reporting and the accounting is
done for the allotment of the IFRS Codes. The IFRS will help in improving the quality of
product which in turn will improve the accuracy and the reliability of the financial statements.
The analysis which will be done with the annual reports before the adoption of the IFRS and
after it will provide the clear view about the difference between the both. The Australian
accounting standards were followed before the IFRS so with this the transformation will be made
in the financial accounts. The accounting standards which will be prepared will provide the
better quality, knowledge and the information about the financial accounts.
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Implications of IFRS
Changes in the behavior of reporting for financial statements
The adoption of the IFRS had led to the various changes in the financial reporting standards of
the organisations (Jackling, et. al., 2012). The large organisations easily adopted the change but
the small organisations did not as it seemed to be the expensive project and they did not have
enough funds to implement the change (Putra, 2012). With these modifications the shareholders
could now take the strategic decisions related to the investment in the organisation as it gave the
true and the fair view about the recording of the financial accounts (Jackling, et. al., 2012). The
items which were changed after the implementation of the IFRS are as follows:
Increase in the matching standards of revenues as well as expenses:
There were many studies by the researchers who found that the implication of the IFRS has
increased the reliability to match the revues with that of the expenses so that the importance of
the traditional accounting systems can be reinforced (Jackling, et. al., 2012). There was the
decline between the revenue and the expenditure when the Australian Accounting Standards
were used but once the organisations adopted the IFRS the matching between the both was
enhanced (Putra, 2012). This showed that the IFRS has increased the reliability by matching the
revenues with the expenses once the changes was done by reporting with that of IFRS (Jackling,
et. al., 2012).
The reliability in the financial statements was enhanced:
The reliability in the financial statements is one of the important factors that need to be
considered as the financial performance as well as the position of the organisation is determined
from those statements. According to Jackling, et. al., 2015, it was found that the IFRS systems
adoption which were prepared by the organisations were proper and was reliable due to which
the accuracy was maintained within the organizational structure. There were many of the
accounting policies which were also risen by the implementation of the IFRS were that the
accounting policies are now much enhanced and the disclosure of the account which are
lengthier have also been enhanced (Jackling, et. al., 2012). The improvements which were made
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increased the effectiveness as well as the efficiency in the financial statements of the
organisation (Kvaal and Nobes, 2012).
The impairment of goodwill capitalization and the intangibles:
This was the major topic which was discussed by many of the researchers in their argument that
the intangibles and the goodwill will be capitalized or the impairment of these will be done so
that the financial recording can be done effectively (Jackling, et. al., 2012). This decision also
impacted the profits of the organisation as the discussion was bit complex and difficult to lead to
a particular result (Kvaal and Nobes, 2012). Once the IFRS was adopted so it was said that the
intangible assets which are presented in the financial statements will be revalued and the
recognition for the same will also be done again. But the actual picture showed that the
intangibles were declined once the IFRS has been accepted by the companies which gave the
negative impact in the balance sheet (Kvaal and Nobes, 2012).
These were the changes which were seen in the financial statement of the organisation as with
this the quality was improved and the standards for the reporting were also improved with it
(Value IFRS Plc, 2017). The various items which are reported in the financial accounts of the
company were also changed as some of the items showed the positive impact with the increase
while some of them showed the negative one with the decrease in the items such as the
intangibles (Kvaal and Nobes, 2012). The decrease in the items does not impact the reliability of
the financial accounts as the length of reporting was increased and the matching was done of the
expenses with that of the revenues within the organisation (Kvaal and Nobes, 2012). With the
adoption of thee IFRS it was seen that the competitiveness was raised and the cost of the various
products was declined which helped the organisation in attaining the accountability as well as the
profitability of the organisation. The studies also depicted that how the cost benefit can be related
to the modification. According to Qu, et. al., 2012, it was believed that the value of the liabilities
were increased with the decrease in the equities of the organisation. The change which occurred
was important for the companies so that the accountability, readability and the reliability can be
maintained within the accounting standards and the focus can be made on bringing the
transparency in the financial reporting standards of the companies at the global level (Kvaal and
Nobes, 2012).
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Comparison of the IFRS reporting
The comparison has been made of the financial reporting by comparing the annual reports which
were prepared before the adoption of IFRS and that after the adoption so that the changes can
easily be evaluated (KPMG, 2018). The various items in which the changes were seen are
highlighted and the brief description about the same was also revealed (Putra, 2012).
2003-04
2006-07
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The above is the balance sheet of the year 2003-04 and the year 2006-07 which will help in
analyzing the changes in the various items of the statement so that the fair view can be seen
(KPMG, 2018). For the analysis the annual reports are been taken of the Australian Securities
and the Investment commission. Both the balance sheets are evaluated and accordingly the
conclusion about the change is determined (KPMG, 2018).
Impact on Depreciation and the valuation of Inventories
The depreciation before the adoption was implemented on the fixed assets differently but after
the implementation there was the different method which is used to predict the change (KPMG,
2018). Earlier the depreciation was charged according to the written down value method or the
straight line method but once the IFRS was made the valuation was done on the different basis
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(Kvaal and Nobes, 2012). The changes were also seen in the valuation of the inventories
(KPMG, 2018). Though the inventories are not shown separately in the financial statements but
it is included in the value of the current assets. So, the policies of the IFRS debarred the use of
the LIFO method and the FIFO and AVCO were used accordingly in place (KPMG, 2018).
Borrowing Cost
The borrowing cost was also changed as the activities which are related to the operations of the
organisation will be impacted. The daily operations are also affected with the change in the
operational activities of the organisation (IFRS Australia, 2017). The implementation of the
IFRS changed the value of borrowings cost which was due to the change in the foreign exchange
markets. The exchange rates changes in accordance with that of the companies and lead to the
change in cost of borrowings (IFRS Australia, 2017).
Change in the Recognition of Income
The IFRS showed the inflow of the benefits in the organisation which are of the monetary terms
so that the change in the debts can be evaluated with that of the duties of the owners within the
organization (IFRS Australia, 2017). This also showed that how the change in the income may
affect the organisation gains, which are yet to be covered by the organisations. The change in the
income had influenced the payments and the assortments which are large in nature which in turn
will change the manners of the execution due to the change in the IFRS policies (IFRS Australia,
2017).
Treatment of Taxes
The acceptance of the IFRS also changed the treatment of the taxes within the organisation. The
taxes which are paid by the organisation are the service tax as well as the goods and service
taxes. This was the major change which was made as the GST gave the true picture about the
expenses of the taxes (IFRS Australia, 2017). The main factors in which the GST was seen are
the assets and the wages to the employees. The impact of the GST was seen as the positive point
as it provided the benefit for the cost components. To maintain the transparency the amount of
the GST was made necessary for both the Creditors as well as the Debtors (IFRS Australia,
2017).
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Treatment of benefits which are made available to Employees
When there was the Australian accounting standards there were no policies and the rules which
deals with the benefits of the employees but the IFRs has brought the benefit to the employees
(Australian Securities and Investment Commission, 2018). The benefits which are provided to
the employees in the monetary terms should be recorded in the financial statements so that the
expenses of the organisations can be tracked but are treated differently than that of the salaries to
the employees in the accounts (Qu, et. al., 2012). This is done so that the employees can get
benefit and the auditors can get the true picture about the expenses which are related to the
materials and that are related with benefits. In the balance sheet of the organisation above they
are shown as the employee’s provisions (Australian Securities and Investment Commission,
2018).
Improvements in Leasehold
The improvements were also made in the materials which are treated as the leaseholds for the
organisation. The IFRS made the policy that the amount of the leases will be shown in the
financial reporting in the year it was gained (Australian Securities and Investment Commission,
2018). In the earlier balance sheet which was prepared before 2005 there was no provision for
the treatment of the leasehold according to the AAS but in the IFRS it was made mandatory to
disclose the improvements which were made in the leaseholds (Australian Securities and
Investment Commission, 2018).
These are the changes which were too be seen in the balance sheet of the organisation when the
organisations were following the AAS and when they accepted the IFRS in their operations
(Australian Securities and Investment Commission, 2018). It also helped the managers of the
organisations to provide the clear knowledge to the shareholders or the stakeholders who have
invested or about to invest their amount in the organisation so as to raise the funds (Qu, et. al.,
2012).
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Conclusion
The discussion above showed the strength of the IFRS by replacing the Australian accounting
standards. The IFRS was implemented so that the consistency can be maintained in the financial
statements and all the countries can follow the one single regulation for their financial reporting.
This will solve the problems which have been occurred for trading the goods worldwide.
Therefore, the report gave the overall view of the accounting policies which showed that the
accounting standards which were used earlier were also good and after the IFRS there was the
accountability and the effectiveness which was maintained in the financial reporting. Hence, it
can be concluded that the IFRS has improved the quality as well as the transparency in their
financial reporting policies.
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References
 Australian Securities and Investment Commission, 2018. ASIC Annual Reports.
[Online]. Australian Securities and Investment Commission. Available at:
https://asic.gov.au/about-asic/corporate-publications/asic-annual-reports/. [Accessed on
27 May 2018]
 IFRS Australia, 2017. Who we are. [Online]. IFRS Australia. Available at:
https://www.ifrs.org/about-us/who-we-are/. [Accessed on 27 May 2018]
 Jackling, B., Howieson, B. and Natoli, R., 2012. Some implications of IFRS adoption for
accounting education. Australian Accounting Review, 22(4), pp.331-340.
 KPMG, 2018. New leases standard – Introducing IFRS 16. KPMG. Available at:
https://home.kpmg.com/xx/en/home/insights/2016/01/leases-new-standard-balance-sheet-
transparency-slideshare-first-impressions-ifrs16-130116.html. [Accessed on 27 May
2018]
 Kvaal, E. and Nobes, C., 2012. IFRS policy changes and the continuation of national
patterns of IFRS practice. European accounting review, 21(2), pp.343-371.
 Putra, L. D., 2012. What is Provision (under IFRS) and What is the Feature. [Online].
Accounting Financial and Tax. Available at:
http://accounting-financial-tax.com/2012/05/what-is-provision-under-ifrs-and-what-is-
the-feature/. [Accessed on 27 May 2018]
 Qu, W., Fong, M. and Oliver, J., 2012. Does IFRS convergence improve quality of
accounting information?-Evidence from the Chinese stock market. Corporate ownership
and control, 9(4), pp.187-196.
 Value IFRS Plc, 2017. Illustrative IFRS consolidated financial statements. [Online].
Value IFRS Plc. Available at:
https://www.pwc.com/gx/en/audit-services/ifrs/publications/value-ifrs-17-june.pdf.
[Accessed on 27 May 2018]
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