Global Regulation: Financial Reporting Standards Analysis Report

This report analyzes the proposed merger between the US FASB and the London-based IASB, resulting in the Global Accounting Standards Board (GASB). It examines the implications of the merger, including the adoption of US GAAP interpretations, increased compliance costs, and the inclusion of environmental performance measurements under integrated reporting. The report explores the arguments for and against international standards, the suitability of allowing foreign involvement in local regulation development, and whether more regulation is inherently beneficial. It also assesses the risks associated with different alternatives, such as adopting GASB versus developing independent regulations, particularly for Australia. Finally, the report recommends the development of independent standards while considering certain crucial facets and provides a detailed analysis of the impacts of the proposed changes and offers recommendations for the Australian Accounting Standards Board (AASB).

Running head: GLOBAL REGULATION
Global Regulation
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction................................................................................................................................2
Integrated Reporting...................................................................................................................2
Arguments on the Original Move to International Standard......................................................3
Suitability to Allow Foreigners in Local Regulation Development...........................................4
Is (more) Regulation Inherently Good or Bad?..........................................................................5
Involved Risks in Alternatives...................................................................................................6
Recommendations......................................................................................................................8
Conclusion..................................................................................................................................8
References................................................................................................................................10

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Introduction
The policymakers all over the world introduce global accounting and financial
reporting regulations in order to bring harmony in the financial reporting of countries across
the world. It leads to the employment of similar set of financial reporting regulations in all
countries across the globe that assists such investors who are interested in investing foreign
countries (Davies & Green, 2013). This also assists the business organizations in doing
overseas business transactions. There are certain crucial factors in this regulation setting
process or when two or more standards merge that the regulators are needed to take into
account; some of these are newly introduced regulations’ nature, compliance cost and many
others (Flower, 2018). According to the given information, there will be the inception of a
new set of financial reporting standards named Global Accounting Standard Board (GASB)
because of the merger of London-based IASB and US based FASB. Due to many negative
reasons such as the negative impact on firms and others, Australia is not supporting the
introduction of GASB. This report takes into consideration the analysis of the roles of
international regulations while taking into account the needed aspects.
Integrated Reporting
Integrated Reporting is the most recent expansion in anticipated reporting innovations
for improved corporate reporting. To be able in engaging with the major organizational
stakeholders is the key motive for integrated reporting (De Villiers, Rinaldi & Unerman,
2014). The Integrated International Reporting Council (IIRC) is a major promoter of
integrated reporting because the IIRC has effective association with the parties like
regulators, investors, standard-setters, accounting professionals and others. According to
these parties, effective communication on the process of organizational value creation should
be a part of corporate reporting. Integrated reporting aims at developing better corporate

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reporting framework so that more holistic view can be provided on firm’s value creation
process through the consideration of non-financial aspects such as human, social and
intellectual capital (Flower, 2015). To ascertain the impact of these capitals on the business
and society, there is a greater need for critical thinking. Companies can identify as well as
collect crucial data on these capitals for customer value creation through the adoption of
integrated reporting. Integrated reporting provides information on six types of capitals; they
are natural, social, human, manufactures, intellectual and financial capital. The adoption of
integrated reporting provides the companies with the opportunity to concentrate on long-term
strategic development so that sustainable business development can be ensured (Cheng et al.,
2014).
Arguments on the Original Move to International Standard
Arguments are there in against and for of the original move to international standards
in the year 2005. The presence of many advantages led to the adoption of international
standards. It was become possible in comparing the financial outcome of the companies in
different regions and countries when they use the same international standards and thus,
assisted the investors in gaining solid understanding of the available investment opportunities
worldwide (Ahmed, Neel & Wang, 2013). The public listed firms from different regions and
countries having several accounting books became beneficial from using a single set of
international standards for the preparation and presentation of their financial reports. It also
provided them the opportunity to compare their business performance with their overseas
competitors. All these advantages of international standards together played a crucial part to
make the financial reporting transparent, accountable and efficient (Adibah Wan Ismail et al.,
2013).
However, certain arguments against the international standards were there at that
time. The international standards were rule-based in nature and they put decision threshold.

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In spite of providing clarity and transparency, these international standards were unsuccessful
to address the situations which were not openly reflective to the decision threshold. At the
same time, principle-based accounting standards provided more clarity and justification in
financial reporting (Horton, Serafeim & Serafeim, 2013). This reason led to the non-adoption
of international standards by many countries in 2005. After that, different countries have
different taxation rates and it should be reflected in the accounting standards, but the
international standards did not consider it which created a big difference. Moreover, strong
education level and financial power was needed for the countries in the adoption of
international standards and thus, many countries were not able in adopting international
standards due to less education level and less financial capabilities (Ramanna & Sletten,
2014). All these aspects together affected the adoption of international standards in 2005.
Suitability to Allow Foreigners in Local Regulation Development
The regulators must consider certain aspects in the process to develop regulations. For
the purpose of betterment, it needs to be ensured that that the own regulators of a country is
responsible for setting the necessary regulations so that relevancy of the regulations can be
retained. Local regulators posses adequate information and understanding about the
accounting and financial situation of their countries and this provides them the advantage to
understand which regulations are needed for their countries (Coeurderoy & Murray, 2014).
The possession of adequate knowledge as well as understanding about the accounting and
financial reporting of their respective countries makes the local regulators able to conduct the
cost-benefit analysis of certain regulations. It is required to mention the fact that the foreign
regulators cannot conduct this cost-benefit analysis of the regulations because of the lack of
information and knowledge about the local country’s accounting and financial reporting
condition (Gouldson & Murphy, 2013).

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The main motive of the foreign regulator behind the development of specific
regulations is to bring harmony in the financial reporting all over the world which can be
achieved through the merger of local and global regulations. This merger is needed to derive
a single set of international standards (Magat, Krupnick & Harrington, 2013). In this whole
process of regulation harmonization, the foreign regulators miss out certain aspects with
major significance; such as compliance cost, complex nature of regulations, level of
education required for the new standard and others. However, it is the prime responsibility of
the local regulators to take into account these aspects in first place. For these reasons, foreign
regulators should not have the sole responsibility to develop regulations while it would be
appropriate to conduct a discussion between the local and foreign regulator so that relevant
and effective regulations can be introduces (Swanson, 2016).
Is (more) Regulation Inherently Good or Bad?
Regulations have major expanded in the context of society and economy in today’s
world. A piece of paper is establishing certain extent of regulatory control in every aspect of
society and economy. However, both positives as well as negative are there of these
regulations. Regulations do play significant role in improvising economic, environmental and
social standards. At the same time, huge number of regulations has negative impacts on the
regulation itself. Certain reasons state that huge amount of regulation is not good. Since
regulations use limited resources, they are not free (Goodhart et al., 2013). Government
agencies are considered as this aspect since that the regulatory functions of the government
agencies need large number of employees and large amount of funds; and it indicates that
more number of regulations engages huge amount of limited resources. In addition, increase
in complexity level of the functions of regulations can be seen when there is huge number of
regulations. For example, a simple regulation becomes complex when it goes through many
regulatory reforms. This creates burden for the firms to comply with these complex

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regulations. In order to ensure this compliance, the firms must incur huge amount of expenses
while they have to go through certain time consuming compliance processes (Kalemli‐Ozcan,
Papaioannou & Peydro, 2013).
Apart from the above reasons, over-regulations lead to certain inadvertent effects in
the presence of the aspects that these huge numbers of regulations sometime fade the main
motive for the development of these regulations. Some specific reasons are there for this.
Sometimes the regulations are narrow in nature and they demand subsidiaries rather than
achieving their main objectives (Loughran & McDonald, 2014). This contributes towards
achieving the objectives of the subsidiaries when the primary objectives remain unachieved.
This situation takes place when there is huge number of regulations. It can be seen in most of
the cases that the regulations are developed in bunches having unexpected connections
instead of ones and twos. These bunches of regulations in the presence of unexpected
connection creates confusion which contributes towards non-adherence. Regulatory outplay
and unwarranted ambition are considered as other problems of over regulations. In most of
the cases, regulators introduce more regulations for fighting market imperfections which is a
universal facet and introduction of more regulations cannot reduce them (Angeloni & Faia,
2013). Thus, the above discussion points towards a crucial fact that more regulations have
major negative impacts on the society, economy and companies. The presence of few good
regulations is better than more regulations.
Involved Risks in Alternatives
There are two alternatives that are supporting the development of GASB by
Australian to harmonize the standards of financial reporting and development of their own
regulations for financial reporting by Australia itself. There are certain risks in these two
alternatives. Given information indicates that the introduction of GASB will increase certain
extra regulations in financial reporting and thus, the risk to adhere to these additional

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regulations will increase by the Australian firms. It needs to be mentioned that there will also
be increase in compliance cost due to the introduction of additional regulations in financial
reporting. The cost will be double for the companies due to this. There will be creation of risk
of 40% raise in the Australian companies’ work pressure because of the inclusion of auditing
and environmental performance measures in GASB (Kitching, Hart & Wilson, 2015).
According to the provided information, the majority portion of the environmental standards
in GASB is unclear and this can well leads to the adoption of unclear and vague integrated
reporting framework by the Australian companies. These risks cannot be ignored at the time
of the adoption of GASB.
Moreover, the above-mentioned second alternative also has certain risks where
Australia itself will be responsible for the development of their own regulations. According to
the provided information, US have expressed the same opinion to include the measures of
performance measurement in integrated reporting where the use of integrated reporting can
be seen for disclosing both the financial and non-financial information of the firms’
performance (Busco et al., 2013). However, the Australian regulations will not include this
performance measurement that will deter the Australian firms from providing the non-
financial information of their performance. The introduction of GASB will develop similar
financial reporting standards for the companies worldwide. However, the development of
standards by Australia will lead to the particular risk in which there will be no harmonization
of financial reporting standards between Australian and other companies worldwide and this
will make it difficult for the foreign investors in comprehending the financial statements of
the Australian companies. The same will happen to the Australian investors since they will
not be able in understanding the outcomes of the financial statements of the companies
outside Australia (Wang, 2014). The whole discussion indicates towards the crucial aspect

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that certain major risks involved in both of these alternatives that cannot be ignored.
Financial reporting standards are needed to be developed while referring these risks.
Recommendations
There are two alternatives for the Australian Accounting Standards Board (AASB)
which are adopting GASB and developing own standards. Based on the outcome of the above
discussion, the recommendation to the AASB is the development of own standards while
considering certain crucial facets. It is recommended to the AASB that at the time of the
development of the standards for financial reporting, they must follow the International
Financial Reporting Standards (IFRS) standards because it will provide them the scope to
harmonize their own financial reporting standards with the global standards. After that, the
above discussion shows the importance of integrated reporting since it assists the company
majorly in strategies decision-making process. Thus, the recommendation to the AASB is the
mandatory inclusion of integrated reporting framework so that both the financial and non-
financial information can be provided to their stakeholders. Another major recommendation
to the AASB is the inclusion of environmental aspects in financial reporting and these
environmental factors must not be vague. It is recommended to the AASB that there should
be few regulations in financial reporting considering the negative impacts of over regulation
such as increase in compliance cost, increase in complexity and others. Complying with these
recommendations will lead to the development of appropriate financial reporting standards
for the AASB.
Conclusion
The above discussion shows the impotence of integrated reporting since it helps the
companies in providing both the financial and non-financial information of their businesses.
As per the above discussion, harmonization of the financial reporting standards was the main

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reason behind the move to international standards, but certain reasons like increase in
compliance cost and overall complexity were the reasons behind the non-adoption of
international standards. It can be observed from the above discussion that the foreign
regulators do not have the required adequate knowledge of the financial reporting condition
of Australian which is a major barrier for them where the local regulators have the adequate
knowledge on these aspects. It can also be seen from the above discussion that the presence
of many regulations is harmful for the companies in the presence of many negative impacts
like increase in compliance cost, increase in complexity and others. The above discussion
also provides the recommendation that the AASB needs to align with the standards of the
IFRS for the development of their suitable financial reporting standards.

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References
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