Comparative Analysis of IFRS Adoption: Australia and Japan Case Study

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Accounting Theory and Current Issues
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Abstract
The assessment discusses about Accounting and Current Issues. The assessment
revolves around the implementation of the International Financial Reporting Standards
(IFRS) between two countries; Australia and Japan. The benefits, challenges, issues
and opportunities are to be discussed while implementing the IFRS. Apart from these,
the discussion is also about the need and importance of the IFRS in a company and the
nation as well. The assessment will be concluded discussing the relevance of the IFRS
with the globally operated companies.
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Table of Contents
Abstract............................................................................................................................ 2
Introduction...................................................................................................................... 3
Question 1........................................................................................................................5
Importance of Conceptual Framework of Financial Reporting.........................................6
Question 2........................................................................................................................8
Question 3......................................................................................................................16
Question 4......................................................................................................................20
Conclusion..................................................................................................................... 21
References.....................................................................................................................22
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Introduction
In this assessment, the discussion is about the Accounting Theory and Current Issues.
The assessment will discuss about the implementation of International Financial
Reporting Standards (IFRS). The assessment is focused on discussing the advantages,
disadvantages, issues and challenges in the implementation of IFRS. For discussing the
factors, comparison will be done between two countries, Australia and Japan. All the
factors will be discussed from the perspective of both the companies. The research will
be concluded discussing the usefulness of the International Financial Reporting
Standards (IFRS) in all the sectors of the economy.
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Question 1
The International Financial Reporting Standards are the accounting standards which are
implemented by the International Accounting Standards Board and IFRS Foundation.
These accounting standards are issued in order make the company’s accounts
comparable and understandable across the global boundaries.All the accounting
transaction from preparation of financial reports, maintenance of accounts and the
transactions are implemented using the IFRS standards (IASplus, 2013). The
companies have implemented IFRS standards because it makes it easy for the foreign
companies to understand all about the financial sustainability of the company. Financial
Statements made by using IFRS helps the investors and business person to make
decision and analyses.IFRS was launched and implemented in the year 1989 and was
revised in the year 2010 (IASplus, 2013).
IFRS is occasionally muddled with International Accounting Standards (IAS). The actual
scenario is that IFRS have replaced the older standards mentioned in the International
Accounting Standards (IAS). IAS was implemented and was used till 1973 to 2000. The
International Accounting Standards Board (IASB)replaced the International Accounting
Standards Committee (IASC) in the year 2001 (IASplus, 2013).
There are a wide range of varieties of financial transactions that are covered in the
International Financial Reporting Standards. Following are some of the activities which
are performed by the IFRS:-
Statement of Financial Statements- for the company which is operating in the global
market, it is important to record all the financial transaction using the IFRS. The
company prepares the balance sheet annually using the IFRS. This makes it easy for
the other business and competitors to analyse the financial stability of the business.
Statement of Profit and Loss- Profit and loss statement of the company is also
prepared in order to maintain the financial stability of the business. The statement helps
in the analysis whether the business is in profit and loss(IASplus, 2013).
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Cash Flow Statement-A company prepares the cash flow statement in order to provide
a summary about the financial transactions of the company. All the financial
transactions which are implemented by the company are recorded in the statement. The
transactions whether debited or credited are recorded in the cash flow statement of the
company.IFRS is used in preparing the financial accounting to make the global
companies understand the financial stability of the company(IASplus, 2013).
Importance of Conceptual Framework of Financial Reporting
Financial Reporting is defined as the presentation of the financial information in front of
the shareholders and investors. The financial statement is shown for a specific period of
time.The shareholders whom the financial statements are shown are- investors,
creditors, Government agencies and debt providers. The financial reporting is done
quarterly or annually (IASplus, 2013).Quarterly and annual reports are generally made
by the listed companies.Also, the financial reporting is considered as the end result of
any company. The major elements of the financial reporting are-
Financial Statements- These statements includes the balance sheets, profit and loss
statements, cash flow statements and so on. All the financial transactions are
mentioned by the company while preparing the financial statements (IASplus, 2013).
Quarterly and Annual financial reports (Only done in case of listed companies)
Prospectus is generated for the companies that are going for IPOs. Initial Public
offerings is the process where the private companies are offered some shares to keep
them in the form of stock.
Management Discussion and Analysis is done in case of the public companies.
The importance of Framework of Financial Reportingis:-
1. Financial provides helps in providing the facility of statutory audit.Statutoryaudits are
defined as the evaluation of the financial statements. The auditors examine the financial
statements and present their opinion(IASplus, 2013).
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2. Financial Reporting ease the methods of financial planning, analysis, decision making
and benchmarking. The shareholders also review the financial statements to know the
financial information about the company.
3. Financial Reporting helps in providing information about the financial stability of the
company. Therefore it can be said that the financial report is the summary of the overall
performance of the organization(IASplus, 2013).
4. The employees, public and the management can also analyse the performance of the
business.
5. If the company is going under labour contract, government supplies and bidding, the
company has to show the financial reports and accounts.
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Question 2
There are many companies that have implemented International Financial Reporting
Standards (IFRS) to present their financial information globally.With the implementation
of the IFRS, the companies are provided a platform to operate the business globally. By
using the standards, the companies can present its company globally in order to
generate more shareholders and consumers.
In this assessment, the comparison is between two countries that have implemented
International Financial Reporting Standards.Australia and Japan are the two countries
that have implemented IFRS.
IFRS in Australia IFRS in Japan
International Financial
Reporting Standards(IFRS)
International Financial
Reporting
Standards(IFRS)were
implemented in the year 2005.
The standards were reviewed
again and were implemented
in the year 2015 (Pawsey,
2016).
The main reason for Australia
to implement the standards
was-
Australian companies
wanted to expand their
business globally. With the
issue of the changed
accounting standards, it
was difficult to operate in
Japan adopted the
International Financial
Reporting Standards in the
year 2011. Almost 30% of the
total Japanese companies
have adopted the standards.
The standards were reviewed
again and came into effect in
the year 2013 (Noraki,et.al,
2012).
The main reason for Japan to
implement the IFRS was-
As these standards were
already created in the year
2013, the main reason for
the implementation was to
increase the companies
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the global market (Pawsey,
2016). The implementation
of the accounting standards
made it easy to operate in
the global market.
The implementation further
improved the financial
efficiency and quality of the
reporting (Pawsey, 2016).
After the country
implemented IFRS, it was
easier for the businesses to
operate globally.
Implementation of the IFRS
has also enabled the share
of the knowledge and skills
from the other companies
as well. The users can now
move from one country to
another or from one sector
to other (Pawsey, 2016).
The financial reports can
now be prepared in cost-
effective manner.
The new companies or even
the small-medium sized
companies can get the
platform to expand the
business in the market.
that can practise the
operation globally
(Noraki,et.al, 2012).
To share the ideas, skills
and knowledge with other
countries.
Inviting many other
companies for business
(Noraki,et.al, 2012).
Preparation of the financial
reports so that other globally
operating companies can
review the financial stability of
the company
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Transitional Issues After the implementation of
the standards, the companies
found it very difficult to work
according to new standard of
working.
There were some companies
which lacked the proper
understanding of the IFRS.
That became difficult for the
companies to implement the
standards as well (Pawsey,
2016).
The implementation of IFRS
also leads to fire older
employees from the company.
New employees were hired
who were aware about the
working of the business.
The issue faced by the
Japanese is same as faced by
the Australians.
The companies were suffering
a lot of difficulty in the
implementation of the
standards (Noraki,et.al, 2012).
Because of the difficulty, it
became difficult for the
employees to work according
to the new standards
(Noraki,et.al, 2012).
Challenges The main challenges faced by
Australia during the
implementation of IFRS were-
1. While implementing the
IFRS, the companies were
required to change the
financial assets. The
recording and
implementation of the
assets and liabilities
completely changes in
Japan was earlier working
according to the Japanese
Financial Services Agency
(FSA). After the
implementation of IFRS, it
was difficult for the
companies to change the
procedure according to
IFRS (Noraki,et.al, 2012).
The company’s working
was delayed by 2 to 4 years
due to the implementation
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accordance with the
standards requirements.
There comes the difficulty
in changing whole of the
arrangement (Pawsey,
2016).
2. After the implementation,
there was only a single
accounting approach which
was mandatory to follow.
Working according to the
new accounting approach
becomes difficult (Pawsey,
2016).
3. Management of the
accounting standards and
working according to the
accounting standards.
4. Sometimes, the barrier
occurs when the companies
cannot understand properly
about the IFRS. Therefore,
incomplete knowledge
leads to the difficulty in the
implementation of the
standards (Pawsey, 2016).
of IFRS in the companies
(Noraki,et.al, 2012).
There was no proper
training about the
standards, therefore some
people got really confused
after the implementation of
the standards.
Benefits Benefits to the Australian
companies after the
After the implementation of
the IFRS in Japan, the
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implementation of the IFRS
were-
The financial information
about the company can now
be prepared in a cost-effective
and efficient manner.
The Australian market and the
companies got the access to
operate in the global
market.The financial
statements about the
companies can now be
compared easily and
effectively because of the
same working
scenario(Pawsey, 2016).
companies were benefitted in
following ways;
Efficiency in the business
management- It became
easier for the companies to
manage the financial
information about the
business (Ctmfile, 2015).
Enhanced comparability
with competitors-Working
according to only standard
made it easy to analyse and
evaluate the performance of
the competitive company
(Ctmfile, 2015).
Enhanced Communication-
After the implementation, the
communication within the
companies was improved.
This was because each and
every company was following
the same standard of working
which made it easier to
communicate about any topic
with the companies (Ctmfile,
2015).
Better description of the
business performance- The
companies were able to
describe and understand
about the performance of the
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