HI6025 Accounting Theory: Impact of IFRS on Wesfarmers Limited

This report analyzes the impact of International Financial Reporting Standards (IFRS) on Wesfarmers Limited, a major Australian company, following the adoption of IFRS in Australia starting January 1, 2005. It highlights the benefits, disadvantages, and challenges of adopting IFRS, focusing on key differences between IFRS and Australian Generally Accepted Accounting Principles (AGAAP). The report details specific impacts on Wesfarmers, including lease recognition and accounting under AASB 16, cash-generating unit (CGU) impairment assessments, asset impairment assessments, and the definition of 'insignificant' in lease classifications. It concludes that while IFRS adoption aims for harmonization, it presents challenges for companies like Wesfarmers with extensive lease portfolios and may not offer identifiable advantages for retail investors, potentially benefiting larger organizations through increased rebates rather than expanded profits. The analysis also touches upon the disclosure requirements and their potential drawbacks for companies with diverse lease arrangements.

Table of Contents
ABSTRACT..............................................................................................................................................2
INTRODUCTION AND BACKGROUND.....................................................................................................2
Decision to adopt IFRSs Benefits...........................................................................................................3
Disadvantages.......................................................................................................................................3
Challenges.............................................................................................................................................3
The main differences between IFRSs and AGAAP were areas in which.................................................4
IMPACT OF IAS ON WESFARMERS LIMITED, AUSTRALIA:......................................................................4
1. IMPACT ON LEASE RECOGNITION AND ACCOUNTING:..............................................................4
2. CGU impairment assessments:..................................................................................................5
3. Asset impairment assessments..................................................................................................5
4. Definition of insignificant...........................................................................................................6
CONCLUSION :.......................................................................................................................................6
References.............................................................................................................................................7

IMPACT OF INTERNATIONAL ACCOUNTING STANDARS ON AUSTRALIAN
COMPANIES AFTER IFRS PERIOD- STUDY ON WESFARMERS
ABSTRACT
Lawmakers have been adequately impacted to move to embrace International Accounting
Standards for the arrangement of records of announcing elements in Australia. Their
arrangement was to receive these Guidelines starting on or after 1 January 2005. The
Standards are obligatory on all substances.
INTRODUCTION AND BACKGROUND
The Australian Accounting Standards Board (AASB) has issued 'Australian reciprocals to
IFRS’, numbering IFRS gauges as AASB 1– 8 and IAS norms as AASB 101– 141.
Australian counterparts to SIC and IFRIC Interpretations have additionally been issued,
alongside various 'residential' models and translations (Alexander, 2016). These professions
supplanted past Australian proper accounting rules with impact from yearly revealing periods
starting on or after 1 January 2005 (i.e. 30 June 2006 was the main report arranged under
IFRS-proportional gauges for June year closes). To this end, Australia, alongside Europe and
a couple of different nations, was one of the underlying adopters of IFRS for local purposes.
The AASB has made certain corrections to the IASB professions in making An IFRS,
anyway these by and large have the impact of wiping out a choice under IFRS, presenting
extra revelations or executing necessities for not-revenue driven elements, instead of leaving
from IFRS for Australian elements (Bizfluent, 2017). Appropriately, revenue driven
substances that get ready budgetary explanations as per An IFRS can put forth an open
expression of consistence with IFRS.
The AASB keeps on reflecting changes made by the IASB as nearby professions. What's
more, finished late years, the AASB has issued purported 'Altering Standards' to invest a
portion of the underlying changes made to the IFRS content for neighbourhood wording
contrasts, to restore choices and wipe out some Australian-particular revelation (Bromwich &
Scapens, 2016). There are a few calls for Australia to just embrace IFRS without
'Australianising' them and this has brought about the AASB itself taking a gander at elective
methods for receiving IFRS in Australia.

Decision to adopt IFRSs Benefits
• help attract investments to Australia = bring down cost of capital
• bring down expenses for preparers, reviewers and clients of multinational elements'
monetary reports
• fill a few gaps in Australian GAAP (AGAAP, for example, money related instruments.
Australian elements' money related reports are all the more promptly comprehended around
the world (Clarke, 2013)
• Synergies in the arrangement, review and examination of Australian money related reports
for substances that are a piece of a multinational gathering
Disadvantages
• Loss of AGAAP direction, for example, on representative advantage bookkeeping
• Presentation of discretionary bookkeeping medicines = less likeness
• Loss of opportunity to build up claim revenue driven element norms
• Execution expenses of progress (Choy, 2018)
Challenges
Moving from a designer of local benchmarks to being a supporter of global guidelines
• The AASB has needed to re-evaluate itself:
 drive inquiries about, for example, extractive Industries and elusive resources
 Remarks on all IASB consultative reports, and urges Australian constituents to do
as such  takes an interest in worldwide gatherings, for example, the NSS Group and
the AOSSG
 Illuminate IASB/IFRIC of translation issues, instead of building up possess
elucidations
 Association with New Zealand FRSB (Dumay & Baard, 2017)
 effectively partake in IPSASB exercises
 proceed not-for-benefit and open area ventures
 re-evaluate differential detailing structure

The main differences between IFRSs and AGAAP were
areas in which
• IFRSs were more thorough, including: money related instruments acknowledgment and
estimation and post-business benefits; and
• AGAAP was more thorough, including: protection, extractive exercises, impalpable
resources, and applied structure 11 IFRS appropriation
In this manner, key highlights of Australian protection and extractive exercises measures
were held, since IFRS 4 Insurance Contracts and IFRS 6 Exploration for and Evaluation of
Mineral Resources granddad existing applicable national GAAP meeting specific criteria
To encourage IFRS appropriation the AASB issued AASB 1047 Disclosing the Impacts of
Adopting Australian Equivalents to IFRSs in April 2004 (Defond & Lennox, 2017)
AASB 1047 expected substances to reveal the important effects in their budgetary reports for
the year going before the time of reception – regularly the year finished 30 June 2005
IMPACT OF IAS ON WESFARMERS LIMITED, AUSTRALIA:
Wesfarmers Limited is one of Australia's greatest recorded associations, retailers and
organizations. Its different business exercises cover: supermarkets, retail chains, home
change and office supplies; coal mining; assurance; chemicals, essentialness and fertilizers;
and mechanical and security things. Wesfarmers works from in excess of 4,000 discrete
territories across finished Australia and New Zealand and has in excess of 6,600 rents over
the social occasion, being fantastically property leases (Dichev, 2017).
1. IMPACT ON LEASE RECOGNITION AND ACCOUNTING:
Wesfarmers' liabilities is relied upon to twofold yet not due to real acquisitions or a
cataclysmic crash. This is a direct result of new bookkeeping rules.
Under AASB 16 Leases, organizations will be compelled to bring working leases onto their
asset reports out of the blue from January 2019.
The new standard was activated by the crumple in 2011 of book retailer Borders, which was
not able end a portion of its $US2.8 billion in leases, which spoke to around seven times its
announced obligation (Raiborn, et al., 2016).

Be that as it may, it will likewise majorly affect key budgetary measurements, for example,
adapting proportions and profit for contributed capital, as the present estimation of leases will
be spoken to on the accounting report as an advantage and a risk.
The new standard will likewise influence benefit and misfortune articulations – changing
income before Interest, tax, depreciation and amortization (EBITDA), Earning before Interest
and tax (EBIT) and detailed net benefit – as organizations book deterioration and intrigue
cost on rent liabilities as opposed to rental costs.
EBITDA and EBIT will rise however net benefits – particularly for retailers with more up to
date rents – will fall, and rent cost might be altogether different to the money lease paid to
landowners (Sithole, et al., 2017).
Wesfarmers has one of the biggest shaky sheet rent liabilities in Australia (about $15 billion)
because of its 3500 Coles general stores, Bunnings, Office works, Target and Kmart stores.
2. CGU impairment assessments:
The right-of-utilization resource recorded under the proposition should be dispensed to the
applicable money creating units ('CGU'), which will bring about various contemplations from
the present position of Wesfarmer. Particularly a jumble will come about as: - there will have
been no comparing change in genuine money streams; and - the conveying measure of the
CGU would be influenced by the incorporation of the right-of-utilization resource and the
consideration or rejection of the risk to make rent instalments (Werner, 2017). The
proposition have swapped the working lease cost for premium cost on the rent risk and
amortization of the right-of-utilization resource, which brings about the net present estimation
of the anticipated money streams of the CGUs expanding, as the premium cost and
amortization would be rejected from the gauge money streams. Consequently, the net effect
will be reliant on whether the rebate rates utilized on beginning acknowledgment of the right-
of-utilization resource varies from the disability test.
3. Asset impairment assessments
Steady with the prerequisites of IAS 36 the right-of-utilization resource might be tried for
debilitation. Where a right-of-utilization resource identifies with property and delegated a
Type B rent the underlying amortization is lower and this may offer ascent to an impedance
issue that would risk the straight-line cost profile foreseen for property under the proposition.

As laid out beforehand, we prescribe that Type B leases (specifically property leases) be
rejected from the proposition completely as the monetary reason for going into a property
rent is essentially extraordinary to plant and hardware leases (Carlin, 2010).
4. Definition of insignificant
In the event that the hidden resource isn't property, a substance is required to group a rent as a
Type A rent unless one of following two criteria is met, one of which is: the rent term is for a
unimportant piece of the aggregate financial existence of the fundamental resource. The
presentation draft does not characterize unimportant and given the vast dissimilarity in
bookkeeping treatment emerging from the characterization of the rent, it is likely that
difference by and by would emerge countering the enhanced quality and likeness of monetary
detailing conceived under the proposition (Visinescu, et al., 2017). This should also
encompass disclosure of detailed cost-benefit analysis and field testing.
CONCLUSION:
There will be various numerous components that will be oppositely influenced by the
movements, particularly from a capital raising perspective. Request will develop with respect
to whether the enterprise in finding the opportunity to full harmonization has been advocated
paying little heed to the effort. Retail financial specialists will achieve negligible identifiable
preferred standpoint and the new standards may allow the greater associations to increase
rebates rather than declare extended benefits.
The divulgence necessities, for example, the compromise of the right-of-utilization resource
by class and data around the nature, terms and states of leases, are troublesome for
organizations with extensive changed rent portfolios, for example, Wesfarmers. The data
revealed would not be valuable for monetary articulation clients as it would not be
conceivable to uncover adequate subtle elements on a vast changed arrangement of leases
without trading off financially delicate data, and profoundly condensed data, if exhibited,
could be misdirecting. Further, it might be conflicting of the Boards to actualize basic
changes in the rent bookkeeping model whereby existing exposures are brought onto the
accounting report and increment the divulgence necessities.

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