IFRS Adoption in Australia: A Case Study of Wesfarmers and Its Impact

This report examines the impact of the introduction of International Financial Reporting Standards (IFRS) on Australian companies, with a specific focus on Wesfarmers Limited (ASX: WES). The report begins with an overview of the context of IFRS adoption in Australia, including the mandate by the Australian Accounting Standards Board (AASB). It then outlines the advantages and disadvantages of IFRS implementation, such as reduced capital costs and increased comparability, alongside challenges such as the need for professional training and the potential loss of industry-specific accounting standards. A comparative analysis of IFRS and Australian Generally Accepted Accounting Principles (AGAAP) highlights key differences, particularly in financial instruments, and lease accounting. The core of the report analyzes the impact of IFRS on Wesfarmers, detailing the changes in lease recognition, CGU impairment assessments, and asset impairment testing. The conclusion summarizes the positive and negative influences of IFRS adoption, emphasizing the complexities faced by companies with large and diverse portfolios, such as Wesfarmers, and the potential for stakeholder confusion due to the extensive disclosure requirements. The report is a detailed case study of the challenges and opportunities presented by the transition to IFRS for a major Australian corporation.

CONTENTS
 INTRODUCTION TO THE TOPIC
 ADVANTAGES POST IFRS
 DISADVANTAGES POST IFRS
 IFRS AND AGAAP – IMPACT OF CONVERGANCE
 IMPACT OF IFRS IMPLEMENTATION ON WESFARMERS (ASX: WES)
 CONCLUSION

IMPACT OF INTODUCTION OF
IRFS ON AUSTRALIAN
COMPANIES - STUDY ON
WESFARMERS

INTRODUCTION
 Lawmakers were highly impacted to move towards International
Accounting Standards and announcing the same in Australia.
 Their arrangement was to receive these Guidelines starting on or after
1 January 2005. The Standards are obligatory on all substances.
 The Australian Accounting Standards Board (AASB) has issued
'Australian reciprocals to IFRS’ which were in line with the international
IFRS
 The AASB has made certain corrections to the IASB professions in
making An IFRS

ADVANTAGES
 Help bringing down the cost of capital
 Attract foreign investments in Australia on account of uniformity
 Bring down the audit expenses which were earlier incurred on
account of different types of international audit requirements.
 Introduction of new concepts and aspects like financial
instruments
 Synergies in the arrangement, review and examination of financial
reports.

DISADVANTAGES
 AGAAP lost its individuality in auditing and accounting
 Loss of opportunity to build up, claim revenue driven
element norms
 A lot of training required for the accounting professionals
 Comparability aspect of the accounting standards
compromised

CHALLENGES
Shift from meeting the local benchmarks to meeting the global guidelines.
The AASB has brought about major changes to re-evaluate itself:
 comprehensive statute w.r.t. extractive Industries and elusive
resources
 focus on insurance company accounting and intangible assets
accounting
 Change in the perspective of accounting in many aspects like loss
recognition and earnings management
 takes an interest in International Meetings, for example, the NSS Group
and the AOSSG

Continued..
 illuminate IASB/IFRIC of translation issues, instead of building up
possess elucidations
 tie up with the New Zealand FRSB
 effectively partake in IPSASB exercises
 recognition of accounting for not-for-benefit and open area
ventures
 re-evaluation of differential detailing structure

IFRS AND AGAAP
 IFRSs were more thorough, in areas including: money related
instruments acknowledgment and estimation and post-business
benefits; and
 AGAAP was more thorough, in areas including: protection,
extractive exercises, impalpable resources, and applied structure
 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 grandfathered existing applicable Australian GAAP
meeting specific criteria

IMPLICATION OF
IAS/IFRS ON
WESFARMERS
LIMITED

ABOUT THE COMPANY
 Wesfarmers Limited is one of Australia's greatest recorded
associations, retailers and organizations.
 Ranked 1st in terms of employers and in terms of revenue
 Its mainly deals in: supermarkets, retail chains, home change and
office supplies; coal mining; assurance; chemicals, essentialness
and fertilizers; and mechanical and security things.
 Working in excess of 4,000 discrete territories across finished
Australia and New Zealand and other regions like Ireland and
Bangladesh.

IMPACT ON LEASE RECOGNITION
AND ACCOUNTING:
 Wesfarmers' liabilities is expected to double, due to introduction of
new Accounting rules.
 The new standard will likewise influence benefit and cost
implications – changing income before Interest, tax, depreciation
and amortization (EBITDA), Earning before Interest and tax (EBIT)
and detailed net profit – as organizations book deterioration and
intrigue cost on rent liabilities as opposed to rental costs.
 The new standard was activated in 2011 as book retailer Borders
 Increase in liability of $2.8 Billions in leases which is even more
than seven times of the announced obligation.

Continued….
 New IAS will affect key budgetary measurements
 The new standard will likewise influence benefit and cost
implications – changing EBITDA, EBIT and net profit.
 Wesfarmers has one of the biggest rent liabilities in Australia
(about $15 billion) because of its 3500 Coles general stores,
Bunnings, Office works, Target and Kmart stores.