The Advantages of the Adoption in Australia of International Financial Reporting Standards - Assignment Example

(a) What were the reasons for, and what are the claimed advantages of, the adoption in Australia of international financial reporting standards (IFRSs). International Financial Reporting Standards (IFRS) are geared towards the need of accounting standards that meet the international economies. These standards are the core to provide effective reporting that will make investors feel comfortable with the information and eventually with the business as accountability will be easy and corporate governance will gain the confidence of the stakeholders. All of these factors may be considered to be the backbone of making and developing economic growth in modern market economies (Antill & Lee, 2005). With the integration of world capital markets happening at a fast pace, it may be the only logical reason to adopt a single set of accounting standards. This will be a more adaptive way of comparing financial information not just within Australian companies but the Australian corporate sector with the international corporations. along with comparison, it will also make the allocation of capital across borders more efficient. Furthermore, different arrays of national standards which are a lot different in their functionality, on its own places a high cost on capital markets. a constant portion of these costs is directly put on the companies who have to meet the multiple standards to raise capital in different markets. the IRFS bears the answer to provide relief for both corporate governance and the stakeholders (Antill & Lee, 2005). In today’s global world, economic relations with other countries are increasing at a much faster rate than before and especially for Australia where foreign trade is much more than the GDP. This has resulted in a substantial increase in the number of different multinational corporations out of Australia, and many of these companies have their focus on Asian markets among others for their revenues. Furthermore, as these economies themselves develop this makes it even more relevant for IFRS to be adopted in Australia (Nobes, 2006). (b) Given the significant costs involved in adopting IFRSs, do you believe the benefits arising have been, or will be in the longer term, worth the effort? Provide clear support for your view. In these global markets, the IFRS gives investors a more clear view of the companies as barriers to international financial investment have fallen in markets around the world. These investors can now trade securities of these Australian multinational companies without any constraints. Moreover, these investors may be pretty much responsible for trading of almost half of all the shares of the companies which are floated in the Australian market (Nobes, 2006). As cross-border financial investment increases, capital markets become more dependent on each other. This means that shocks felt in one market reverberate around the region and potentially, around the world. This was dramatically illustrated during the Asian financial crisis. As financial markets become increasingly interdependent, there is also an increased shift towards the development of internationally recognised codes and standards dealing with capital market regulation (Nobes, 2006). This provides a stable environment in which international capital flows can take place. Several organisations are developing international standards and codes for market regulation. The International Organization of Securities Commissions (IOSCO) brings together representatives from securities commissions from over 100 countries to discuss issues of mutual concern. It has released several papers on the regulation of securities markets and financial intermediaries (Benston, 2006). The International Auditing and Assurance Standards Board develops and issues standards for auditing, assurance and quality control. These standards are used as the basis for national auditing standards in more than 70 countries. Additionally, there’s the work of the International Accounting Standards Board in developing and maintaining IFRS. The development of IFRS can be seen within this broader framework therefore, they are another tool designed to promote a stable and certain international regulatory environment. There is an obligation on the makers of international standards and codes to be responsive to any concerns over the application or interpretation of the standards. By being responsive, the makers can help promote confidence in these standards and codes (Benston, 2006). Of course, developing international standards and codes, in itself, serves very little purpose. Standards and codes can only be effective where they are adopted and implemented by national authorities. In this context, the current work of the International Monetary Fund and the World Bank is particularly important. The IMF and World Bank carry out assessments of the extent to which a country complies with particular codes and standards. This is part of their “Reports on the Observance of Standards and Codes” process (Benston, 2006). IFRS is a new accounting standard replacing the existing Australian Generally Accepted Accounting Principals (AGAAP) standard. In addition to Australia, IFRS is also being introduced in Europe, South Africa and New Zealand. The introduction of IFRS will more closely align Australian accounting standards with international and United States standards, allowing international investors to more easily compare Australian companies with their international peers. Similarly, Australian investors will become more adept at judging international investments (OECD, 2004). Companies which have established operations in Australia such as The National and BHP Billiton have had teams of upwards of 150 accountants involved in the process of adaption IFRs. However, financial operations such as KPMG report that these companies and others like them are having problems finding the right HR and this is not an encouraging picture. In essence, these companies have to balance the cost of adopting IFRs with the price they would have to pay if they are apathetic towards the process of adopting these standards (Biermann, 2004). In the medium to long term, it is of course possible that the market starts to react to IFRS reported earnings and pays attention to the new items that have been introduced. To ensure that markets can react to any future change in the markets nature and retain our competitive advantage, they have been capturing analysts individual IFRS item estimates from the outset and storing this information for future analysis. This will enable the companies to monitor the markets reaction to IFRS over time and make future adjustments to our process if we see room for improvement (OECD, 2004). Word Count: 1,086 Works Cited Antill, Nick, and Lee, Kenneth. Company Valuation Under IFRS, Harriman House, 2005. Benston, George et al. Worldwide Financial Reporting: The Development and Future of Accounting Standards. Oxford University Press. 2006. Biermann, C. 2004, ‘Coming ready or not’, [Online] Available at: http://www.companydirectors.com.au/Media/Company+Director+journal/2004/May/Coming+ready+or+not+the+business+issue+of+the+year+AICD+Review.htm Nobes, Christopher. Comparative International Accounting. Financial Times. 2006. OECD. Oecd Economic Surveys. OECD. 2004. Read More