The Costs for Adopting in Australia of Financial Reporting Standards - Assignment Example

The Costs for Adopting in Australia of Financial Reporting Standards The International Financial Reporting Standards (IFRSs) To begin with, the International Financial Reporting Standards or the IRFSs is a basic term that is being used to denote the standards that have been espoused by the IASB or the International Accounting Standards Board. Initially (until April 2001) the Accounting standards under the International Financial Reporting Standards were called IAS or the International Accounting Standards. In the year April 2001, all the international accounting standards had been taken over by the IASB from the international accounting standards committee (IASC) and these accounting standards of the IAS were further developed by the members of the IASB and at that moment of time in April 2001, the International Accounting Standards was renamed to ‘The International Financial Reporting Standards’ (IFRSs). The world wide adoption of IRFS The premium accounting standards IRFS are being currently used by around a hundred countries including Australia, European Union, Singapore, etc. A list of all the countries that have successfully adopted the IRFS standards is available online at the website of IRFS. (Link to the website that provides the list is as follows: http://www.iasplus.com/country/useias.htm, viewed on 11th January 2008). (Company’s anonymous writer, ‘Applying IFRS and AIFRS in Australia’, Oct. 2007, < http://www.pwc.com/extweb/onlineforms.nsf/weblookup/auengasssifrsandaifrshomepage-applyingifrsandaifrsinaustralia?opendocument>) Adoption of IRFS in Australia Proposal for SME’s: The AASB or the Australian Accounting Standards Board decides the adoption of the accounting standards that are to be applied in Australia. On the 31st May 2007, the Australian accounting standards board released a proposal that soon the IFRS accounting standards will be applied for all the small scale and medium scale enterprises. This proposal will wipe out the current differential reporting standards and framework. One of the most major affects of the application of the IFRS system in Australia will be that the SME’s will no loner have to option of disclosure of some vital information pertaining to the company’s accounts. That is, the companies will not be able to able to choose the disclosure requirements that are currently applicable. Many companies have created havoc and have written many e-mails and even contacted the AASB via telecom pertaining to the halt of the application of these new set of accounting standards, while still most of the companies are neutral on the issue (mostly due to the fact that they do not know the exact specifications of the IFRSs). Further below in this report we will find that the IFRS system is not a severely strict system as it has been misjudged by many of the Australian companies but in fact a much better system then the current standards applied by the Australian Accounting Standards board. Adoption for Australia: The AASB declared the application of the IFRS Standards since 1st January 2005 (with some minor amendments of course, which are currently referred to as the “A – IFRS” or the Australian equivalents to International financial reporting standards). The Advantages of adopting IFRS in Australia and the cost support The IFRS System is quite advantageous for a country like Australia because of the fact that it changes many of the previously followed standards for the betterment. Secondly, since the government and AASB has decided to follow the IFRS Standards, which is, as a matter of fact being followed in around a hundred more countries and due to this fact the operating costs of the Accounting standards will definitely go down. This is one of a major advantage and is very much applicable to not ‘only’ Australia but to all the countries following the IFRS standard because of the fact that the same kind of standards and techniques will be used irrespective of the country or location. Not only does a unique accounting standard save a lot of money but it saves a lot of time also, this is due to the fact that the accounting standards will work like a unique language and it’s just like abolishing the translation costs. (Knights, Miya “Bill mounts for IT cost of IFRS”, Accountancy Age , 4th December 2003, ) The modifications made in the Standards of IFRS by the Australian Accounting Standards Board (and then calling it A- IFRS) are quite suitable for the country’s companies (even though their have been some oppositions of the standards). The A- IFRS is definitely a move towards the betterment and clear transactions by the companies affected. The Calculation base of IFRS The ‘equity at year end’ is the base for calculation on IFRS, i.e., the net profit is calculated by the equity as the base, that is, by subtracting the equity of current year (at year end) by the equity of last year end. Conclusion: “The justice for Costs involved in IRFS” Definitely the costs involved in the IRFS will be hedged by the advantages of the system, and not only will the costs be hedged but the advantages of the IFRS standards will far surpass the ‘hedging’ phase and possibly be better. But this will only be feasible if the IFRS standards are here to stay and will not be modified (too much) for about the next five years. This is said because of the fact that more and more modifications will definitely increase the costs even further and not only that but will be tough to handle too and a very serious time and money killer. (Source: Clare Bettelley and Samantha Haque, 9th November 2004, ‘Beware extra costs of IFRS, warns Bank Association’, Viewed at: http://www.financeweek.co.uk/cgi-bin/item.cgi?id=107). The costs involved in the IRFS system are justified in the longer run. The Costs involved in IFRS and the advantages over it The advantages of the IFRS accounting standard far surpass its ‘not – so – over – rated’ costs. The costs involved in the IFRS are basically system costs and novel exploration type costs. The biggest losers in the “Cost – of – IFRS” mess will be the large (particularly listed) companies which might have to bear up to 625,000 pounds each and for what… just to prepare their systems for the ‘new accounting standards’, the systems here particularly mean to get themselves new software and accounting professionals with a good knowledge about these systems. (Source: Knights, Miya “Bill mounts for IT cost of IFRS”, Accountancy Age , 4th December 2003, ) These data have been extracted by conducting a survey for ever a thousand companies, which was conducted by JMH Financial Services to calculate the various costs involved in the new accounting standards. References: Knights, Miya “Bill mounts for IT cost of IFRS”, Accountancy Age , 4th December 2003, Company’s anonymous writer, ‘Applying IFRS and AIFRS in Australia’, Oct. 2007, < http://www.pwc.com/extweb/onlineforms.nsf/weblookup/auengasssifrsandaifrshomepage-applyingifrsandaifrsinaustralia?opendocument> Clare Bettelley and Samantha Haque, 9th November 2004, ‘Beware extra costs of IFRS, warns Bank Association’, Viewed at: http://www.financeweek.co.uk/cgi-bin/item.cgi?id=107 Read More