Accounting and Society - Accounting Regulatory System in Australia - Coursework Example

Accounting and Society xxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxx Instructor xxxxxxxxxxxxxxxxxxxxxx Date Xxxxxxxxxxxxxxxxxxxx Introduction The Australian accounting regulatory system has been developed over the years so as to achieve effectiveness and efficiency in the accounting practices. The Australian accounting standards applied by private as well as public sectors are made by the Australian Accounting Standards Board (AASB). This body is held responsible for the development, issuance, and control of the accounting standards in Australia. It operates under the powers given by the Australian Securities and Investments Commission Act. Gray came up with four accounting values regarding a country’s accounting system. These values include professionalism versus statutory control, uniformity versus flexibility, conservatism versus optimism, and secrecy versus transparency. The objective of this paper is to analyze how the Australian accounting regulatory system reflects the four accounting values as well as preparing reports regarding the Australian accounting regulatory system. The analysis is based on literature review of Australian journals. How Australian Accounting Regulatory System Reflect Gray’s Accounting Values Professionalism versus Statutory Control Professionalism versus statutory control is generally used to refer to the accounting value of professionalism. Gray defined this as the preference for application of accountant’s individual judgment on professional matters and ensuring professional self control rather than observing compliance based on laws established by the government. In this light, accountants should take personal responsibility regarding taking the right actions and making proper professional judgments. They should carry out their duties within acceptable code of the accounting profession. Professionalism supports the existence of accounting regulations which guide accountants (Gray 1998). The Australian accounting regulatory system reflects professionalism being made-up of accounting bodies which ensure that Australian entities fully comply with the accounting standards issued by the AASB. These are the Institute of Chartered Accountants in Australia (ICAA), the National Institute of Accountants, and the CPA Australia. The bodies have a professional duty of ensuring that Australian entities comply with the established standards in preparation of their financial reports and statements. They exercise their powers in this direction as well as the international financial reporting standards (Mahesh & Alperhan 2009). The bodies play a significant role ensuring that the proper accounting skills and techniques are applied by all accountants involved in the preparation of public companys’ financial statements. This is achieved through equipping the accountants with quality and relevant knowledge that promotes their ability to produce quality work. The ICAA trains accountants. It is considered to be among the bodies that produce qualified professional graduates of accounting. Moreover, the ICAA focuses on delivering quality professional training through proper observation of the standards of the accounting profession. It subjects the accountants to a favorable environment that promotes professionalism. The ICAA as well as the Australian Society of Certified Practicing Accountants (ASCPA) apply standards that are professionally acceptable and this promotes professionalism (Laura & Steven 2009) The CPA Australia is actively engaged in promotion of professionalism through training of accountants on issues dealing with financial reporting as well as taxation. It educates, trains, and offers technical support to accountants. In addition, the National Institute of Accountants is fully committed in the fostering professionalism through ensuring that accounting matters in Australia are properly addressed. It encourages the provision of specialized skills to accountants and all other participants in the entire accounting profession. The professional accounting bodies in Australia work together with other bodies in various countries so as to see that Australian accountants are effectively trained. The Australian Securities and Investments Commission (ASIC), ensures that proper Acts are formed that guides accounting practices and thus fostering professionalism. In addition to this, the Australian public companies operate under the Companies Act and the accountants are subjected to the professional code of ethics and this fosters professionalism (Kaidonis 2008). Uniformity versus Flexibility According to Gray, uniformity is an accounting value that advocates for the adoption of the same financial reporting practices in firms and ensuring consistency of accounting practices from one accounting period to another. The requirements for uniformity are not in agreement with flexibility which advocates that changes be made in applicable accounting practices in the individual firms in accordance to the expected changing circumstances in the firms. Uniformity versus flexibility is generally used to refer to the accounting value of uniformity which calls for formation of the general rules and regulations to be applied in accounting. Uniformity helps accountants in avoiding uncertainties and ineffective individual judgments (Gray 1998). The Australian accounting regulatory system has adopted the already established international accounting standards for uniformity purposes. The adoption occurred in the year 2005 when the accounting regulations in the country were aligned with International Financial Reporting Standards (IFRS). This was supported by the Australian Financial Reporting Council and the Australian Accounting Standards Board (AASB) which participates in making international financial reporting standards. The AASB also makes accounting decisions in line with the rules given by the International Accounting Standards Board (IASB) The working together of the AASB and the IASB fosters the accounting value of uniformity (Laing & Perrin 2011). Changes have been implemented in the Australian accounting system to ensure that all Australian accounting practices are in agreement with the generally acceptable accounting standards. In the past, accountants in Australia used to treat intangible assets differently from the treatment required by the international financial reporting standards. They failed to observe the proper valuation methods for some intangible assets as well as other tangible assets such as property, plant and equipment. To achieve uniformity, the accountants in Australia replaced asset valuation methods differing with the IFRS (Laing & Perrin 2011). Moreover, the Australian accounting system ensures that classification of equity, assets, and liabilities is done according to the international standards. Generally, all the accounting practices adopted in the Australian accounting system are in line with the IFRS. This ensures uniformity. Companies in Australia prepare financial statements which are globally comparable due to the uniformity achieved through the adoption of the globally acceptable treatment for similar transactions. Firms are also expected to use the same accounting standards from one period to another and this practice promotes uniformity (Laing & Perrin 2011). Conservatism versus Optimism Conservatism is the preference for exercising careful approach in measurement and preparedness for uncertainties rather than optimism which encourages risk taking behavior (Gray, 1998). Professional accounting bodies in Australia have established accounting standards delineating a clear guidance on acceptable methods while determining the value of an entity’s assets and revenue amounts. This has enabled accountants to avoid uncertainties due to accuracy in measurement. The Australian Accounting Standards reflects the measurement procedures that accountants adopt in valuation of intangible as well as tangible assets. The economic activities leading to material changes are identified and immediate recognition is done based on such standards. The Australian accounting regulatory system promotes careful approach to measurement regarding assets and liabilities thorough application of the standards which form the basis of measurement applied by accountants (Chalmers, Clinch, & Godfrey 2008). Secrecy versus Transparency Gray advocated for the accounting value of secrecy whereby confidentiality is observed by ensuring that entity’s information is disclosed to the relevant and authorized people only rather than adopting transparency which encourages openness (Gray 1998). The Australian accounting regulatory system is organized in a way that promotes confidentiality. The relevant accounting bodies as well as the accountants adhere to the established professional ethical standards which prohibit the disclosure of confidential information to unauthorized parties. There are established accounting rules and regulations that guide their behavior (Ganghof & Eccleston 2004). Accountants in Australia are expected to comply with the code of ethics issued for the profession. This code covers the value of confidentiality requiring auditors and other professionals to observe secrecy. CPA Australia has established a formal process for disciplinary actions upon members who do not adhere to the code. This body works together with other professional accounting bodies in Australia ensuring that all members of the profession observe confidentiality. The members are obliged to keeping confidential any information due to the professional relationships with their clients except for legal obligations. The accountants are also restricted from taking advantage of any information for their own selfish benefits or benefits of third parties (Laura & Steven 2009). Conclusion The Australian accounting regulatory system consists of various professional accounting bodies that control the accounting practices adopted in Australia. The bodies regulate financial reporting activities by developing and issuing the Australian accounting standards. Companies in Australia are subjected to the rules and regulations issued by such bodies. In the past, the Australian accounting regulatory system had not adopted the International Accounting Standards but this has changed over the years. The international accounting standards have already been in adopted in Australia since the Australian accounting standards are made in agreement with the international standards. Australian accounting regulatory system highly reflects the four accounting values which were identified by Gray. It can be considered as an effective system in regard to the control of accounting practices in Australia. Report on the Australian Accounting Regulatory System for ABC Ltd’s Board of Directors The Australian accounting regulatory system consists of professional bodies that develop accounting standards and issue regulations that control the accounting practice. One such body is the Auditing and Assurance Standards Board (AUASB) which operates independently in the development of standards and guidelines for auditors and other parties involved in the provision of assurance services. The AUASB also makes changes regarding the Australian accounting standards and harmonizing such with International Accounting Standards. Another body is the AASB which develops accounting standards used by public companies, the private sector, and non-profit organizations. This body takes also participates in developing the International Financial Reporting Standards. It operates under the Financial Reporting Council (FRC). The FRC is an Australian governmental body that is actively involved in the provision of effective control on the process of issuing Australian accounting standards. It issues reports to the government in relation to the development process of the standards. It oversees and monitors the accounting practices in Australia but it is not involved in enforcement actions (The Audit Office of New South Wales 2011). The Australian Transaction Reports and Analysis Centre (AUSTRAC) deals with matters of financial reporting related to misrepresentations. It is the major body in Australia that deals with corrupt dealings in financial matters. The AUSTRAC ensures that public companies comply with Financial Transaction Reports Act. It provides reports on information regarding financial transactions to private and public sectors. The other key body is the Australian Prudential Regulation Authority (APRA) which regulates banks, companies and unions that provide credit, and societies. The Australian accounting regulatory system also has the Australian Securities and Investment Commission (ASIC) which is an independent body of the Australian government. The ASIC is responsible for controlling and implementing laws that govern corporations. It protects the rights of parties involved in investments. It aims at reducing fraudulent and unfair practices in financial operations in Australia. It investigates the role of auditors in financial reporting. ASIC ensures that companies achieve effectiveness and efficiency in their operations. There is also the Financial Reporting Panel (FRP) which resolves disputes between the ASIC and public companies regarding established accounting standards (Yang, Jiang, Fargher, & Carson 2011). The Australian accounting regulatory system consists of accounting standards that govern the operations of companies in Australia. All the reporting entities in Australia are expected to comply with the established accounting standards applicable under the Australian Company Law. The Australian accounting standards helps in ensuring that the financial statements and reports published by various companies in Australia fairly represent the actual state of affairs of the companies. Australian accounting regulatory system provides for relevant actions to be taken against any company that breaches the issued accounting standards. The Corporations Act gives the ASIC the powers to enforce Australian accounting standards through issuance of orders to public companies. It also has the powers to give a relief to companies regarding application of regulations and standards issued by the AASB. Disclosure requirements for companies in Australia are provided in the accounting standards issued by AASB. Financial statements are prepared as per the framework given by the standards. The Australian accounting standards calls for accountability of respective companies together with all stakeholders involved in the accounting practices. Accuracy in reporting is a major requirement in relation to the standards and therefore all companies in Australia are expected to produce accurate financial statements and reports. Moreover, the standards require the companies to issue transparent as well as reliable financial information. Accounting practices are governed by the standards issued by AASB. Companies in Australia operate under the requirements of the International Financial Reporting Standards since the AASB standards are based on the IFRS. The companies are therefore expected to ensure that they depend on accountants who have proper knowledge of the IFRS as well as the AASB standards. The accounting policies applicable in Australia are included in the AASB standards. Acceptable revenue recognition policies as well as guidelines for preparing statements of financial position and other accounts are outlined in the standards. The Australian government works hand in hand with the professional accounting bodies in Australia so as to oversee all the accounting practices adopted by companies based in Australia (Andrew & Hughes 2007). Report on the Australian Accounting Regulatory System for ABC Ltd’s Shareholders The Australian accounting regulatory system has been developed with an aim of regulating the accounting practices adopted by companies in Australia. It ensures that quality financial practices are applied by accountants and thus reporting entities in Australia adheres to the acceptable financial reporting standards. The operations promoted by the Australian accounting regulatory system are in line with corporate regulation that governs the activities of companies. The corporate regulation outlines matters regarding financial reporting such as the disclosures required to be made in annual financial statements and reports. In regard to disclosure requirements, the Australian accounting regulatory system has well established accounting standards that provide guidelines on the disclosures that accountants are expected to make. Such standards are developed by the Australian Accounting standards Board (AASB). These AASB standards are in agreement with the International Financial Reporting Standards (IFRS). This means that the Australian accounting regulatory system encourages uniformity and comparability through adoption of accounting practices applicable in an international context. The AASB works together with other bodies in other countries so as to achieve an effective control on accounting practices. The Australian accounting regulatory system requires companies to ensure that their accountants observe the acceptable accounting values through the issuance of reliable guidelines on accounting practices (Anderson 1998). The Australian accounting regulatory system is made up of professional accounting bodies that control the general behavior of accountants. The bodies are actively engaged in the development and issuance of the accounting standards that governs accounting practices. They formulate rules and regulations that accountants must comply with. These bodies include the Auditing and Assurance Standards Board (AUASB), Australian Accounting Standards Board (AASB), Financial Reporting Council (FRC), Australian Transaction Reports and Analysis Centre (AUSTRAC), Australian Securities and Investment Commission (ASIC), and Financial Reporting Panel (FRP). The accounting policies applied in Australia are formulated through the efforts of these bodies. Such policies provide a direction to people who are involved with the recording of transactions and the preparation of financial statements and reports. Generally Accepted Accounting Principles have been absorbed in the Australian accounting regulatory system. All companies carrying out operations in Australia are expected to adhere to the acceptable principles of accounting. Some of the professional accounting bodies are held responsible for enforcement of the regulations that accountants must comply with. They ensure that disciplinary actions are taken upon companies that breach the professional accounting regulations. The bodies ensure that a professional approach is taken by all parties engaged in financial reporting activities. The Australian accounting regulatory system ensures compliance through the issuance of rules and regulations applied in accounting practices. The system expects the companies that are involved in stock exchange activities to provide shareholders with the needed information in relation to their operations. The companies must disclose material information that can influence the decisions of the shareholders. The accounting regulatory system in Australia is designed in a way that permits access to accounting rules and Australian government guidelines regarding public as well as private companies. It enables accountants to be informed in relation to the Australian and international accounting standards (Elsayed & Hoque, 2010). According to the Australian accounting regulatory system, companies must prepare accurate and reliable financial statements. They must show commitment in the preparation of annual statements and reports that enables various stakeholders of the companies, such as shareholders, to gain a proper understanding of the company’s financial position and performance. Examples of reports that companies are expected to prepare includes the statement of financial position, the income statement, and the statement of cash flows. Through such statements, various people who have certain interest in any company are able to make informed decisions regarding financing and investing decisions. Important information regarding the amount of assets, liabilities, or equity is made known to the public. The corporate regulation and the Australian accounting regulatory system therefore protect the rights of various parties interested in the accounting practices of Australian companies. Companies are expected to make verification regarding the accuracy levels achieved by their financial statements. This verification is done by auditors who take the responsibility of reviewing the financial information provided by the companies at the end of any operating period. The auditors carry out independent investigations that assist them in confirming that the published financial statements are free from frauds and errors. They are expected to confirm that the correct values relating to various transactions are entered into the accounting records. Australian companies are required to make financial projections that are realistic and attainable. They should have auditors who ensure that effective and efficient internal controls are developed and implemented in the companies. The companies are expected to issue audited reports to the interested parties which may include creditors, the government taxation agencies, employees, and customers. The auditing work is majorly done by the big four auditing firms in Australia (Azizkhani, Monroe, & Shailer 2010). References Anderson, R. H. 1998. Regulating Corporate Annual Reports in Australia. Business and Economic History , 27 (2). 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Audit Reports in Australia during the Global Financial Crisis. Australian Accounting Review , 21 (1), 22-31. Available at http://onlinelibrary.wiley.com/doi/10.1111/j.1835-2561.2010.00118.x/full Read More