Australian Accounting Standards - Essay Example

The paper  “Australian Accounting Standards”  is a germane example of a finance & accounting essay. An entity refers to a legal, fiduciary, or administrative arrangement, Organizations, and other structures that have the capacity that can deploy resources to achieve its objectives. Several alternative concepts of the reporting entity are implicit in the current legislation and regulation, which specify entities that need to prepare general-purpose financial reports. These reports are prepared to provide users within the formation about the reporting entity, which is useful for making and evaluating decisions relating to resource allocation.

 In Australia, failure to apply international IFRS for SMEs Standard immediately and opt to turn to AASB 1053 Application of Tiers of Australian Accounting Standards has diluted the primacy of the Reporting Entity concept about the need to prepare General Purpose Financial Reports and the subsequent requirement to apply full IFRIS to such reports. The proposed deferential reporting for small and medium-sized businesses in Australia clearly states which businesses need to prepare reports and incorporate proper plans to apply the IASB”s exposure draft on IFRS for SMEs (Australian Government, 2010).

The Australian Accounting Standards Board has made the Accounting standards AASB application of Tiers of Australian Accounting standards in their corporation's act. The main objective of this standard is to give an application of Tiers of accounting standards in Australia to different categories of entities that are required to prepare general-purpose financial reports.

Australian accounting standard has two Tiers of reporting requirement in the preparation of financial reports. They include:

Tier 1: Australian Accounting Standards
Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements.
Tier 1 consists of IFRSs that were issued by the International Accounting Standard Board and include requirements that are unique and specific in Australian-based entities. 

Tier 2 comprises the measurement and the recognition of requirements of Tier 1 and substantially reduces the requirement for disclosure. Presentation requirement under both Tier 1 and 2 is the same except in the presentation of statement of financial position, which is different under Tier 1.

In each standard specifies the entities where they are applicable and sometimes sets out disclosure requirements that Tier 2 entities are exempted. They include:

Tier 1 reporting requirement applies to financial statements of the following types of entities:

1. Profit private sector entities that have accountability to the public
2. The state and Government of Australia, local and Territory Governments

Tier 2 is applied in the following entities financial reports as a minimum requirement:

1. Profit private sector entities that lack public accountability
2. Private sector entities that are non-profit-making
3. Profit or non-profit-making public sector entities excluding the state and Government of Australia, local and Territory Governments

The introduction of differential reporting affects entities already reporting under full IFRS. Application of Tier 2 requirement makes it compliance to IFRS while minimum disclosure in key financial statements is required. The introduction of Tier 2 has enabled to transition from the traditional standards of preparing financial statements. In this case, a company to shift to Australian standards is required to apply either Tier 1 or Tier 2, to prepare the transitional reporting statements. It also claims to use IFRS to apply the full requirement of Australian Accounting Standards 1 as provided by ASSB. However, those who have already applied for Tier 2 are required to apply some of AASB 1 in disclosing material information in financial statements. In other words, the introduction of Tier 1 and Tier 2 brought about various options in the preparation of financial statements. If a company has applied Tier 1 successfully, it is allowed to move into Tier 2. Such a company is not necessarily required to apply AASB 1. However, a profit-oriented entity to move from Tier 2 to Tier 1 is expected to comply with AASB 1 fully. Small and Medium Size enterprises are, therefore, expected to report under Tier 2 particularly when they do not apply the AASs, in their reporting.

Some business entities are not required to apply either of the two Tiers. These entities do not have some public accountabilities requirements. Australian Government and state, territory, and local governments are not required to apply Tier one in preparing their financial statements. This is because they are public in nature and not profit-oriented. There is, therefore, no need to make some disclosures to release material information to interested members of the public. In addition, some information remains a secret of the government for various reasons. However, in my opinion, it is not a pleasant thing for such entities not to reveal material facts in their financial statements. Members of the public even if they lack interest in investing in these entities, have some indirect interest in them. Through taxation, members of the public sacrifice their resources through which these entities are funded and run. it is, therefore, fair to disclose to them how their contributions have been utilized at.