Financial Accounting Reporting - Assignment Example

Financial Accounting Reporting Name: Course: Tutor: Date: QUESTION 1 Introduction Financial Reporting Council abbreviated as FRC has been given the mandate of setting local accounting standards as well as directs the Australian Accounting Standards Board (AASB) on matters pertaining accounting standards. AASB should spearhead in developing a conceptual framework of harmonizing local accounting standards with the international accounting standard, as provided by the corporation act, section334, they should make accounting standard for company legislation, participate in the process of making international accounting standards and champion in the process of making other accounting standards within Australia as need arises, Commonwealth of Australia, (2005). The introduction of the international reporting standard met mixed reaction from different companies as well as individuals. In Australia, large multinational companies saw an opportunity but the small companies thought it would not benefit them an inch. However it came at the exact time when the country was undergoing some serous reporting standards. The private and the public sectors were continuously looking out for a good organization to report to. This was not only happening in Europe but the rest of the world as well. New Zealand was in a dilemma, Canadian government was still not decided and some European countries were up for the same, Alfredson, (2003). Standardization of Accounting Standards in Australia AFC reported that it would support the adoption of IAS which stands for International Accounting Standards in July 2002. This was done in accordance with the need to improve access to international investment for companies in Australia where Securities and Investment Act of 2001, allowed in section 227which provided that the Australia Accounting Board was supposed to participate in the making of the International Accounting Standard. This went ahead to force reporting units in Australia to draft financial statement according to standards in Australia but equivalent to IAS, Bowrey, (2007). Newberry, S. (2001), thought that the then existing situation in the international scene was not pleasant, he thought that every nation had its unique accounting standards. Standardization is necessary so that the companies which have branches in different parts of the world can have the same accounting systems. This will avoid a scenario where multinational companies will have to adopt different accounting rules for different branches. Nobes and Parker, (2004) took a sample of multinational companies for study in Europe. Their findings showed that there were inconsistencies in the accounting rules and in some cases, some if accounting standards of different nations were used, the profit difference was large and not neglect able. An example of such is a drug Swedish corporation which produced a profit of $29,707,000,000.00 when computed using United Nations accounting rules, and $9,521,000,000.00 when the United Kingdom accounting rules is used. This difference cannot be neglected. The big difference of profit raised from one company in same transaction, same company and same year may not sound logical to a company shareholder. To avoid this scenario, standardization of accounting rules would redeem the multinational companies the stress of computing two sets of profits or losses. Unerman and O’Dwyer, (2004) points out that the political world and the accounting association’ practitioners in Europe enforce many accounting regulators, of some allow Enron liabilities to be hidden in US and document them elsewhere do this by documenting them outside the United States. Changes to Australian Reporting Standards Close examination of the reasons in blue print for standardization reveal enough truth which convince us understand the need for standardization of this accounting rules. However some accountants argue that all nations are unique in their own way, their way of life, in terms of culture, judicial systems financial system and economic systems. They say that enforcing this standardization to some nation will mean paralyzing the nation from developing further. However as much as the term ‘standardization’ which is not very flexible has been used, nations are still considered and have been given enough room to play on to accommodate the issues at hand and engineer their values to standardization of the international accounting methods. When the law was passed that every company in Australia had to adopt reporting standards which conform with the international reporting standard for the period starting 1January, 2005, there were general mixed reaction from companies. Some companies in Australia thought that he benefits of international standards of accounting would be more advantageous and they believed would be more beneficial supervising the cost of adopting them. Small domestic companies thought that the cost of paradigm shift would be more expensive in comparison with their projected benefits. This was as a result of fear of loss of capital from the US where most investors came from. The few who rejected did not give any sound reason for rejecting the standardization. Otherwise, a research contacted by the FRC showed that most companies were ready to adopt the new rules and rate is as ‘strongly agreed’ Major changes affected the way assets are measured, how they are recognized, equity on share capital, liabilities of different companies, revenues collected by the companies and expenses. Those parts which would be affected more by the changes include: reporting standards and authorized deposit taking institutions. This decision by FRC forced the companies in Australia to comply with Australian Equivalent of International Financial Reporting Standard (AIFRS), ASIC, (2006). To keep company key personalities informed upon establishment of the AIFRS, AASB 1047 came out of AASB in adopting AIFRS, its impact require companies to disclose financial records on how their the process of transition process was moving as well as how they handled matters arising from changes. This did not only apply to yearly report but also the report produced generated in between the year. With the globalization of the economy, Australia companies roles increase, the global economy was expected to come in aid of Australia corporate economy and help them improve their performance in the competition scene. Financial reporting cost was reduced for the businesses so that they can adopt the international standards. Entities Required to Report in Accordance With IFRS The following are units required by law to prepared financial statements in accordance with IFRS after 1 January 2005 so that they are reviewed, they include: profit making firms which can be categorized as corporate businesses, the nonprofit making public entities as well as other not for profit organizations like NGOs . Potter, (2002), the existing Australian accounting standards as at then, both the public entities and the not for profit firms were handled differently. Australian standards looked at it as organizations whose main aim is not to make any profits. Those firms in the public commonly known as government companies are placed in the group of the corporate whose main aim is to make profit. IFRS adoption by the profit- oriented organizations in Australia is not part of the concentration. While adopting IFRS for profit-oriented corporation in Australia is not included, Adoption of IFRS as Australia’s Financial Reporting system sailed through. Potter, (2002), does not take any serous review of the profit oriented organization. On the hand, some argued that it was important for neutral ground to be allowed for play. On the other hand Australian Accounting Standard Board (AASB) prepared the standards. AASB 4 deals with matters of insurance and insurance contracts. According to the AASB, (2011) standards, an entity is required to prepare financial report according to Corporations Act part 2.m.3. They should also come up with financial records that can be used for general purpose. The members of the organizations mentioned will be beneficiaries of this policy if and only if they follow the reporting rules standards in reporting their finance. International financial reporting standardization Some countries like Australia had some accounting standards in place. Most of them were even much better and others were more comprehensive than what the international standard had to offer. Basing on mind that the set accounting standard for countries were tailored to suit the local needs of the government and the small business, one will not be blamed to think the international standard thing was in a naive. Bringing rationalities like the one mentioned earlier on one company making different profits when computed using the different accounting standards lay down in different nations, one will be prompted to think beyond just the local industries. No doubt the need for rules that govern the international multinational companies is necessary. If one had been tempted to upgrade the accounting standards of one nation to international accounting standard, the whole deal would not have worked because, in the first place it is not easy to find accounting standards that are suitable for international scene. To say in fewer words the move to standardize the accounting rules internationally is not naïve, we can’t continue holding policies in place that do not benefit us while in the economic sector we are suffering. This cannot only be termed as a courageous move but also a wise and noble idea which is yet to liberate the world of business from some irrationality associated with unique standards for every nation. This move is creating a warm environment for the globalization of marker in the technological world. Pros and cons associated with International Finance Reporting Haswell and McKinon (2003) complaint on the time of arrival of the FRC decision, was not appropriate especially basing your idea on the fact that such a decision it was soon after the mess up of the US accounting system. They argued that the decision had some heavy negative impact on the US generally accepted accounting rules. They would blame the international accounting standard board had any corporate failed in Australia. Alfredson, (2003) look at the whole thing as a Europe driven project aimed at benefiting Europeans. Disadvantages of the international finance reporting Change is the hardest decision to make, some countries as would be expected faced some rough time in trying to make this change to adopting international financial reporting standards. In Australia for example, change met some resistance that, the existing standards were much better, the new standards were not comprehensive enough, others felt they would ruin the small enterprises and some thought that they were being fed with some stuff they did want by the international community. Hickey et al (2003), look at the situation of New Zealand as have sing the standards which were not only similar to those of the international standards in several ways and in a way compatible with most European standards if it were not for a few absent material in the New Zealand standards. The major problem was that they still had to leave the standards for the common international standards. Revision could do New Zealand some good, Hickey et al (2003), on the other side; the country was being driven to uncertainty. IFRS was hard to prepare for; it gave several corporate significant hard tasks. There was some was opinion difference in the board which was assigned the task. This was in a way simpler to handle than if the financial community was had rejected the whole idea. Conflict between the laid down existing standard were sometimes conflicting with the international standards that formed the new rules every institution had to conform with. This also forced the standards to take over in a changeover process rather than the phase in process that would have allowed the businesses to prepare and equip it well. Merits of Adopting the International Standard Finance Reporting The main advantage associated the existing structures is that the makers of the law understand the general business atmosphere, the participants and their capabilities. Issues that are likely to affect the individual entities in the system are easily gathered for. In Canada a unique environment is very necessary because the standard by the board would have accommodated Apart from the fact that there is harmonized accounting standards for multinational companies which will ensure uniformity in of accounting in every Conner of the world, a business can run comfortably in several countries producing one document as a financial report that easily recognizable. Globalization of market is enhanced through coming up with a harmonized document that the whole world uphold. A study curried out in Australia and Europe showed that there was a strong support for the international standardization of financial reporting. Some countries had even planned ahead of time to bring all the nations together to come up with such a standard law that would govern all the countries, this was done in Australia. From the arguments given by most individuals who participated in the process of harmonization of the international reporting standards, the cons are stronger than the pros; this is why the order is already successful and operational. Most of the individuals must have been rational enough to support the idea ascend up the ladder. Conclusion To conclude, the results of the company accounting reported using more than one nations report was inconsistent and this would discourage large companies from multinational investment. It is now upon the busiesneess community to decide on the future direction on the accounting standeards. A research should be done to invesfinal direction for future research is to investigate the extent of satifaction of reporting entities QUESTION 2 Introduction Australia had had its accounting standard for a long time, however the Financial Reporting Council (FRC), has come up with the new idea of adpting the international Standards. Thisl will be done to the advantage of reporting entities in australia. The accounting standards to be used in future by those reporting entitiesy which qualify to report will do it according to the set standards laid down by the International Accounting Standards Board” (FRC, 2002). The Australian Accounting Standards Board (AASB). A Reporting Entity A reporting entity can be defined as that organization which participate in the economic world and generates some viable financial report which is useable; that is which can be used by the investors to assess their performance, banks to give them loan or any other creditor who is willing lend money. This is particularly useful when the financiers cannot find another source of sufficient information to determine the credit worth of the business. In particular, the most important factor that is analyzed is proper usage of resources. From the definition, Australian Future School Group (AFSG) qualifies to be a reporting entity if it is not already. One factor considered is, is it an economic entity in the first place, the answer is yes, AFSG also have some reputable financial record in which information was derived from. Such useful information when given in detail can be useful enough for viable decision making. Australian Future School Group (AFSG) can confidently apply as a reporting entity even before we move further. Australia Securities and Investment commission (ASIC) provides that an economic entity can be a reporting entity if it is participating in an economic activity in the first place, the fact that financial report is to be submitted annually or otherwise as required by the organization being reported to. The financial report should be as a result of contacting an economic activity. It is therefore very basic that the entity to report should have been participating in some economic activity or is participating at the point of application to become a reporting entity. Secondly, the economic activity should have its ownership in the entity and should be isolated for the others in the region or its environs. Australia Securities and Investment commission (ASIC) also says provides that if it is a firm, then it should be independent from the other firms in the industry and should be able to run its affairs in the industry alone. Lastly, Australia Securities and Investment commission (ASIC) affirms that the entity in question should posses good financial records about the daily transactions and the general running of the business. The records should meet the standard which can be used as a basis for decision making. One might be tempted to think that if the criteria are met, then the entity automatically becomes a reporting entry, this is not absolutely true. According to the Australia Securities and Investment commission (ASIC), provide standards and procedure on how of application of reporting entity test. That is to say, ASIC wanted non-reporting organizations which meet the minimum qualification of being one of the reporting entities to follow chapter 2M of corporation law in drafting their financial report, this will make sure that the non-reporting entities would make the financial report in accordance with the financial standard required in the international scene which they will have met anyway. However, there should be some careful consideration of which entities should be classified as reporting entities. Conclusion Financial reporting is useful in the sense that it provides some information that justifies the need for its existence. It justifies its decisions, proving that there is good planning for utilization and management of the resources in the organization. It is generally aimed at improving the set goals and objectives in the organization. References Newberry, S. (2001), ‘Public-Sector Accounting: A Common Reporting Framework?’, Australian Accounting Review. Potter, B. (2002), ‘Financial accounting reforms in the Australian public sector: an episode in institutional thinking’, Accounting, Auditing & Accountability Journal. Alfredson, K. (2003). Pathway to 2005 IASB Standards. Australian Accounting Review. Evans, L., & Nobes, C. (1996). Some Mysteries Relating to the Prudence Principle in the Fourth Directive and in German and British Law. European Accounting Review. Financial Reporting Standards Board. (2003). Adoption of International Financial Reporting Standards. Retrieved 29 October, 2003, from http://www.icanz.co.nz/StaticContent/AGS/IFRSadoption.cfm Jubb, C.,( 2005), “Transition to IFRS: Listed Companies’ Expected Accounting Policy Impacts as Revealed by AASB 1047 Disclosures”, On behalf of the Institute of Chartered Accountants in Australia, [Internet] available: http://www.icaa.org.au/upload/download/AEIFRStudy2.pdf. [Accessed on 14 August, 2005]. Nobes, C. (2006). Survival of international differences under IFRS: towards research agenda, accounting and business research. Read More