The Australian Regulatory Framework - Literature review Example

Name: Tutor: Course: Date: Australian regulatory Framework Synopsis Introduction The Australian regulatory framework is supported by a certain safety net. This is for the purpose of consumers and the financial products therein (Mitchell 2011).This safe net is important for the daily operations and the overall growth of a country’s economy and as such the backbone behind in numerous industries. It is clear therefore that to promote the efficiency of the current regulatory framework the consumers are presumed to knowingly bear consequences (Australian Accounting Standards Board 2010). These kinds of risks are associated with their specifically chosen financial institutions (Mitchell 2011). In most circumstances, the framework that exists in Australia recognizes that to some extent many customers may often not be in a position to either monitor the risks or assess the probability of the same. It is for this reason that the Australian Prudential Regulation Authority (APRA) has a major role in the delegation of regulation to numerous financial institutions (Australian Accounting Standards Board 2010). Overall, it is evident that the Australian Regulatory Framework has ensured that the different outcomes in each sector are expected (Victorian Competition and Efficiency Commission 2011). Below is an analysis of various literatures that have scrutinized the regulatory framework in Australia and as such arrived at various conclusions. Literature Review a) According to the author in “IFRS application around the world jurisdictional profile: Australia” the author looks at the Australian Accounting Standards Board is one of the governmental agencies under the Australian Securities and Investment commission Act of 2001(Mitchell 2011). One of the stipulations under the Act are that the AASB will develop a conceptual framework especially for evaluating proposed standards. In addition, there is a need to make accounting standards more qualified for the purpose of formulation of accounting standards. Other responsibilities include, participation and contribution to the development of an accounting system that will be appreciated worldwide (Mitchell 2011). Likewise, there is the advancement and promotion of factors that lead to reduction of the cost of capital hence creating an opportunity for Australia to complete in a global platform. The Author in this article further states that the Australian Accounting standard apply to numerous entities as required by the Corporations Act of 2001 and as such they are requirements for financial reports, governmental role in preparation of statements and the overall contribution of the General Government Sector (GGS) (Victorian Competition and Efficiency Commission 2011). Regardless, this author acknowledges that indeed Australia has adopted the IFRS standard especially in most of the companies registered in it. The author goes ahead to explain that indeed Australia adopted the IFRS standards since January, 2005 despite the fact that Australia had pre-existing bodies managing the regulatory framework. Further, the author acknowledges that in 2005, the adoption of IFRS and its application in the International Financial Reporting Standards (IFRS) had several transitional disclosure requirements that specified prior to the exact time of adoption (Victorian Competition and Efficiency Commission 2011). Subsequently, when Australia initially opted to adopt the IFRS standards back in 2005, the AASB decided to introduce new changes to the IFRS standards, some of them included the elimination of the accounting policy options and other additional clauses that prevented excessive disclosures (Australian Accounting Standards Board 2010). Consequently, in 2007, the AASB approved that the amended standard that opted to rescind the changes that AASB made to IFRS and as such the amendments were effected. Generally, the article shows that indeed Australia has two tiers of reporting (Mitchell 2011). These are the tiers of reporting most fundamental in the preparation of other financial statements for general purposes (Mitchell 2011). Looking further into the author’s explanation at this stage, there are two Australian Financial fronts. Tier 1 mainly involves the Australian Accounting standards and Tier 2 is mainly about the Australian Accounting Standard Reduced Disclosure Requirements (Victorian Competition and Efficiency Commission 2011). It is at this place that the author emulates the exact way in which the Australian Accounting standards can be made. The Tier 1 is therefore one of the important powers that the Australian government may appreciate the preparation of general purpose financial statements. Lastly, the author shows that Tiers are crucial in identifying several areas that are of importance to the financial sector (Victorian Competition and Efficiency Commission 2011). Some of these areas are the profit-private sectors that are entities that lack public accountability, the all not-for-profit private sector inquiries and lastly the public sectors other than the Australian government (Mitchell 2011). Generally, the author believes that to safeguard the financial statements in this area, it is important as entities are able to have explicit statements that are in compliance to IFRS standards. b) In the article titled “the regulation in Australia is mainly enforced by the Australian Prudential Regulation Authority (APRA). The body in itself makes rules which regulate the overall capital adequacy. It is a significant body because the amount and the quality of the Banking sector in Australia has increased considerably (Australian Accounting Standards Board 2010). Most recently there was a global crisis that prompted markets and all regulators to be more alert (Mitchell 2011). This involved sharing and airing of views to a level acceptable to all on forms of capital and other possible solutions (Victorian Competition and Efficiency Commission 2011). As a result, international regulatory bodies have proposed a number of changes to the economy of Australia and financial regulatory framework as a whole unit (Mitchell 2011). There is a collective term given top the standards that the APRA introduced to Australia in 2008 after the very first Basel standards known as Basel II (Victorian Competition and Efficiency Commission 2011). Basal Capital Standard came up with a significant idea that a bank can have the ability to hold capital in relation to its likelihood of incurring a loss (Mitchell 2011). These standards focused more on the aspect of defining capital and the measurable risk. In addition, the author explains that in measuring risk for capital adequacy purposes, most Australian Banks are required to analyze and produce reports that quantify their overall operational risks. One of the most significant risks is usually the credit risk that reflects the Australian Banks and focus highly on lending activities (Mitchell 2011). It is in this standardized form that the author explains how the regulatory body is able to calculate all risks including those of smaller banks. The author also talks of how some banks, such as the four largest ones rely on alternative Internal Ratings as a basis to weigh risks especially those derived from the bank’s own estimates and the exposures to the probability of default loss (Australian Accounting Standards Board 2010). APRA grants such authority and approval however only after a bank satisfies that it has met all the relevant governing rules and risks modelling the criteria behind operations Generally however, it is the author’s deduction that despite the regulatory framework, there are recent developments especially by Australia Banks’ Capital aimed at improving the regulatory body (Mitchell 2011). Indeed the author believes that the recent global crises is the reason behind prompting a much greater and stronger focus especially on the banking system. Many investors in particular were prompted by large losses and liabilities incurred by some of the largest banks (Mitchell 2011). In addition, the investors brought about regulators and rating agencies to work alongside them and help in the absorption of losses and the creation of gains (Victorian Competition and Efficiency Commission 2011). The author however identifies that some of the lower quality forms are often left out especially if they are low in capita but as a consequence, they are looked upon unfavorably. Conclusively, the author agrees that indeed the Banking system in Australia has grown and increased in capital as a whole (Victorian Competition and Efficiency Commission 2011). This is putting into consideration the potential losses in the recent years and the financial crises that has often driven or rather prompted markets to bring about the aforementioned regulators, rating agents and markets (Australian Accounting Standards Board 2010). The author identifies that unlike other banks in a number of other countries, there has been no efforts to eject public funds into the Australian Bank Capital. Regardless, various national and international bodies have brought about many changes to capital regulations (Gorajek and Turner 2010). Some of these changes include, a significant increase in quality, consistency and the overall transparency of operations (Victorian Competition and Efficiency Commission 2011). This has generally strengthened the risk coverage and the ability to formulate a considerable framework. According to the writer, the details of the final global capital regulatory framework is yet to be Improved at effort of ensuring that the economic signals are positive and sustainable. c) Extent to which Australia and this framework has standardized in line with the IFRS. Institutional arrangements. Financial accounting according to the Australian Government-Australian Standard Accounting Board is overseen by the financial council (Gorajek and Turner 2010). The council as well as the AASB are Australian Government Agencies (Mitchell 2011). The main objective of the AASB according to the issue of regulatory framework is to participate and contribute to the development of single accounting standards (Gorajek and Turner 2010). The Financial Reporting council therefore gives a broad category as to the direction in terms of strategies that the AASB may take. In most cases, the AASB are delegated legislation that is subject to the allowance and disallowance of the parliament (Mitchell 2011). In most cases entities are required to report under the Australian Corporations Act of 2001 and as such must apply AASB standards (Victorian Competition and Efficiency Commission 2011). This compliance is with the standards administered by the Australian Securities and investments commission and the professional requirements. Decision to adopt IFRSs. The FRC strategic direction was a strategic decision in 2002 that was adopted in 2005 and in line with the E.U timetable (Victorian Competition and Efficiency Commission 2011). The article Australian Government-Australian Standard Accounting Board brings about various benefits to the adoption (Gorajek and Turner 2010). They include the help in the attraction of capital to Australia as a lower cost of capital. In addition the adoption brought about lower costs of prepares and in the meantime, there was no need to recast auditors and multinational entities financial Reports. Generally, the adoption filled gaps in various financial instruments. In terms of costs, this article talks of the guidance brought about by IFRS in the employee-benefit accounting (Victorian Competition and Efficiency Commission 2011). This is because of the creation of the employee benefit accounting (Mitchell 2011). Similarly, there is an advanced and improved introduction of optional accounting treatments which brings about less comparability. Further, the adoption brought about a certain level of control as it took away the freedom of developing own for-profit standards by implementations of costs of change. Preparing for IFRS adoption. The actual convergence began in 1996 leading to the 2002 publication of the Australian convergence Handbook, by 2002, there was already significant narrowing of the differences between IFRS and AGAAP (Victorian Competition and Efficiency Commission 2011). This means that the main difference that existed between IFRS and AGAAP were areas in which IFRS were more applicable and comprehensive (Australian Accounting Standards Board 2010). This is in relation to financial instruments recognition and measurement and post-employment benefits (Gorajek and Turner 2010). AGAAP however turned out to be much reliable in insurance, extractive activities, intangible assets and conceptual framework as a whole According to the article, at the point of adoption, each IFRS was the subject of an AASB exposure Draft that asked whether the IFRS is in the best interest of the Australian economy. This means that there was need to provide adequate time for constituents to familiarize with the IFRS and in the process develop information systems best suited for its adoption (Victorian Competition and Efficiency Commission 2011). The process was completed by early 2004 and as such most entities or regulatory bodies had close to two years to implement the IFRS. There are annual balances in most of this entities that confirm that IFRS was generally applicable by 2006. There are several analysis that facilitated the IFRS adoption such as articles disclosing the impacts of adopting equivalents to IFRS. These types of analysis required entities to disclose the relevant impacts in their financial reports for years preceding adoption and at times, years after adoption. Key policy decisions. Upon formulation and adoption of an IFRS, there are certain policy decisions that required to be made (Mitchell 2011). According to the author in the Australian Government-Australian Standard Accounting Board the entities required to consider whether they should retain all the IFRS optional accounting treatments (Gorajek and Turner 2010). In addition, entities were to evaluate whether to retain or discard the Australian-specific disclosures and lastly, the extent to which IFRS should apply to all entities or in specific cases (Australian Accounting Standards Board 2010). The AASB originally worked towards removing the IFRS options that were not previously in AGAAP so that they can maintain the existing comparability. The corridor approach for contractual gains and losses also had post-employment benefits (Gorajek and Turner 2010). Further, there also included the IFRS options that were intended to avoid confusion about IFRS adoption and as such allow Australian entities the choices that were available to the ma and others (Victorian Competition and Efficiency Commission 2011). Generally, the extent to which the IFRSs could apply was relative to all the entities and the specified classes in which they operated. The article shows that in general, the for-profit entities should comply completely with the IFRSs (Gorajek and Turner 2010). On the other hand, the Not-for-profit entities both in the private and public sectors should apply IFRS to the extent that entities found most feasible in terms of neutrality (Gorajek and Turner 2010). Further, in practice, it became relevant that not-for-profit entities both in the private and public sectors should apply IFRS s and comply with the main exceptions being in the impairment for non-cash generating assets and non-exchange income recognition (Australian Accounting Standards Board 2010). Lastly however, Australians originally referred Australian equivalents as the IFRSs and as such created doubt as to whether actual adaptation had taken place (Gorajek and Turner 2010). However they are now generally referred to as the IFRS or the Australian accounting standard. Outcomes so far. Upon adoption and implementation therefore, there are certain changes or rather outcome of the IFRSs in Australia. Firstly, the Australian entities financial reports and regulatory framework are readily available and understandable at a worldwide basis (Victorian Competition and Efficiency Commission 2011). In addition to this, it has become possible to prepare audits and analysis of any Australian reports that are part of a multinational group (Gorajek and Turner 2010). Similarly, many uncertainties and gaps in the regulatory framework have been filled and in the area of financial instrument recognition and measurements in particular. Similarly, there is an initial upfront costs of adoption, particularly the implementation in certain banks that has become easier and paced (Victorian Competition and Efficiency Commission 2011). This is attributed to the numerous amendments brought about by the IFRSs that often tend to be driven by issues that are of significant concern to Australia as a whole (Gorajek and Turner 2010). However, it is true that Australian issues may not categorically be a global priority for instance the trading rights but such great lengths have been covered to ensure that international principles are applicable and eventually, useful. Ongoing challenge. Moving forward, there are certain measures that ought to be taken by the Australian Regulatory Board such that there is a move from a developer of domestic standards to one that is a contributor to international standards (Gorajek and Turner 2010). This generally means that the AASB ought to reinvent itself such that there is sufficient research carried out before making of crucial decisions (Gorajek and Turner 2010). Likewise, there should be extractive activities and intangible assets that generally encourage the Australian constituents to have better participation in international forums. Further, there is need to inform on several interpretation issues to have the ability to reinvent the IFRSs (Australian Accounting Standards Board 2010). This is probably by starting with the creation of a closer financial relationship with New Zealand’s regulatory bodies among other participation in financial based activities (Victorian Competition and Efficiency Commission 2011). Australia also ought to continue in majoring in not-for-profit and public sectors as most of the regulatory framework is less stringent in these cases. Lastly, Australia ought to reconsider on the differential reporting framework to ensure sustainability of the already achieved progress. Synopsis Conclusion Overall, it is evident that Australia and the regulatory system behind the economic and financial sector has improved drastically since the adoption of the International Financial Standards of Accounting. For instance, the banking system has significantly increased its capital against the losses in recent years. To a larger extent, the drive that came from the period of financial crises is what prompted better markets and the needs for reform in the regulatory department. Most of the financial entities have responded by bringing about considerable amounts of profits and equity which have resulted in some of the highest sources of capital for Australia. Unlike financial entities in other countries, there has been no injection of public funds or money for instance in banks so as to create a steady profit and gain margin. Indeed major international and national bodies are the reason behind the timely adoption of the international financial standards and in the process, better financial statements annually. This paper and the literature review of various articles have shown that indeed the Australian regulatory framework is supported by a large group of financial entities locally and internationally. As such, efficiency and practicability of the system has doubled and largely improved over time. With a more advanced method of analysis, risks are reduced and the AASB has found it much easier to keep up with progress and financial reports. Overall, the Australian Regulatory Framework has ensured that the different outcomes in each sector are expected and that the outcomes are accurate and well interpreted. In response to the issue in question and the purpose of this paper therefore, it is certain that the existing regulatory framework in Australia is greatly improving. Equally, it is safe to deduce that there has been good harmonization and standardization to an extent suitable to show sufficient progress and growth upon adoption of International Financial Standards in Australia. Works Cited Australian Accounting Standards Board, IFRS adoption in Australia. Publishers, Sydney Millers, Australia, 2011. Print Gorajek, Adam and Turner Grant. Australian Bank Capital and the Regulatory Framework, bulleting September quarter, Australia, 2010. Print Mitchell, Richard. Law, Corporate Governance and Partnerships at Work: A Study of Australian Regulatory Style and Business Practice. Farnham, Surrey, England: Ashgate Pub, 2011. Print. Victorian Competition and Efficiency Commission, Strengthening Foundations for the Next Decade: An Inquiry into Victoria's Regulatory Framework: Summary Report. , 2011. Print. Read More