Assignment on Financial Theory IASB and AASB

Question: Discuss about the Assignment on Financial Theory for IASB and AASB. Answer: 1. The question requires to be answered in perspective of convergence of accounting standards with the perspective of International Accounting Standards Board which is popularly known as AISB and Australian Accounting Standard Board known as AASB. This convergence is to be ensured with different parameters of accounting which are the basic of maintaining accounting out of which two different issues are being picked up for the purpose of discussing the convergence of IASB and AASB. Issue 1- Post Employment Benefits The simultaneous action of IASB and AASB related to this issue had converged in the year 2013 when IASB has revised the same with IAS 19 which is being followed by AASB with AASB119 related this issue. The main significance of the divergence of both the standards is the inconsistencies which are of significance related to superannuation benefits related to this issue. The implementation of the new needs related to this issue had made it flexible for the users of financial statements for the purpose of understanding the way defined benefit plans can change the respective financial position of the individual through the practices of removal of options and improvement of presentation. This project is being undertaken by the world leaders of accounting standards to make a common platform through which the standards can exercise the concepts in more transparent and clear ways. It is not only IASB or AASB, FASB or Financial Accounting Standard Board is also going through the process of convergence with their earlier action to ensure that the users must feel comfortable while exercising the same for their purpose of accounting. Issue 2-Financial Instruments The convergence of this issue is mainly to make the symmetry between IASB and AASB to match the unification of the instruments through three phases of which first phase was completed in June 2009 and the same was concentrated in recognition and measurement of the balance sheet items with the new enhance standard of IFRS and the phase 3 was concerned with hedging and was completed in 2012. The phase 2 was concerned with impairment and that had been concluded in 2014. These projects are assigned for replacement of IAS 39 which was meant for Financial Instruments; Recognition and Measurement by the new standard for simplifying the recognition, classification and measurement which are required for financial instruments. The complete version of IASB standard had been reissued by the AASB with naming as AASB 9(2014) which replaces the earlier version of 2009 and 2010. Hence the revised version is inclusive of two amended versions AASB 2014-7 and AASB 2014-8. This same standard will be operative as per the standard decision taken by the two boards from 1st January 2018. This entire project was started in 2009 and completed in 2015 with the general application date as 2018. The basic requirement of convergence of these tow concepts had been met with the prerequisites of the accounting professionals in international level(Charteredaccountants, 2016). 2. The rationale of this convergence project is mainly for making a common platform for the accounting professional around the world with the gradual numbers of members in the form of US, Canada, UK, Australia, Japan and European Union. The biggest host of this effort, International Accounting Standards Committee had started new body named as International Accounting Standard Board with the objective of creating an accounting platform in practice with the features of high quality global accounting standard which can be understood and enforced globally which can comply with the International Financial Reporting Standards or IFRS with the attempt to converge the concepts of national accounting standards with IFRS along with the standard setting bodies of Australia, Canada, New Zealand, US, Japan and other dominant European Union Countries which are with the connection of IASB through their members whoa re doing the basic liaison for the relationships amongst IASB and national accountin g standards bodies(Aasb, 2015). The policy statement of AASB had highlighted the area of international convergence with keeping harmony globally so far accounting standards are concerned along with the strategies the Australian Board deploys to achieve them. The specific strategies adopted by AASB to ensure pursuance of global convergence with the harmonization of accounting standards of Australia. Basic objectives of AASB international convergence is promoting pursuance by participating in the activities IASB adopted with the PSC, which promotes the concept of globally accepted single set of accounting standards which may be adopted in Australia and other places for the purpose of both internal and global use to accomplish the benefits come out of it as per the policy statement. This objective cannot be achieved in short period to accomplish the single set of globally accepted accounting standards. The objective of global harmonization of AASB is to ensure working for the development of the standards of accounting in Australia which will harmonize with IFRSs along with the other global standards which are denoted as International Public Sector Accounting Standards( IPSASs) as per issuance of PSC with the conclusion of AASB which states that those standards are in all probability to be in the best possible interests of the entities with the legal status of private and public sector existing in the economy of Australia. The ultimate objective of AASB is not to follow the trending standards of accounting accepted globally like IFRS and IPSASs, but to prove themselves as the best possible accounting standards to be followed globally with the convergence of IASB and PSC so far the deliberation of the accounting standards are concerned of both IASB and PSC to cons ider AASB as the best of the global accounting standards in operation(Aasb, 2002). The basic merits of international convergence with harmonization include:- Enhancement of the scope of comparability of the respective financial reports made in different locations globally with the provision of participating agents in international capital markets which will yield information with better quality upon which the basis of investment and credit decisions will depend. This system will be instrumental for reduction of costs pertaining to financial analysis by the process of analysts not have to make recasting of information on the basis of common criterion with requirement of knowledge of only one type of financial reporting standard instead of different practices and standards. Removal of barriers for international flows of capital through the process of reduction of difference in financial reporting which is required by the participants of international market of capital with the increased level of understanding by the investors of overseas of the financial reports of Australian companies. Reduction of costs related to financial reporting for Australian MNCs along with overseas companies which are operative in Australia and reporting in different places. To exercise meaningful comparing of financial performance and position of both Australian and overseas reporting entities of public sector. 2. To justify the comments of the critics related to application of IFRS in several different fields of accounting practices as per guideline of IASB, we have to understand the basic features of IFRS with the area of coverage the said accounting standard provides. The IFRS framework is describing the basic features of the said accounting standard which is elementary for underlying the preparation along with presentation of financial statement for outside users. The main role of IFRS is to play the role of guiding the Board to develop the future IFRSs with the objective to resolve different issues related to accounting which are not being directly addressed in International Accounting Standard or IFRS with Interpretation. To resolve the issues related to specific application of any transaction, management should decide for proper accounting policy to judge its feasibility with the relevancy and reliability of the information. To ensure proper judgment related to adoption of accounting policy IAS 8.11, management has to make consideration about the definition , criteria of recognition, along with the concepts of measuring of different elements of accounting practices like assets, liabilities, revenue and expenses in the perspective of using IFRS framework. This escalated implication related to the importance of the IFRS framework was included in the revision of IAS 8 in the year 2003(Pwc, 2015). The scope of IFRS Framework addresses to the following:- Objective related to financial reporting Derived qualitative features of useful financial information The entity sponsors the reporting Identification of the relevant elements of accounting from which the financial statements are derived which are defined, recognized and measured. Basic concepts to understand capital and its maintenance With all the above features, the ability of IFRS to satisfy the needs of accounting standards which can be encouraged through different revolution and respective changes of IFRS and in turn, these are elementary to match the need of the perfect accounting system in place for any organization to ensure proper reporting related to accounting in respect of different elements specified through IFRS. Hence the application of IFRS so far in the context of its utility in accounting standard is concerned; I think IFRS sponsored by IASB will be the lead standard of accounting globally due to its application and gradual renovation which is backed by innovative ideas by the experts of the team(Iasplus, 2010). The basic debate is related to the integrity of the IASB so far its concern about the interest of public is concerned. It is heard that IASB is mainly looking after some small spectrum interest of the firms of accountants. Although the status of IASB is being projected as a body with self regulatory power exercised with the exception of practicing accountability to endorse democracy. It is also matter of great concern that the IFRS Foundation is mainly concentrating its focus on private and commercial interest-groups with the inadequate concentration of public interest. It is being argued that this accepted weakness is found in its governance which affects the quality of standard setting of IASB. It is also argued that the IFRS standards are posed to be within the thin layering of technocratic neutral attitude which is not meeting the requirements of the short tenured investors. IASB is more prone to depend upon the market-value based concept of fair value accounting which shows less respect for accounting. There is another belief that IFRS is sponsoring of short term affair with excessive dividend policies introduced in the capital market(Aasb, 2016). The counter argument says that the standard setting of the IASB has generated though the motivation of protecting public interest as per the constitution of IASB along with their mission statement. As it is observed that the most number of users of financial reports are consisted of investors and creditors who are directly involved with the company so far public interest is concerned. It is also observed that the compliance of objectives so far accounting standard is concerned is mostly coming from aspirations and so it is bit difficult to accomplish the objective in full term. IFRS is mainly concentrating on the issues of imposing rigorous and disciplined practice in the capital market without pampering the unjustified profit and subsequent dividend declaration. This action always improves the trust building on the accounting standard with ensuring economic growth and sustainable financial stability. IFRS, the product of IASB is also proves to be cost effective in application throug h encouragement of promotion of confidence in growing global economy(Hoogervorst Prada, 2016). To answer the question of the feasibility of the Australian local bodies to adopt IFRS as their accounting platform, it is noted that the adoption of the IFRS in Australia is being treated as an important happening so far the financial reporting is concerned with its history. This happening had emerged as a debatable issue while the consideration of implication related to IFRS along with its material impact on the financial performance and quality of accounts of Australian entity. The expected changes in the accounting standards in local public identities were supposed to impose major changes in the way by which the local public bodies used to report their financial activities with respective position to their shareholders and other associates(Ifrs, 2016). The reporting of IFRS after implementation and adoption with the elements like surplus, assets, equity and liabilities are major concern of big numbers of local government entities. The results such derived also put light on the insight about the probable effect on reported numbers by the councils of local statute like Canada, Malaysia and the UK who are intending to start implementation of IFRS for their local public bodies. The requirement of the situation is to conduct further studies to be undertaken for the purpose of investigating different areas of the process of IFRS adoption. It is required to undergo different case studies to find the feasibility of the adoption process from the perspective of longitudinal aspects. The role of these studies is important in highest regard as it projects the respective effects on the performance of the local bodies. The role of the studies in different countries for adoption of IFRS in the local public bodies enhances the scope of deriving th e success of this accounting standard with the identification of merits and demerits of the standard. This comparative analysis can highlight the opportunities to derive the positivity of different adoption strategies with the enhanced application(Ahmed Alam, 2012). References: Aasb, 2002. International Convergence and Harmonisation Policy. [Online] Available at: https://www.aasb.gov.au/admin/file/content102/c3/ACCPS4_4-02.pdf [Accessed 30 September 2016]. Aasb, 2015. Presentation of Financial Statements. [Online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf [Accessed 30 September 2016]. Aasb, 2016. The Standard-Setting Process. [Online] Available at: https://www.aasb.gov.au/About-the-AASB/The-standard-setting-process.aspx [Accessed 30 September 2016]. Ahmed, K. Alam, M., 2012. The Effect of IFRS Adoption on the Financial Reports of Local Government Entities; https://ro.uow.edu.au/cgi/viewcontent.cgi?article=1370context=aabfj. Australasian Accounting, Business and Finance Journal, 6(3), pp.106-20. Charteredaccountants, 2016. Financial Instruments (revision to IAS 39). [Online] Available at: https://www.charteredaccountants.com.au/Industry-Topics/Reporting/Current-issues/Convergence/News-and-updates/Financial-Instruments-revision-to-IAS-39 [Accessed 30 September 2016]. Hoogervorst, H. Prada, M., 2016. Working in the Public Interest: The IFRS Foundation and the IASB. [Online] Available at: https://www.ifrs.org/About-us/Documents/Working-in-the-Public-Interest.pdf [Accessed 30 September 2016]. Iasplus, 2010. Conceptual Framework for Financial Reporting 2010. [Online] Available at: https://www.iasplus.com/en/standards/other/framework [Accessed 30 September 2016]. Ifrs, 2016. IFRS Application around the world. [Online] Available at: https://www.ifrs.org/Use-around-the-world/Documents/Jurisdiction-profiles/Australia-IFRS-Profile.pdf [Accessed 30 September 2016]. Pwc, 2015. IAS 8 - Accounting policies, accounting estimates and errors (IAS 8). [Online] Available at: https://inform.pwc.com/inform2/s/IAS_8_Accounting_policies_accounting_estimates_and_errors_IAS_8/informContent/0915113103126213 [Accessed 30 September 2016].