Case Study Accounting Theory Convergence of IASB and AASB

Question: Describe the Case Study for Accounting Theory Convergence of IASB and AASB. Answer: 1. International Accounting Standard Board or IASB is the authority which is instrumental to ensure the international standard of accounting. This body has introduced IFRS as its representative module for ensuring the same. There are other accounting boards accepted globally in the form of FASB (US) or Australian Accounting Standard Board (AASB) are also engaged in the process of developing their standards with the objective of making a common accounting standard platform which can be accepted and practiced all over the world in due course of time(Aasb, 2016). To ensure this purpose, there is the ongoing process of convergence of the accounting standards with all the main accounting standard boards by initiating their phase-wise activities to upgrade different elements of the accounting system. We will discuss below two such elements and the phase-wise progress of the same: Financial Instruments Main points of convergence of IASB and FASB are to replace IAS 39 by the new standard IFRS 9. It is done with the objective of simplifying the classification and the measurement of financial instruments. This project has three phases out of which phase 1 of identification and measurement of financial assets and liabilities are finished in 2009. The third phase of hedging had been done in November, 2012. The phase in-between namely phase 2 which is related to impairment had been competed in 2014. The entire process is over and the operation of IFRS 9 will start from January 2018 with the permitted adoption of early period. In this entire process AASB is also found party by replacing its old standards to be replaced by the new standards. Earlier AASB had practiced several standards for the financial instruments which they changed while the IASB and FASB had changed the same with their new innovation and AASB as a process of converging their accounting standards had effected same change s which were featured in IFRS 9(Fasb, 2004). Phase 1-Assets and Liabilities The convergence of AASB and IASB was effective with the simultaneous publication of IFRS 9 in November 2009 and AASB 9 in December 2009 in Australia. . The needs of classification and measurement of financial liabilities were included in IFRS 9 during October 2010 which had been reflected in AASB 9 during November 2010. IASB had completed the project with the effective limited revisions to publish the important issues of IFRS 9. These were being identified in the accounting practice as components of early practices of the standard. The effect of impairment concept had been made to conclude the project of financial statements. The measurement of changes along with classification related to financials statements had been noticed by the early adopters of IFRS 9(Hoogervorst Prada, 2016). To ensure effective convergence between IASB and AASB, the completed version of IASB through IFRS 9 issued is being validated by AASB 9 of 2014 which had replaced old version od 2009 and 2010 effective with effect from on or after January 1st, 2018. New AASB 9 is supported by two standards amending the old one with number AASB 2014-7 and 2014-8. Those amendments are effective from 1st February, 2015 with annual reporting periods which starts from January 1st, 2015. Phase 2- Impairment The Phase 2 related to impairment had been concluded by IASB in July 2014 related to revision of IAS 39. The new concept is being introduced with the concept of expected loss impairment model which attracts the need of recognition with timely impact on the credit losses. Although there found controversies between IASB and FASB; AASB had implied the inclusion of the same in the standard through AASB 9 released in 2014(Charteredaccountants, 2015). Phase 3- Hedge Accounting The financial instruments named as Hedge Accounting has passed through two phases- general hedge accounting and macro hedge accounting of portfolio hedging. The basic objective for this project was to ensure the simplicity of this application for understanding and better alignment to the practices of risk management. This issue also responds to different inferences from both preparers and the users regarding the shortfall of the present rules in the area of hedging(Charteredaccountants, 2015). Post Employment Benefits This issue is being converged by IASB through its revised version of IAS 19 related to employee benefits which was being effective since January 1st 2013. This process is being followed by AASB 119 in reciprocation of IAS 19 through the revised version. The introduction of new standard highlights the important shortcomings of superannuation mode which is compared with the old practices of employment benefits The new version is being considered as user friendly for the financial statements for understanding the different benefit plan with the effect on the financial position of entities with other aspects like financial performance and cash flow with the removal of options and improvement of presentation. The introduction of IAS 19 related to Employee Benefits had been inferred as post employment benefits by IAB. This is effective since 1st January, 2013 with retrospective effect supported by transition requirements. Subsequent steps had been taken by AASB by issuance of AASB 119 in September 2011. The rationale for this step is to ensure the common platform for accounting standards with its micro elements to be converged with the common understanding of the issue and to ensure unified practice of the same(Aasb, 2015). The issue of post employment benefits is one of the major accounting issues which are to be covered under the common platform of accounting standards. The basic reasons behind this effort are:- To recognize with immediate effect the proposed changes in the area of post employment benefits with anticipated cost to fund this benefit with immediate recognition of value of the plan assets by removing the corridor approach. A revised way of presenting with the clear distinction between different elements related to cost of prefixed benefit plan with the specified of presenting the same with the removal of comparison of impairment. More transparent disclosure of information related to the features of prefixed benefit plans with the determination of risk with the specification of amounts identified in the financial reports along with participation of different plans related to different employers(Charteredaccountants, 2015). 2. The debate related to role of the IFRS so far the areas of stewardship of public funds for the supply of services attracts difference of opinions. Some critics opined that IFRS is mainly there to serve the purpose of the business community without keeping their prioritized are connected with public interest so far supply of service is concerned. IFRS is the instrument of IASB which is sponsoring their accounting standard as per the guideline provided by IASB. The basic objective of IFRS is to put the accounting system for the business community with particular emphasis on the interest of the investors. IFRS is providing the basic features of preparing and presenting financial statements for the stakeholders. It is often creates debate that IFRS is deviating from its objective of the said areas as per IASB. The basic fundamental issue of IFRS is to enable the management of any business identity to apply IFRS as accounting system with the context of the transactions. It is the duty of the management to decide upon the applicability of IFRS so far its adoption with emphasis on resolving the issue of accounting. This step requires the clarification and measurement of the specific issue related to accounting with relevant information. This can be done with understanding of features of any entity with the concept of measuring the same for different elements relating to the accounting practices with the pre-fixed terminology of liabilities, expenses, assets of the identity with the outlook of utilizing IFRS Framework as specified in 2003 version(Aasb, 2015). The scopes of practicing IFRS are identified as:- Fixation of objective to comply reporting pattern of financial accounting Deriving features distinguished as qualitative nature to promote information found to be useful regarding financial reporting Recognizing the pattern of reporting by the management of the entity Exploration of basic items found to be elementary to prepare financial statements with the specified definition, measurement and recognition. To learn the elementary concept of capital with the style to maintain the same. Consideration of the above facts is to be taken into consideration while criticizing IFRS as an accounting system in perspective of management of capital and supply of service to comply the basic needs of accounting standard. With the light of the above discussion, IFRS has proved its worth to comply the accounting standard and this can prove the utility of IFRS as an effective accounting practice under the guidance of IASB(Hoogervorst Prada, 2016). 4a. The specified issue of IFRS serving the community of big four audit firms who are present in global scenario by neglecting the issue of public interest is to be discussed in the topic. The 4 big audit firms are namely PWC, Deloitte, KPMG and Ernst and Young. Due to their global presence with auditing assignments, they would prefer to make the generalized system for their global client regarding the accounting system. This will make their job easy with specific framework to be followed in mechanical way to ensure audit and assurance for the clients of them. To make their framework with universal acceptance, IASB is framing their accounting standards so that they can perform in the said areas of their operation. This situation may lead to negligence related to public interest, especially in the core segment of investors and stakeholders(Ifrs, 2016). Being a responsible entity of setting globally acclaimed accounting standard IASB is run through its constitution which virtually proves to honor democracy in specific domain. This statement ensures that all the stakeholders using the accounting statements should find their required level of information as per their general requirement from the IFRS generated accounting statements. The said constitution of IASB had empowered IASB to exercise its steps which they deem fit. But the overall conclusion related to the performance of IASB often says that it is keen to protect the interest of its followers by adopting IFRS, instead of creating a standard which can honor the interest of the community in the form of stakeholders, as well. It is often raised debate that the governance of IASB is covered with faint screen of technocratic mentality which poses the virtue of neutralism. But this is often noticed that IASB is more inclined to the concept of market value concept of accounting by endorsing the fair value concept. This concept sponsors the applicability small term incidents with the provision of declaring excessive amount of dividend which is not good for the capital market(Huber, 2013). There is difference of opinion in this context which says that IASB along with instrument named IFRS is dedicated to save public interest as per its constitution framed. These features are found in the ethical statement part of IASB in the mission statement of the organization. 5a. This question is regarding the acceptability of IFRS in the Australian Local bodies with it viability and effectiveness. The local public bodies of Australia have different level of services extended to the public. Mainly the local bodies are run by the government with unique features of serving different areas of service for the community. IFRS is a generalized platform of accounting with the deliverance of unique type of reports. As the natures of the activities of the different local public bodies are different in nature with the priority fixed as per their domain, it is really tough to ensure their accounting treatment with unique platform. Moreover these organizations are not for business purpose, instead they are serving the people and the community through their services which are mainly for regular civic services. As the stakeholders of different local public bodies are different, the applicability of IFRS is bit confusing. Hence the application of IFRS related local publ ic bodies are to be customized as per the specification and requirement of the local public bodies. Even so, if the same is to be introduced, the needs different level of studies and research for the said purpose is always there. To identify the practical application of IFRS in the local public bodies of Australia are not like other commercial identities to implement the same, as the nature of activities are different. While the commercial identities are mainly focusing on their activities which end at declaration of profit and subsequent dividend to the stakeholders, the need of the local public bodies is totally different (Mof, 2015). They are not interested in declaring profit, in fact, they dont even look for it. Their main objective is to serve the community and that is their obligations. Like the business identities who can declare loss through their accounting statements with justification is to be acceptable by the stakeholders. But in case of local public bodies, there is n o such scope of showing negative result because all their activities well controlled through budget fixation, monitoring and respective execution of their projects. Hence the application of IFRS if proposed, in case of local public bodies are to be scanned through different aspects and features with the utmost objective of serving the stakeholders with people in micro level and community in macro level. It is known that some countries are also thinking of adoption of IFRS for accounting practices related to local public bodies like Canada, Malaysia and UK, but the research process is going on to mitigate the scope of risks for ensuring better deliverance of accounting features with subjected accuracy to meet the requirement of the stakeholders. If the same to be followed in Australia, first of all general mandate with consent of the respective authorities are to be obtained before the process of application should start(Fasb, 2004). References: Aasb. (2015). AASB Standard. Retrieved September 30, 2016, from https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf Aasb. (2015). Presentation of Financial Statements. Retrieved September 30, 2016, from https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf Aasb. (2016). The Standard-Setting Process. Retrieved September 30, 2016, from https://www.aasb.gov.au/About-the-AASB/The-standard-setting-process.aspx Charteredaccountants. (2015, February 17). AASB 136 Impairment of assets. Retrieved October 24, 2016, from Charteredaccountants: https://www.charteredaccountants.com.au/Industry-Topics/Reporting/Australian-accounting-standards/Analysis-of-AASB-standards/AASB-136--Impairment-of-assets Charteredaccountants. (2015). Financial Instruments (revision to IAS 39). Retrieved October 24, 2016, from Charteredaccountants: https://www.charteredaccountants.com.au/Industry-Topics/Reporting/Current-issues/Convergence/News-and-updates/Financial-Instruments-revision-to-IAS-39 Charteredaccountants. (2015). Post employment benefits. Retrieved October 24, 2016, from Charteredaccountants: https://www.charteredaccountants.com.au/Industry-Topics/Reporting/Current-issues/Convergence/News-and-updates/Post-employment-benefits Fasb. (2004, December 04). Joint Conceptual Framework Project . Retrieved October 09, 2016, from Fasb: https://www.fasb.org/cs/BlobServer?blobcol=urldatablobtable=MungoBlobsblobkey=idblobwhere=1175818817358blobheader=application%2Fpdf Hoogervorst, H., Prada, M. (2016). Working in the Public Interest: The IFRS Foundation and the IASB. Retrieved September 30, 2016, from https://www.ifrs.org/About-us/Documents/Working-in-the-Public-Interest.pdf Huber, W. D. (2013). The Myth of Protecting the Public Interest: The Case of the Missing Mandate in Federal Securities Law; https://digitalcommons.law.msu.edu/cgi/viewcontent.cgi?article=1014context=jbsl. Journal of Business Securities Law , 16 (02), 1-25. Ifrs. (2016). IFRS Application around the world. Retrieved September 30, 2016, from https://www.ifrs.org/Use-around-the-world/Documents/Jurisdiction-profiles/Australia-IFRS-Profile.pdf Mof. (2015, October 15). Conceptual Framework for Financial Reporting. Retrieved October 09, 2016, from Mof: https://kjs.mof.gov.cn/zhengwuxinxi/gongzuotongzhi/201506/P020150629528305757224.pdf