The accounting standards propose a common ground for the management of the accounting issues. The issues are identified for having great implications on the operating framework of the firms. In light of this, this report has attempted to explore the accounting standards put forward by IFRS along with its positive impact and common hindrances. Australia and New Zealand are the two countries which are considered for the assessment of the impact.
Q2. Contrasting and comparing the adoption techniques of IFRS
This section of the report has analysed the challenges faced by the countries Australia and New Zealand.
i. Reasons for adopting IFRS
The main reasons for adopting the standards proposed by IFRS are to raise the aspects of economic efficiency of the business activities. It paves the way for the investors to rely on the investment decision by looking as the aspects of authenticity and the transparency within the accounting procedures (Cordery and Simpkins, 2016, p.206). The industry-specific rules are intended for bringing fairground of assessment. Australia adopted the standards proposed by the IFRS in the year 2005 on 1st January. It was adopted mainly for monitoring the operations of the public listed companies. The framework thus provides the companies with an understandable guidance used at times of preparing financial statements.
For New Zealand, the adoption procedures started early from the year 2005, although it was fully implemented in the year 2007. The country mandates the foreign securities companies to adopt the standards for handling the issues regarding the public trading of the securities (victoria.ac.nz, 2019).
ii. Explanation of the traditional issues
Australia faced the issues regarding changing of the technical ways of handling the business matters and addressing the inflexible ways of doing business. Implementation of the IFRS required the Australian firms to rely on the business technicalities to incorporate the realms of the market conditions (Edeigba and Amenkhienan, 2017, p.3). One such example is dealing with the equities and liabilities of the public listed firms. The accounting experts have observed that overall liabilities of the firms and the equities have projected a downward trend.
With the implementation of the IFRS, New Zealand faced the issue of compliance in case of smaller entities. For example, the standards at the initial stages failed to adhere to the test of cost-benefit analysing the inclusion of the financial entities. Since the standards, mainly proved to be beneficial profit inclined entities, the issues of costs in case of smaller entities loom large.
iii. Challenges and issues faced by reporting entities
The main challenges and the issues faced while adopting the IFRS are timely preparation of the financial statements and acquiring in-depth accounting knowledge. The auditors, the accountants need to work within a cooperative framework asking for developing a strong founded framework. In most of the cases, the issues are mostly identified with the funding while assuring the true dependency on the IFRS standards. The adopters have founded in following the legitimacy process (ifrs.org, 2019). The issues identified are linked with the standards proposed by the IFRS body. The standards include both the international accounting standards (IAS), besides the IFRS standards
This accounting standards deal with policies disclosures and presentation of the financial statements. An issue notified, in this case, is that prior advertisements or mentioning of the financial entities are needed if it needed to be included under assets or liabilities. This example speaks about an entity declared under assets or liabilities for allowing its inclusion in the financial entities.
This standard deals with the valuation of the inventories and presentation of the items considered under inventories. In these aspects, the issue with deciding on the conversion of the cost of the items included in the inventory can be considered as an effective example. The formulas used for realising the net values of the inventories poses as a main challenge for the organisations.
This standard includes accounts for certain changes in the foreign exchange. As an example, the issue considered here is reporting about the effects on considering the changes in the foreign exchange. The organisation needs to gain knowledge regarding the reporting ways of the impacts of such changes (Goodwin et al. 2018, p.46). Proper recognition of the functional currency for adjusting the values was expected to be communicated before evaluating the case laws.
This standard deals with the overtime recognition of the revenue. It provides in-depth guidance while dealing with the entities considered under the revenue items. Thus some New Zealand based firms have analysed the impacts on the quantum level of the revenue while providing a clarification of the revenues and issues mentioned in the financial statements (Houqe, 2017, p.23).
Figure 1: Accounting standards
(Source: ifrs.org, 2019)
iv. Benefits of adopting the IFRS accounting standards
Both the countries, Australia and New Zealand have looked forward to the adoption of these accounting standards while giving importance to the aspects of transparency (ifrs.org, 2019). It was viewed that these transparencies would help the companies in gaining the confidence of the investors and thus will pave the way for dealing with the higher stock process. From the perspectives of New Zealand, the benefits were mainly viewed for structuring the capitals markets and increasing the effectiveness of the capital earnings. As a result, the profits and the goodwill of the smaller entities were increased (ifrs.org, 2019)
In the case of Australia, the benefits were viewed in being able to avoid legal accounting issues. These standards made significant contributions to increasing the cost efficiency of the reports.
v. Notifying similarities and in IFRS adoption
Both countries have analysed the benefits and the positive side of the IFRS standards in maintaining the accounting framework of the country. The process of simplifying the prices of the capitals are simplified along with workings of the capitals markets.
In case of differences, it has been notified that New Zealand has focused on improving the earning methods of the firms (iasplus.com, 2019). For example, the country has experienced higher discretionary accruals along with higher cash flows. Australia has relied on the standards in bringing transparency which holds relevance at times of preparing the financial statements.
3. Assessing the success of adopting IFRS
Since its implementation, Australia has presented more evidence regarding the benefits of the IFRS standards. It has shed light on the opportunities for the inclusion of the entities in a cost-saving way which otherwise would have required multiple distorted accounting standards. From the findings also it is evident that the Australian economy has managed to monitor the performance of the public trading companies. It was able to bring those companies under a unified roof for the assessment of the accounting policies (ifrs.org, 2019). The standards have certainly enhanced the capability of the firms to deal with the comparability of the financial statements.
However, New Zealand has noted some difficulties while adopting the standards. The small firms could not experience much of the benefits provided by these standards. The costs associated with these issues outweighed the benefits. The company struggled with paying the auditors’ fees. Moreover, the prospects of capital earnings were more associated with profit-making companies rather than small operating firms (aasb.gov.au, 2019).
Based on the explorative summation of the IFRS standards, it has been concluded these standards aim to raise the efficiency of the operating activities. Australia has adopted these standards in evaluating the performance of the public listed companies and for dealing with the accounting issues. New Zealand, however, has experienced the issues with a cost associated with these standards. The standards have benefitted more profit entities more than small entities. In contrast, the country has adopted the standards for governing the operating activities of the small firms.
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Cordery, C.J. and Simpkins, K., 2016. Financial reporting standards for the public sector: New Zealand's 21st-century experience. Public Money & Management, 36(3), pp.209-218.
Edeigba, J. and Amenkhienan, F., 2017. The influence of IFRS adoption on corporate transparency and accountability: Evidence from New Zealand. Australasian Accounting, Business and Finance Journal, 11(3), pp.3-19.
Goodwin, J., Atilgan, Y., Simsir, S.A. and Ahmed, K., 2018. Investor reaction to accounting misstatements under IFRS: Australian evidence. Accounting & Finance.
Houqe, M.N., 2017. IFRS Adoption and Audit Fees-Evidence from New Zealand. International Journal of Business & Economics, 16(1).
iasplus.com (2019) News Available at: https://www.iasplus.com/en/meeting-notes/ifrs-ic/2014/may/ias-1[Accessed on 12th September 2019]
ifrs.org (2019) News Available at: https://www.ifrs.org/issued-standards/list-of-standards/ias-21-the-effects-of-changes-in-foreign-exchange-rates/ [Accessed on 11th September 2019]
ifrs.org (2019) News Available at: https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/australia/#commitment [Accessed on 11th September 2019]
ifrs.org (2019) News Available at: https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/new-zealand/ [Accessed on 12th September 2019]
victoria.ac.nz (2019) News Available at: https://www.victoria.ac.nz/sacl/centres-and-institutes/cagtr/working-papers/WP28.pdf [Accessed on 11th September 2019]