Account reporting remains a sensitive topic
Account reporting remains a sensitive topic for any organization and economy, particularly in light of the financial crises that have occurred around the world. Accounting activity aggregation, representation, and reporting are critical, particularly for an organization's development. Given these conditions, various boards have formed to develop principles that regulate the accounting and reporting processes. These guidelines have the authority to specify the reporting provisions that any organization must follow in order to prevent irregularities. Furthermore, accounting irregularities that often lead to scandals that greatly affect the economy of a country have been as a result of either lack of effective governorship from respective financial bodies or the desire for the organisation to portray a competitive advantage that is an illusion. It is from this that boards such as Australian Accounting Standards Board and International Accounting Standard Board work tirelessly to define conceptual frameworks that appeal to their target population. Recently, the latter issued a revision of its framework as since AASB tends to monitor such changes, it now has the responsibility of defining them before reaching a decision based on how it is affected. This paper discusses the efforts of the AASB by considering its conceptual framework in reference to the proposed changes made to that of IASB with the objective of seeking a position as to where AASB should adopt these changes. The position will be reached by analysing AASB concurrent conceptual framework, thus, comparing how the changes will affect it plus if they are suitable in reference to Australia's "sector-neutral" context.
Financial Accounting Position Paper
Introduction
Accounting and finance make one of the most important departments in any organisation due o the fact that it collects, records and reports on how resources are being utilised for objectives and strategies are realised. This is beneficial to not only the organisation but to shareholders and potential investors. Accounts preparation and reporting takes up the bulk of this responsibility as it reflects on the performance of the organisation and to avoid any irregularities, firms act on set standards. In Australia, it is the mandate of the Australian Accounting Standards Board (AASB) to formulate such measures that companies adhere to within the country (AASB, n.d.). However, the standards are further affected by those outlined by the International Accounting Standard Board (IASB). IAS Plus (2013) emphasise that the board regulates the manner in which account reporting is delivered on a global perspective because of international companies that operate in the diverse country. IASB has proposed some revised standards on its conceptual framework which is likely to affect those of the AASB and because of the need to adopt these, AASB has to take a position on whether the improved measures will be suitable to its own.
AASB Conceptual Framework
It is important to understand the concurrent AASB conceptual framework, thus, understanding how the two differ. According to the Commonwealth of Australia (2016), the key aspects of the above start with defining the objective of financial statements in regards to explaining why they are prepared. A second key aspect is qualitatively determining how useful the information derived from financial statements ought to be. This is in regards to the end user and as such, AASB allows for specific standards to be met in order to make accounting information as comprehensive as possible. Commonwealth of Australia (2016) is also of the opinion that an important goal of the AASB conceptual framework is to define, recognise, and measure every element which will be implemented in the construction of financial statements. The latter can be complex files that carry different information that is arrived at from various accounting elements. In order for all this to make sense, these elements have to be analysed in the aforementioned; thus, a framework for the AASB to establish. Lastly, it has to deal with issues to do with capital. The concurrent AASB framework only establishes what is regarded as capital and its maintenance
Key Changes in IASB Conceptual Framework Compared to AASB's
IASB has made revisions to its conceptual framework to "clarify, update and to fill gaps" (Orrell, 2015) as a means of improving international account reporting and harmonising accounting standards (Ryan, Guthrie, & Day, 2007). A key change that compares to that of AASB is the role financial statements play more so in making assumptions and defining a reporting entity (IAS Plus, 2015). This revision already adds to the existing definitions, thus, something AASB will have to consider. There is also the change in recognition and derecognition. Orrell (2015) explains that this is entirely new introducing a concept to discuss the role derecognition can play in reporting. Another key change is how elements such as assets, income, liabilities, expenses, and equity will be defined (IAS Plus, 2015). The key reason for this is to improve on clarification and to help accounting boards such as AASB better define these terms. Lastly, there is the element of disclosure where IASB seeks to have high-level concepts that reflect on the information financial statements carry, its representation and disclosure with regards to guidelines on the acquisition and use of comprehensive income (Commonwealth of Australia, 2016).
Position Statement
It is the position of this report that the AASB should not adopt the IASB framework while in its current form because it is not as suitable for the "sector-neutral" context that Australia encourages. AASB operates under the norm that good governance and standards ought to allow for some integration between sectors. This is because of diversity in these regions and by implementing the framework of IASB to its own; the board is likely to fail this sovereignty that has been part of the Australian culture. It is the mandate of the AASB to set standards that every sector compiles with and the basis of the measures are derived from IASB (Kober, Lee, & Ng, 2012). This means that the latter affects how AASB sets its standards but also, it has to adhere to the Australian context of accounting reporting. For instance, the scope of which the changes will marginalise the set standards for an accounting between sectors will not be in favour of AASB. The latter does not in any form encourage the division of account reporting to be relevant to either the private or public sector in a global economy (AASB, 2014). Rather, it establishes that every sector has situations that are confined to only it and it further lacks practically in reference to measurement bases, therefore, with the changes, there is likely to be no consideration of such resulting to one sector being favoured over the other (AASB, 2006; Deller, 2017).
Conclusion
As highlighted above, financial accounting is very important and can be beneficial when done right. It is because of this that different countries have boards that help set unique regulations to govern how financial reporting ought to be undertaken. The AASB has for years taken on this role and allowed for Australia companies to improve their reporting as per the standards it adopts. The IASB further affects how the AASB defines its conceptual framework because borrows from it. With the changes in IASB's conceptual framework, that of AASB is most likely to be affected because these improvements eventual mean it has to improve on its own. However, there is need to acknowledge that as a board, the AASB has a culture to perform under and therefore, some of the changes that IASB has proposed may not necessarily work to the benefit of AASB's goals. In conclusion, this means that there is a need for improvements as highlighted above before AASB can fully adopt the changes.
References
Australian Accounting Standards Board. (n.d.). About the AASB. Retrieved from http://www.aasb.gov.au/About-the-AASB.aspx
AASB. (2006). Sector-neutral accounting standards-setting in Australia. Retrieved from www.aasb.gov.au/admin/file/content102/c3/Sector_Neutrality.pdf
AASB. (2014). AASB calls for focus on sector neutral accounting in public sector governance review. Retrieved from https://www.iasplus.com/en/news/2014/03/aasb-ipsasb
Commonwealth of Australia. (2016). Framework for the preparation and presentation of financial statements. Retrieved from http://www.aasb.gov.au/admin/file/content105/c9/Framework_07-04_COMPjun14_07-14.pdf
Deller, A. (2017). IASB’s restructured Conceptual Framework raises thorny issues. Retrieved from http://www.accaglobal.com/uk/en/member/discover/cpd-articles/corporate-reporting/deller-apr17.html
IAS Plus. (2013). Conceptual framework – definition of elements (IASB). Retrieved from https://www.iasplus.com/en/meeting-notes/iasb/2013/february/cf-elements
IAS Plus. (2015). IASB publishes exposure draft of a new conceptual framework. Retrieved from https://www.iasplus.com/en/news/2015/05/cf-ed
Kober, R., Lee, J., & Ng, J. (2012). Conceptual framework issues: perspectives of Australian public sector stakeholders. Accounting and Business Research 42(5).
Orrell, M., (2015). IASB proposes revisions to its conceptual framework. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/us/Documents/audit/ASC/HU/2015/us-aers-headsup-iasb-proposes-revisions-to-its-conceptual-framework-062615.pdf
Ryan, C., Guthrie, J., & Day, R. (2007). Politics of financial reporting and the consequences for the public sector. Abacus, 43(4), 474-487.
