The article was published at AASB research center in October 2016.
Research paper on international accounting: The various effects of IRFS adoption of international reports in Australia. The article of this paper can be retrieved from the link which follows.
Http://www.aasb.gov.au/admin/file/content102/c3/AASB_RR12_10_16_IFRS_Lit_Review.pdf.
The group presentations emphases on various implications of the IRFS implementation in financial reports since the economic standard creates the basis of all reporting in both profit and non-profit sectors. The consequences that the International Reporting Financial Standards has enforced in the various financial organization are in the statements of the financial accounts. These statements can be concerning economic and audit reports and all other reports that may be of the kind. The group presentations are based on the critical findings computed from the research. The analysis points out on the evidence of IRFS implementation in current Australia. The study of the results shows that the adoption by various Australian organization of the IRFS has brought positive impacts to the stakeholders and analysts. The forecasting accuracy and following of the analyst have also been improved (Brown, 2011).The improvement in value relevance of the financial reports after the IRFS adoption. Some of the findings stated that there was an improvement in the quality of accounting while others opposed claiming that the Australian Generally Accepted Accounting Principles (GAAP) operating system was more appropriate than IFRS. Some of the findings also suggest that one of the implications of the IRFS financial reporting has become more accessible to read despite them being too long. With these findings, a deduction can be made that the adoption of the IRFS in Australia has brought financial reporting and quality in the business sectors while others have a different confession on the same. All in all, be it positive or negative effects, the findings have supported the fact that the board has brought a difference. Some of the implications are discussed below;
Conservatism can be referred as the inclination of organizations to identify bad news in the incomes in a convenient way than the appreciation of the profits. By this, it means that the firms tend to recognize losses before the recognition of the real benefits. In accounting, conservatism can be termed as oversight of timely injuries from the accounts statements at the correct time. IRFS guidance and the expectations are that, for a business entity to attain control it has to recognize book value of the liabilities and the assets. Therefore, the moderation can only be achieved when the under-measured book value of the assets must be of a higher amount than the over measured value of debts. The attainment of conservatism, therefore, depends on the calculation of both under and over measured underlying book value of both the assets and liabilities in all the organizations.
Financial reporting in Australia over the times before the enactment of the standard board of IRFS has become conservative. Unconditional conservatism has therefore increased with a decreased conditional conservatism after the adoption of the IRFS. For a compelling economic analysis consequently, financial statements users such as the managers and all investors are required to enhance changes in the conservatism ideal.
IFRS has imposed effects in the financial report is evident in three economic aspects. These aspects are the quality of the financial statements, result in the comparability of the accounts of finance in the international cross-cultural market as well as the assembly of both business analysts and stakeholders.
The impact on the accounting quality of the financial report majors on the earnings, conservatism, report reliability, evaluation of the revenues and expenses, accrual reliability as well as assets impairments recognition (Chen, Jiang & Lin, 2010). The implication of the financial report aims at the economic consequences of the variations to the treatment benevolence and the manner in which various financial organizations have an account on different firm’s amalgamation. The differences in the quality of statements in the financial reports array from the difference in individual standards to change in deferred taxes in the organization and the intangible assets. The research, therefore, can deduce that various organizations have the goodwill in the adoption of the IRFS guidelines in achieving quality accounting across multiple business entities. A suggestion is outlined that the changes lead to a positive effect of an increase intangible assets of the organization. The result enacts an increase in real assets following the measurement of the purchase price. The assets were regarded identifiable from the amalgamation of the firms which means that the proportion percentage of the purchase price was not considered before the adoption of the IRFS in most organizations. This also means that currently, post-acquisition of performance must be enhanced by the business (Chen, Tang, Jiang& Lin, 2010)
Many firms fail to acknowledge impairment of assets under IRFS, but the recognition is available in the standard report. In this extent, therefore, business entities ought to recognize the requirements in the assets impairment. Studies of the research show that the relative voluntary adoption of the guidelines from the IRFS affects the quality of the report positively in that an organization which takes in the standards voluntarily benefit. A firm which receives the changes out of effective means does not acquire the desired goals. It is therefore advisable to all firms to deliberately with no effective measures used to adopt the IRFS for the achievement of the overall benefit of the firm including the attainment of desired results (Doupnik, & Perera, 2011).
Decision making is also part of ‘the amplification of the IRFS in financial reporting quality. In most organizations, decisions are made based on the financial statements in the firm by the managers a requirement by the standards. The standards, therefore, enable the firm to be aware of the importance of the financial statements and therefore those in charge ought to give clear financial statements for the overall easiness of decision making (Guthrie & Pang, 2013). The requirements of the financial statement according to the IRFS are outlined to obtain necessary economic attributes of the organization. Decision made basing the arguments on the comments are evident and with reasons thus avoiding irrelevant choices that would affect the business later (Epstein & Jermakowicz, 2010).
IRFS adoption by the firms has also led to the establishment of earning management. The stability has been achieved since the set standards demand ethical behaviors and abilities in administration. Therefore, the rules require quality and professionalism performance by the managers in the accounting sector. For instance, a company whose managers who voluntarily accept the adoption of the regulations, the management of the company tends to be more comfortable. With an achieved performance of the managers, the stability of the earnings is also enhanced since an account can be drafted out of the same. The accountability of the firm is based on the manager’s ethical behaviors (Godfrey, Hodgson, Hamilton & Holmes, 2010).
Accounting of numbers is directly affected by the type of the empirical method used, and it depends on the kind of IRFS technique of choice. A choice made strategically increases the price of the accounting numbers. A company that makes its decisions based on the IFRS standards obtain strategic and organized accounting of amounts. The success of a business depends on the type of empirical method used, and thus the IFSR standards offer the best techniques depending on the numbers being accounted for. In this case, for an organization to be termed as successful, the firm ought to have an appropriate choice of empirical method. With this model, a firm has assured the stability of prices in the accounting of numbers (He, & Evans, 2012).
With the adoption of IRFS, the value of relevance has also improved in accounting information. Firms are in a tendency to apply the IRFS especially when the firm engages in various methods in making the findings of the company value. The calculation of the relevance of value done based on the evaluation of linear equity methods equates the price of the stock and value of the market on the two primary variables of financing (Van Greuning, Scott & Terblanche, 2011). The pair of economic variables is outlined as earnings created per share and book value per share. The amount calculated determine the value of accounting of that particular company. A firm which wishes to thrive comfortably in competition field in Australia in a similar stock market, adoption of the IRFS standards as an improving model for accounting quality is advised.
Accrual reliability has reduced in Australian organization after being subjected to the involuntary adoption of the IRFS standards. The decline is as a result of the mandatory implementation of the set ethics. For an organization to enjoy benefits impacts, the adoption of the rules ought to be voluntary to enhance safety and other essential accounting aspects (Hellmann, Perera & Patel, 2010).
Regarding this paper, Corporation should implement the use of IRFS as of significant effect. Incidences of small lose turned out to be low due to the implementation of the standards. Consequently, the corporations’ income has greatly improved and become stable. Consistency is thus clear evidence from the GAAP. This denotes that for the firm benefit profits to be at a standstill, it is recommendable for each firm to use the IFRS in accounting (Iatridis& Rouvolis, 2010)
Accounting standards have greatly improved through the implementation of the IFRS, and this has improved the relevance value in accounting companies. This denotes that incomes are much stable and of significant value. According to numerous Australian companies, the significant capacity of the equity book has greatly shown stability over the implementation period. The outcomes imply that the value relevance of the shareholders’ equity remains still throughout the evolution period. This stability shows the significance of value relevance in most Australian firms regarding accounting standards (Hellmann, Perera & Patel, 2010).
Another implication is that the disclosure of deferred taxes is essential if they feature into one critical element. This is due to the effect that from a five income statement, only the revelation of one is attributable to one aspect. These, therefore, means that the non-revaluation balance sheet element is not essential or value relevant. The substantial balances are the deferred taxes that has more than one component, and components includes, revaluation of PPE and equity accounted incomes.
The IFRS enables a firm to conduct a deferred tax assessment on values of a balance sheet. The partial tax process is mainly preferred by the reflecting investors who view it as a real liability on the asset revaluation. Thus, as stakeholders, they permit the valuation of both liabilities before selecting a firm to invest in (Stevenson, 2012).
Financial readability mainly targets the length and difficulties of the financial reports. These reports should be modest to the operators for them to be able to make a correct economic and financial choice. The IFRS implementation on financial readability has great significance as follows:
To certify accrual standards and better the earning management, the IFRS ensures that the audit committee should have more associates and more accounting expertise. On the other hand, the audit committee associates should have more and regular meetings to attain the set goals and objectives (Nobes, 2014).
Reports have played an essential role in giving a detailed study on financial outcomes. Consequently, the IFRS has made the stories more legible by accumulating three accounting policies. They include intangible assets, financial gadgets and a summary of accounting procedure. These have implicated readability by giving detailed information and prolonging discoveries to the stakeholders.
IRFS has dramatically improved the standards of accounting in Australia. This is as a result of the AASB deferred tax worthiness in most companies that match with the IFRS principles. Hence most corporates approved the revaluation balance sheet with least encounters and the taxes accredited to the non- revaluation balance sheet was of no significance. Despite the IFRS having its laws and regulations, most of the Australian companies have not conformed to it. Corporates consequently fail to recognize the approved rules on assets impairments despite the assets increase (Iatridis, & Rouvolis, 2010)
The certification of the IFRS by the accounting culture in Australia boosted its financial statement thus attracting more investors. This is as a result of a healthy relationship between the goodwill impairment and the investment opportunity. This laid an essential economic feature that made the Australian build the trust of accountancy throughout the new regime than the prior GAAP.
The adoption of IFRS led to the decline of accrual reliability of the Australian companies. This was a result of the financial accruals, working capital, and non-current accruals. Therefore, the transaction between significance and safety remained constant as most companies boosted the relevant accounting at the expense of reliability.
The adoption of IFRS helped in attaining consistent information on the intangible and tangible assets. Since most of the Australian company assets were capitalized, The IFRS was implemented to identify the potential resource that will define the holdings that regarding their value and significance (Kim, Tsui & Cheong, 2011).
Most of the Australia Corporates adopted IFRS to measure the readability of financial statement. This was attained by assessing the length of financial report. The measuring styles included, the Gunning Fox Index which measured the density of the account and the number of words determined the range of economic news in an era.
Conclusion
In summary, the results of IFRS is thus revealed in the improvement of value relevance financial reports, comparability of Australian entity although the report the Australian economy has advanced from the IFRS implementation. This is due to the measures put in place to improve the accounting quality thus enhancing the credibility of firms and some of the research studies have focused on the benefits of the adoption of IFRS in all companies, the truth is that not all companies have benefited on the same. The report also focuses on the voluntary adoption of the IFRS to the standards implementation tend to incur positive effects compared to mandatory approval. The fewer benefits can also because the introduction of forceful adoption of the standards by all the firms create a challenge of differentiating the potential effect of the confirmation from the impacts of other variations from which has implications in the analysis are also deduced (Iatridis, 2010).
References
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Chen, H., Tang, Q., Jiang, Y. and Lin, Z., 2010. The role of international financial reporting standards in accounting quality: Evidence from the European Union. Journal of international financial management & accounting, 21(3), 220-278.
Doupnik, T. and Perera, H., (2011. International accounting.
Epstein, B. J. and Jermakowicz, E. K., 2010. WILEY Interpretation and Application of International Financial Reporting Standards 2010. John Wiley & Sons.
Godfrey, J., Hodgson, A., Tarca, A., Hamilton, J. and Holmes, S., 2010. Accounting theory.
Guthrie, J. and Pang, T. T., 2013. Disclosure of Goodwill Impairment under AASB 136 from 2005–2010. Australian Accounting Review, 23(3), 216-231.
He, R., He, L. and Evans, E., 2012. The impact of AASB 8 on segment disclosure practices and analysts’ information environment. Working paper (Macquarie University, North Ryde, Australia, 2012).
Hellmann, A., Perera, H. and Patel, C., (2010). Contextual issues of the convergence of International Financial Reporting Standards: The case of Germany. Advances in Accounting, 26(1), 108-116.
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Kim, J. B., Tsui, J. S. and Cheong, H. Y., 2010. The voluntary adoption of International Financial Reporting Standards and loan contracting around the world. Review of Accounting Studies, 16(4), 779-811.
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