International Financial Reporting Standards (IFRS) are international guidelines and merits of accounting for reporting events in financial statements which were produced by International Accounting Standards Board (IASB) and IFRS Foundation .They were developed as a result of attempting to match the accounting standards in European union, there main purpose is to provide a common accounting global language in provision of reports for accounts thus enabling businesses to be understood globally. This standard has been implemented in several countries especially those belonging to European Union except USA that uses US GAAP though the US has identified key areas in this standard and incorporated then in their standards. This standards that were implemented in Australia in 2005 have tried to replace the International Accounting Standards(IAS) that were developed by IASC and its success has been sent even globally where it is slowly replacing the exiting national accounting standards.
Countries which have implemented tis standards have had a significant change both to the company and investors due to how it exposes a company to transparency this standard influence the generation of ledger, retained earnings statement, profit and loss statement and statement of money flow.
Australia is one of the countries that have implemented this new IFRS standards from the normal its normal Austrian Accounting Standards (AAS).
This report will analyses the implication of international accounting in Australia after IFRS period in the reports that are generated by the local government, this analysis is done after comparing of accounting policy, estimate changes, international accounting regime before and after the implementation IFRS standards in the government reports. The article entitled “The Effect of IFRS Adoption on the Financial Reports of Local Government Entities” was used in this analysis due to its reach amount of relevant information in the topic in question.
The Australian government is made up of three parts of the government which are the state government, the commonwealth government and finally the local government, before introducing accrual accounting the accounting method was on cash basis but soon after wards there was introduction of AAS 27 which introduced the accrual accounting method. The reporting system of the public sector was guided by AAS 27, AAS 29 and AAS 31 which were on accounting reporting by local council, department in government and government respectively. With no specific guidelines on public and nonprofit entities the AASB were required consider better methods which would help in the duplication of accounting standards and integration of government financial statistics.
With the introduction of IFRS in Australia there were changes that were observed in the earnings, equity, assets and liabilities (Aharony, Barniv, & Falk, 2010). The introduction of IFRS has been seen to be difficult and complicated to the local government as compared to the private sector due to their goals and complicated arrangements that is composed of public or private partnership schedule and the assets. Firstly, the local government have heard to increase the employment by bringing in new staff to implement this new standard that are expected of them as a country under the European union, this has led to spending of a lot of money on the payment of this labor force.
In looking at reconciliation of surplus and equity there was study of items that were income generating and those that were income decreasing. Income generating were found to be employee benefits, revenues, depreciation and amortization, materials and borrowing cost. Income decreasing items were: the value of gain, share of net profits and joint ventures. The highest mean that was recorded in the year was after the introduction of IFRS. There was an increase in the stakeholder’s wealth over in the adoption of IFRS with the loss decreasing g by $1.89 million and the equity increasing by $6.6 million (Zeff & Nobes, 2010). In looking at the difference in total assets with the introduction of IFRS there was an increase of $55.34 million with increase in investment, assets, and receivables inventory and employee earnings. The study also showed that liabilities in the case of using IFRS were greater compared to those of AASB by $3.07 million contributed to by long term employee benefits and trade payables
Before the introduction of IFRS there was an agreement by scholars that smaller firms would be at a disadvantage with companies such as Australia Institute of Company Directors with the claim that this framework will reduce the balance sheet of this companies, on the contrary the CEO at the AASB firm David Boymal argued that they would be surprised to realize the positive impact it would bring with it which he said would either retain or increase their business position using data from 135 firms the study indicated that for almost all of the firms the progress was constant even after they implemented the new standards, the surprise was in the other half when they recorded an increase in the farm size as a result of increase in net profit and net income of this income, this concluded that this standards have increased the net income and profits of firms that are small in size (Chen, Young, & Zhuang, 2013).
One of the major goals of implementing IFSR was that of the need to increase the quality of need of education, they have mostly majored on reliability of financial report, reliability of accrual accounting, value of relevance of accounting information, comparing revenues and expenses and the acknowledging impairment losses. In a research carried out that is concerned with the IFRS effect on the quality of finance reports there was a mixed reaction of impact of IFRS to reporting quality, however countries that adopted this standards in good will had a higher chance in their performance compared to other countries.
The other issue that was the focus of study was on accrual reliability (Bond, Govendir and Wells 2016). In the study it was realized that out of the 7509 ASX Company listed from 1998 to 2008, it was noted that there was a decrease in constantly in the year with the implementation of IFRS standards. This shows that putting IFRS into practice has improved the value of accounting though it has also led to the reduction of reliability.
When looking at the impact if IFCRS implementation of audit committee effectiveness Bryce et al. (2015) carried a study on a group of 200 ASX companies in the years between 203 and 2008. He examined whether the audit committee were effective in accordance with ASX standard on this in The Principle of Governance and best practice. Bryce suggest that “accounting quality is not increased by introducing new IFRA standards “hence concluding that this had a big impact on the auditors with accounting expertise who were required to ensure that there was accruals quality under IFRS.
Conclusion
Overall there is no research that guarantees automatic profit in implementation of IFRS (Ahmed, Neel & Wang 2013) though it can be noted that they have had a positive impact in report accounting despite the argument on this issue as it is evident by the many scholars who have agreed on this with provision of positive outcome to the stakeholders , IFRS has also come with complexities in the accounting reporting “therefore, countries with a more strict link between tax and the individual accounts have generally preferred to limit IFRS adoption to consolidated accounts only” Guggiola, 2010),other countries and organization have opted to implementation of this standards phase by phase.
In general findings have shown that in councils which are small and found in areas that are far from the major cities, the duration that they take in agreeing to implement IFRS and other legislative requirements results in management accounting issues often being downplayed.
The application of IFRS in Australia has been important to financial reporting system of Australia and its history and it has generated a lot of discussion on the impact t of this reporting style on reports quality.
Alterations in the accounting policies of the government have consequently had an impact in all sectors in the country thus impacting stakeholders differently (Bissessur and Hodgson, 2012).
The findings from this study have shown that the implementing IFRS has been impactful on the economy of the country with the increase of assets and decrease of liability except in the local government.
Even with the increase in liabilities in the local government, there is a projection that this effect will not last longer as the standards will be more established in the coming years hence the increase of assets is expected to improve over time.
There is need for further studies being undertaken to investigate other areas in the adoption of IFRS because this area contributes majorly to the effect of this standard on the national government, this study could also help in clarity of the argument that has been going on.
References
Aharony, J., Barniv, R., & Falk, H. (2010). The impact of mandatory IFRS adoption on equity valuation of accounting numbers for security investors in the EU. European Accounting Review, 19, 535-578.
Ahmed, A., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence.
Australian Society of Certified Practicing Accountants, Members’ Handbook on Disk (2002), Australian Accounting Standard 27 (AAS 27): Financial Reporting by Local Governments, June 1996.
Bissessur, S. and A. Hodgson (2012). “Stock market synchronicity – an alternative approach to assessing the information impact of Australian IFRS.” Accounting & Finance 52(1): 187- 212.
Bond, D., B. Govendir and P. Wells (2016). “An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.” Accounting & Finance 56(1): 259-288
Chen, C., Young, D., & Zhuang, Z. (2013). Externalities of mandatory IFRS adoption: evidence from cross-border spillover effects of financial information on investment efficiency. The Accounting Review, 88(3), 881-914
De George, E. T., C. B. Ferguson and N. A. Spear (2013). “How Much Does IFRS Cost? IFRS Adoption and Audit Fees.” Accounting Review 88(2): 429-462.
Firth, M., & Gounopoulos, D. (2017). IFRS adoption and management earnings forecasts of Australian IPOs.
Guggiola, G. (2010). IFRS adoption in the EU, accounting harmonization and markets efficiency: A review1. The international business & economics research journal, 9(12), 99.
Joos, P. P. M., & Leung, E. (2013). Investor perceptions of potential IFRS adoption in the United States. The Accounting Review, 88(2), 577-6
Landsman, W. R., Maydew, E. L., & Thornock, J. R. (2012). The information content of annual earnings announcements and mandatory adoption of IFRS. Journal of Accounting and Economics, 53(1-2), 34-54.
Zeff, S. A., & Nobes, C. W. (2010). Commentary: has Australia (or any other jurisdiction) ‘adopted’ IFRS? Australian Accounting Review, 53(20), 178-184.
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