The Australian Accounting Standards Board’s Role In Global Accounting Standard Setting Process

Corporate Regulation

The consequences of the financial accounting and reporting if allowed voluntarily have discussed in detail. How the AASB sets IFRS along with the applicability on the member countries have been discussed in the project. The companies taken into consideration are 3P learning Education Limited, Evolve Education Group, G8 Education Limited and Red hill Education Limited. All the companies considered deals in the education sector in Australia and listed on ASX. The analysis of equity on a comparison basis for four years has been considered along with the debt-equity analysis.

1. Critical examination of whether financial accounting or reporting should be regulated or manager should be allowed to disclose voluntarily?

The financial accounting and reporting are both important for the users of the financial statements to understand to invest in the company.

Advantages of financial reporting and accounting that why they should be regulated

The financial reporting helps in the coordination and performance of the complex data to summarize it. With the help of reporting the financial actions can be interpreted and it will also provide suggestions or recommendations to improve any deficiency (Bushman, R. and Landsman, W.R., 2010). The reporting will help in the development of the documents which will support the reports and will help the departments in evaluating them. The statutory requirements relating to the reporting will be complied with and the schedules will have adhered. The clients will be informed about the reporting requirements and the revenue will be recognized. The contracts which are entered will be reviewed for interpreting the issues and will be documented (Armstrong, C.S., et. al., 2016).

The accounting and reporting will help the companies in supporting the closing for the month and year-end and the assessment of the processes for the same. The accounting and reporting will help the companies in maintaining the accounting documents so that they become clear and consistent. The activities of the auditors can be reviewed and monitored timely.

Disadvantages of financial reporting and accounting if allowed the manager to disclose voluntarily

The financial accounting and reporting of allowed to the manager to disclose voluntarily then the laws, rules, regulations, schedules, etc. will not be adhered to or complied with. The financial statements are prepared on the basis of the forecasted models for the statement of profit or loss, statement of financial position and the statement for the cash flow position and this will not be possible without proper regulated accounting and reporting (Armstrong, C.S., et. al., 2016). The results of operating activities, budgets and forecasts will not be prepared and interpreted if allowed to manager voluntarily. The coordination among the departments and the management which is required for the companies to prepare, to achieve its objective and goals will not be present in the company without accounting and reporting. The investors invest in the company on the basis of the timely presentations and reports and if these do not exist on time then the company will not be able to attract the investors (Bushman, R. and Landsman, W.R., 2010).

Accounting Standard Setting

Hence, it is better to make the financial accounting and reporting regulated rather than making it allowable to the managers to do it on a voluntary basis.

1. Explanation of how AASB take part in setting IFRS and why IFRS is not compulsory for member countries of IASB?

The AASB helps in issuing, maintaining and developing the accounting standards for the profit-making as well as non-profit entities. According to section 229 of the ASIC Act, 2001, the AASB is responsible to ensure that the proposed standard is suitable for different entities and for different entities there are different Australian Accounting Standards. The AASB specifies the nature and the type which should be followed by the entities in compliance with the Australian Accounting Standards (Australian Government, 2018). The general purpose financial statements are regulated by AASB and provide a framework which consists of two tiers for such statements while in case of special purpose financial statements, AASB not responsible for regulating and hence, they on their own decision the standard. 

The AASB involves an issue which has been identified by the IASB or IFRIC on the basis of substantive or non-substantive and monitors the issue closely. Further, the issues can be even identified by the AASB members, stakeholders of Australia which will be further referred to as IASB or IFRIC and AASB respectively. After the identification AASB will make the project proposal which will be placed on agenda on the basis of its benefits otherwise it will be reported as board agenda decision (Alver, L., et. al., 2014). If the issue is placed on the agenda then the discussion will be done and the support can be taken from IASB, IPSASB and the Accounting Standards Board of New Zealand. Further, the discussion with the stakeholders will be done in various ways which may include:

• Draft Exposure
• Invite to comment upon
• Discussions made on the roundtable
• Panels of the advisory group of the projects
• Drafting of the interpretations made by the board
• Discussion papers
• Panels of the advisory on the basis of the interpretations
• User groups which are required to be focussed

The result of the discussion will be the basis for the decision to issue the standard or not by AASB which may either be a standard, framework document or an interpretation. This decision will be consistent with the IFRS and the needs of the public as well as private sectors will be considered. Before the submission is prepared the responses from the organizations as well as individuals will be considered (Cortese, C.L., et. al., 2010). The AASB will then request the stakeholders to issue recommendations and then the submission will be made to IASB and IPSASB for issuing of the pronouncements. Lastly, the AASB will monitor the implementation and compliance of the accounting standards in Australia and if any revision is required then it can be done in the basic standards. The IFRS is not compulsory for the member countries of IASB since there are standards notified applicable to them in a specified manner and these standards specify more relevant information to the countries to run effectively and efficiently.

1. Equity description of 4 listed companies on ASX

Owner’s Equity

The below-mentioned companies including Redhill Education Limited, G8 Education Limited, Evolve Education Group, 3P Learning Education Limited are engaged in the sector which provides services related to education to consumers. The equity in the balance sheet includes the terms which are as follows:

• Issued capital/ Contributed Equity- The share capital which has been generated by the companies by issuing shares to the public, promoters, underwriters, etc.
• Reserves- The amount which has been reserved for the future use and for paying off the immediate liability incurred by the company. The money can be kept in this account for any specific or particular use in the future.
• Retained Profits/ (Accumulated Losses) -The amount which the company earns and remained after the dividends have been distributed by the company and are retained by the company. The negative retained profit is the accumulated loss.
• Non-Controlling Interest- The minority interest which is held by the minority i.e. the holders of less than 50% shares in the company. The holders other than the subsidiary are held by the minority holders.

The equity for four different companies have been provided below with a comparison of four years from the latest audited financial statements:

3P Learning Limited ($’000)
Particulars	2014	2015	2016	2017
Issued Capital	2352	25113	33951	34092
Reserves	7954	7035	7382	5360
Retained Profits/ (Accumulated Losses)	(3129)	956	2160	(4946)
Non-controlling Interest	87	38	56	(99)
Total Equity	7264	33142	43549	34407

The changes in the equity in above company are due to the issuing of shares to the members while some are issued under the dividend investment plan. The reserves are decreased due to the drastic increase in the reserve for foreign currency. The other equity items are changed due to the operational activities incurred in the company (Redhill Education Limited, 2017).

Evolve Education Group ($’000)
Particulars	2015	2016	2017	2018
Issued Capital	156926	157364	158106	159149
Retained Profits/ (Accumulated Losses)	(8058)	3369	10565	(2574)
Total Equity	148868	160733	168671	156575

The above company was founded in 2014. The equity is increased due to the increase in the number of shares issued under various schemes to the members, public, etc. The company has paid the dividend and the activities made the loss to profit or vice-versa.

G8 Education Limited ($’000)
Particulars	2014	2015	2016	2017
Contributed Equity	548374	603043	641848	876394
Reserves	27257	43635	35649	44552
Retained Profits/ (Accumulated Losses)	(33622)	(43893)	(51622)	(55611)
Total Equity	542009	602785	625875	865335

The change in the equity of the above company is due to the vendors, investors purchased the shares in the company and some of the issue is as per the dividend reinvestment plan. The reserve has changed due to the change in the hedging, translation and share payment reserves.  

Redhill Education Limited ($’000)
Particulars	2014	2015	2016	2017
Contributed Equity	18747	18752	18770	18770
Reserves	86	40	81	111
Retained Profits/ (Accumulated Losses)	(8175)	(6476)	(6146)	(4406)
Total Equity	10658	12316	12705	14475

The shares are issued in the company in the years provided above which has brought a change in the contributed equity but no issue or no expense has incurred in the last two years. Share payment reserve has been changed in the years which changed the amount of reserve in the company. The change in the reserve has affected the amount of retained profit or losses since the transfer has taken place. The company is incurring profits in the year 2017 but the previous year loss is high hence the amount is shown as a loss (Alver, 2014).

1. Comparative Analysis of debt and equity

Debt is the amount which the company owes from any other person where the company will have an obligation to pay the amount with the conditions attached. The company sometimes owes a debt to fulfil the purchases which are not possible under the existing circumstances. The debt and equity of the four companies for the two years are shown below with the comparative analysis-

3P Learning Limited ($’000)
Particulars	2017	2016
Debt	46251	53066
Equity	34407	43549
Debt Equity Ratio	1.34	1.22

The debt-equity ratio is less than 2 which is a good indicator but the company has huge liabilities in respect of which the equity is less. However, the ideal ratio is 2:1 which means that the company incurs a higher risk and depends more on debt.

Evolve Education Group ($’000)
Particulars	2018	2017
Debt	68519	56051
Equity	156575	168671
Debt Equity Ratio	0.44	0.33

The ratio of less than 2 is a good indicator for the company since the company will be able to pay off the liabilities in the near future as the company has more equity than the liability. As compared to the ideal ratio the company is not taking more risk and depends on equity.

G8 Education Limited ($’000)
Particulars	2017	2016
Debt	419520	542557
Equity	865335	625875
Debt Equity Ratio	0.48	0.87

The lenders of the company think that the ratio of less than 2 is good since the company will not make default in the repayment of such loan taken. The company incurs less risk and equity is more than the debt which means that the business is run on the dependence of the equity (Alver, 2014).

Redhill Education Limited ($’000)
Particulars	2017	2016
Debt	25409	12534
Equity	14475	12705
Debt Equity Ratio	1.76	0.99

The debt-equity ratio of less than 2 is good for shareholders since the chances of insolvency; bankruptcy will be less for the company. The ratio of less than 2 will ensure that the company can take additional debt from the sources to expand the business (Redhill Education Limited, 2017).

Conclusion

From the above assignment, it can be concluded that the financial accounting and reporting responsibilities should be regulated. Further, the procedure for setting the standard for the general purpose has been with the AASB. The equity in every company has the same description but the debt-equity ratio for every company describes the position of funding of the companies and the dependence of company on equity and debt has been detailed. 

References

3P Learning Education Limited, (2015) Annual Report 2015. [Online].Available at: https://cdn.3plearning.com/wp-content/uploads/2015/10/Annual-Report-web-version.pdf [Accessed: 22 September 2018].

3P Learning Education Limited, (2017) Annual Report 2017. [Online]. Available at: https://cdn.3plearning.com/wp-content/uploads/2017/01/3P-Learning-Limited-2017-Annual-Report-ASX.pdf [Accessed: 22 September 2018].

Alver, L., et. al., (2014) Implementation of IFRSs and IFRS for SMEs: the case of Estonia. Accounting and Management Information Systems, 13(2), pp.236.

Armstrong, C.S. (2016) The role of financial reporting and transparency in Corporate Governance. FRBNY Economic Policy Review. PP. 107-128.

Australian Government, (2018) The Standard-Setting Process. [Online]..Available at: https://www.aasb.gov.au/About-the-AASB/The-standard-setting-process.aspx [Accessed: 22 September 2018].

Australian Government, (2018) The AASB’s for-profit entity standard-setting framework.Australian Accounting Standards Board.

Bushman, R. and Landsman, W.R., (2010) The pros and cons of regulating corporate reporting: a critical review of the arguments. Accounting and Business Research, 40(3), pp.259-273.

Cortese, C.L. (2010) Powerful players: How constituents captured the setting of IFRS 6, an accounting standard for the extractive industries. In Accounting Forum 34, (2), pp. 76-88).

Evolve Education Group, (2016) Annual Report 2016. [Online]. Available at: https://www.evolveeducation.co.nz/media/1107/evolve-annual-report-2016-final.pdf [Accessed: 22 September 2018].

Evolve Education Group, (2018) Annual Report 2018. [Online]. Available at: https://www.evolveeducation.co.nz/media/3088/evolve-education-group-annual-report-2018.pdf [Accessed: 22 September 2018].

G8 Education Limited, (2015) Annual Report 2015. [Online]. Available at: https://g8education.edu.au/wp-content/uploads/2013/09/2015-Annual-Report-final-as-at-210216_CPS-Version-345pm.pdf [Accessed: 22 September 2018].

G8 Education Limited, (2017) Annual Report 2017. [Online]. Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_GEM_2017.pdf [Accessed: 22 September 2018].

Redhill Education Limited, (2015) Annual Report 2015. [Online]. Available at: https://www.redhilleducation.com/upload/modules/file_storage/FY2015-RedHill-Annual-Report.pdf [Accessed: 22 September 2018].

Redhill Education Limited, (2017) Annual Report 2017. [Online]. Available at: https://www.redhilleducation.com/upload/modules/file_storage/FY2017%20Annual%20Report%20-%20FINAL%20double-page%20version.pdf [Accessed: 22 September 2018].