The accounting quality has been improved through the implementation of the IRFS. The IRFS forms the basis of reporting by all sectors, both for-profit and nonprofit firms. The report, therefore, has two main parts that include; the implication of the IRFS on the overall accounting quality. How the quality of accounting has significantly been improved by the introduction of IRFS in the financial statements and professionalism of accountants. The report also focuses on the impact that the IRFS has had on the AASB and financial reporting of the same. This focus has especially looked at the public listed company that operates under the umbrella of AASB. The report also focuses on other market participants that include the profit sectors. The article also slightly touches on the adoption success of the standards, and the ones that have significantly not been a success at all.
The research paper from international accounting: the impact of IRFS adoption in AUSTRALIA; Evidence from academic research. The article can be found at the following link https://www.aasb.gov.au/admin/file/content102/c3/AASB_RR-12_10_16_IFRS_Lit_Review.pdf.
The group presentation focuses on the implication of the IRFS on various financial reports. The impact that the IRFS has had on numerous institutions in term of their financial statements (Singleton-Green, 2015). The financial statements include audit reports, economic analysis and other reports of such kind. Some of the implications from the IRFS have improved the institutions by working in their favour while others do not favour the operations of this institutions. All this is to be defined in the article. The adoption of the IRFS was due to the desire to have quality, transparent and comparable accounting financial information. The kind information that could be used in the global market (Morris, Gray, Pickering & Aisbitt 2013). This, therefore, presented many benefits. The adopting companies paid the cost of the implication of these accounting standards. Some of the benefits have been positive to the institutions while other institutions rarely confess the same.
The result of the IRFS report was on three major economic issues. The adoption of the impact on the quality of the financial statement. The implication on the comparability of the financial statement to the broader global market and finally the connection with investors and financial analysts (Jin, Shan & Taylor 2015).
The implications on the accounting quality financial report
The accounting quality impacts on the following; value relevance, earnings management, conservatism, accrual reliability, report reliability, matching between revenues and expenses and recognition of asset impairments (Firth & Gounopoulos 2017).
The consequences on the financial report focus on the economic effects of the changes to the treatment goodwill and how the different financial institutions account for different business combinations. The changes in the accounting quality of financial reports range from a change in individual standards to changes in intangible assets and deferred taxes of the institutions.
Researchers have shown that the there is good will to adopt the IRFS on accounting by different firms. The changes have even been suggested as ones that increase tangible assets of firms. These leads to increase in real assets regarding proportions of the purchase price. Before the adoption of the standards, the intangible assets were considered identifiable from business combinations meaning they didn’t fetch percentage of the proportions of the purchase price. Therefore implying that the firms have to find evidence of post-acquisition performance of intangible assets currently.
Although many firms seem not to recognise the asset impairments under the IRFS, there is recognition of the assets that is implied in a standard report. The firms must, therefore, identify the impairment recognition requirements on assets (Benson, Clarkson, Smith & Tutticci 2015).
The relative voluntary adoption of the IRFS has had positive impacts on the quality of the reports in the firms. Several pieces of research have implied that if a firm voluntarily adopts the standards, the effect is slightly positive. Some researchers show that automatic responses from firms that take these changes due various impact issues do not receive the desired results. These, therefore, imply that the firms’ overall proposal of implicating the standards should be voluntary so that the firm gets the overall benefit.
The other implication of the IRFS on the quality of financial reporting is based on decision making. The IRFS requires that firm managers depend on financial statements in making a lot of decisions. This, therefore, implies the firm on the importance of financial statements. The financial statements according to the IRFS should have all the economic attributes of the firm. It is then easier to make firm decision basing arguments on these statements as they are evidenced-based.
With the adoption of the IRFS earning managements have become stabilised. The stability is because the standards require high ethical abilities for management, therefore demanding quality performance by accounting managers. When the accounting managers of firms have become accountable, the earning of the firms, therefore, are stable since they can be accounted for. This implies that the firm managers have to become more ethically accountable. Also means that the quality of earnings remains stable with the adoption of IRFS.
The type of empirical method used by the firms affects the ability of accounting numbers. This is according to the kind of IRFS method chosen. The use of strategic way implies an increase in the price of accounting numbers. The adoption of the other empirical methods leads to decrease in the ability of accounting numbers. This means that firms that require seeing the benefit of adopting IRFS strategy should choose the appropriate industrial empirical model to ensure stability in the kind of accounting numbers that stabilises prices of the accounting numbers.
There is an improvement in the value relevance of accounting information with the adoption of IRFS. This implies that firms are likely to engage in the IRFS since it will mean a lot to the company that includes different models in finding the value of the company. The valuation of value relevance done under the benchmark of linear equity evaluation model compares, the stock price and market value per share on the two key financial variables. The two economic variables are book value per share and the earnings created per share. The amount found, therefore, determines the accounting value of the company, thus, improving the value of the company about other firms. This implies that for a firm seeking fair competition from others in the same stock market of Australia, it is advisable to adopt the IRFS standards as a method of improving accounting quality.
The accrual reliability in Australian firms has shown a decline after the mandatory IRFS adoption. The de line is due to the involuntary implementation of the standards. However, after the confirmation, there is a significant improvement of reliability. There is a rare attenuated decrease in accrual reliability. This implies that firms should voluntarily adopt the IRFS standards to realise its positive effects on the firms. These are regarding safety and other significant accounting issues.
IRFS having rendered reduced values on intangibles. The costs of the intangibles have since decreased significantly. However, some firms still adopt the standards while keeping the amount of the intangibles. These firms are mostly the ones that feel intangibles affect reliability. This, therefore, implies that firms exploring that reliability is affected by the intangible can endorse both standards. The significant of supporting both is to avoid rendering the intangibles of the firm as useless.
Conservatism in accounting according to IRFS definition, is the tendency of firms recognise the bad news in the earnings of the firm in a timelier manner than they appreciate the good news. This is the prompt recognition of underlying losses before the real appreciation of profits. Accounting conservatism is the omission of the timely losses from the financial statement within the right time. According to IRFS, the firm to achieve moderation has to identify the book value of the assets and liabilities. The reduction can therefore only be made if the under-measured book value of the assets still has an amount that then an over measured value of the debts. This implies that for the achievement of conservatism to be achieved the firm has to calculate the underlying book value of the assets and the liabilities of the firm (Benson, Clarkson, Smith & Tutticci 2015).
The Australian financial report has become conservative over the period before the implementation of IRFS. The firms have therefore since the adoption of IRFS decreased conditional conservatism but increased unconditional conservatism. This implied that financial statements users for example stakeholders, shareholders and firm managers should factor in all the conservatism changes and behaviour during their economic analysis.
According to the paper, the firms should adopt the IRFS as an implication. The frequencies of the small losses have become unusually low since the adoption of the standards. Additionally, the rates of profits by the companies have also improved and become consistent. Data from GAAP have even supported the consistency. This, therefore, implies that for the benefits of profits for a firm it is recommendable to use the IRFS on accounting. The IRFS manages this through a reduction in propensity.
Value relevance of accounting has increased with the adoption of IRFS for accounting firms, therefore, improving accounting quality (Bryce, Ali & Mather 2015). This implies that earnings are more persistent and have more relevant value. Relevance ability of the equity book according to many Australian firms have shown consistency over the adoption period. The result suggested value relevance of shareholders’ equity remaining consistent across the transition period. This consistency, therefore, proves the implication that the value relevance of the association concerning the accounting quality of most Australian firms.
The paper further implies that from a five income statement, only the disclosure of one is attributable to one component. These, therefore, means that the non-revaluation balance sheet component is not significant or value relevant. The considerable balances are the deferred taxes that have more than one element. The ingredients include revaluations of PPE and equity accounted investments. These, therefore, prove the implication that disclosure of deferred taxes are significant only if they attribute to one essential component. The component might also include stock option payment.
This deferred tax method is also preferred by reflecting investors. These preferences are supported by the view that deferred taxes on assets revaluations are real liabilities. Therefore as investors, these allow the assessment of both liabilities before choosing to invest in the firms. This implies that the firm conducts a conducts a deferred tax assessment on values of the balance sheet (Goode, Crego, Cary, Thornlow & Merwin 2017).
The financial readability focuses on the length and complexities of the financial reports (Grossman Smith & Tervo 2016). The reports should be simple such that they can be used by the users to make correct economic and financial decisions. The IRFS adoption on the financial readability has the following implications;
The reports have become significantly longer allowing for in-depth, detailed analysis of financial outcomes. , however, has made the values even more readable. The IRFS has made it more readable with the addition of three more accounting policies. These are summary of accounting policies, financial instruments, and intangible assets. These have led to more extended disclosures but significantly give more information, therefore, implicating readability. Firms should, therefore, endorse more of the readability so as a way of adopting IRFS (Bond, Govendir & Wells 2016).
Accounting quality and the audit committee. The paper illustrates that with the adoption of IRFS, the audit committee should have more members and more accounting expertise. It also implicated more and regular meetings of the audit committee members. These are done so that they able to better constrain earning management and ensure accruals quality (Bryce, Ali & Mather 2015).
Most Australian firms under the AASB have not complied with the required IFRS regulations. There is an increase in recognition of impaired assets, yet the firms subsequently fail to recognise the prescribed rules on assets impairments (Bugeja, Czernkowski & Moran 2015).
Even though previously Australians have shown the value of the accounting quality by providing principles corporate governance and best practice recommendations and the federal government. They have moved further to endorse the IRFS to ensure improved quality standards of accounting in the country (Hanlon, Navissi & Soepriyanto 2014).
The Accounting groups in Australia adopted the asserted readability of financial reports through measuring the length of financial reports. The number of words measures the distance of economic reports in the period. The Gunning Fog Index measures the complexity of the statements (Crawford, Lont & Scott (2014). The Australian firms, therefore, adopted these style of measure for readability of financial statements.
Accrual reliability of the Australian firms has significantly declined after the mandatory adoption of the IRFS. These were caused by the working capital, non-current and financial accruals that contributed to the decline. Most of the firms enhanced the relevant accounting at the expense of reliability (Bugej & Loyeung 2017). The tradeoff between security and relevance, therefore, remained consistency.
The AASB deferred taxes have value relevance in most Australian firms (Cheung & Lau 2016). These are in line with the IRFS standards. Therefore most firms adopted the revaluation balance sheet with very minimal challenges. The taxes attributed to the non- revaluation balance sheet was significantly not important at all. This, however, has led to the improvement in the quality of accounting in Australia.
The value of intangible assets in most Australian firms are capitalised (Ji & Lu2014). This was done to realise the potentials assets that will help in determining the assets regarding their relevancy and value. These would later assist in getting reliable information about tangible and intangible assets (Apergis 2015).
The adoption of IRFS under the goodwill decision has led to positive underlying economic attributes. The association between goodwill impairment and investment opportunities under the IRFS had grown stronger (Wee, Tarca & Chang 2014). This showed that with IRFS adoption many Australian developed belief and trust of accountancy during the new regime than the previous GAAP. The endorsement of the IRFS by the accounting society of Australia has therefore enhanced financial statements that invite investors.
References
Apergis, N. (2015). The role of IFRS in financial reporting quality: Evidence from a panel of MENA countries. International Journal of Economics and Finance, 7(10), 182.
Benson, K., Clarkson, P. M., Smith, T., & Tutticci, I. (2015). A review of accounting research in the Asia Pacific region. Australian Journal of Management, 40(1), 36-88.
Bond, D., Govendir, B., & Wells, P. (2016). An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), 259-288.
Bryce, M., Ali, M. J., & Mather, P. R. (2015). Accounting quality in the pre-/post-IFRS adoption periods and the impact on audit committee effectiveness—Evidence from Australia. Pacific-Basin Finance Journal, 35, 163-181.
Bryce, M., Ali, M. J., & Mather, P. R. (2015). Accounting quality in the pre-/post-IFRS adoption periods and the impact on audit committee effectiveness—Evidence from Australia. Pacific-Basin Finance Journal, 35, 163-181.
Bugeja, M. and Loyeung, A., 2015. What drives the allocation of the purchase price to goodwill?. Journal of Contemporary Accounting & Economics, 11(3), pp.245-261.
Bugeja, M., & Loyeung, A. (2017). Accounting for business combinations and takeover premiums: Pre-and post-IFRS. Australian Journal of Management, 42(2), 183-204.
Bugeja, M., Czernkowski, R., & Moran, D. (2015). The impact of the management approach on segment reporting. Journal of Business Finance & Accounting, 42(3-4), 310-366.
Cheung, E., & Lau, J. (2016). Readability of Notes to the Financial Statements and the Adoption of IFRS. Australian Accounting Review, 26(2), 162-176.
Crawford, L., Lont, D., & Scott, T. (2014). The effect of more rules?based guidance on expense disclosure under International Financial Reporting Standards. Accounting & Finance, 54(4), 1093-1124.
Firth, M., & Gounopoulos, D. (2017). IFRS adoption and management earnings forecasts of Australian IPOs.
Goode, V., Crego, N., Cary Jr, M. P., Thornlow, D., & Merwin, E. (2017). Improving Quality and Safety Through Use of Secondary Data: Methods Case Study. Western journal of nursing research, 39(11), 1477-1501.
Grossman, A. M., Smith, M., & Tervo, W. (2016). Measuring the Impact of International Financial Reporting Standards on Market Performance of Publicly Traded Companies.
Ji, X. D., & Lu, W. (2014). The value relevance and reliability of intangible assets: Evidence from Australia before and after adopting IFRS. Asian Review of Accounting, 22(3), 182-216.
Jin, K., Shan, Y., & Taylor, S. (2015). Matching between revenues and expenses and the adoption of International Financial Reporting Standards. Pacific-Basin Finance Journal, 35, 90-107.
Morris, R. D., Gray, S. J., Pickering, J., & Aisbitt, S. (2013). Preparers’ perceptions of the costs and benefits of IFRS: Evidence from Australia’s implementation experience. Accounting Horizons, 28(1), 143-173.
Singleton-Green, B. (2015). The effects of mandatory IFRS adoption in the EU: A review of empirical research
Wee, M., Tarca, A., & Chang, M. (2014). Disclosure incentives, mandatory standards and firm communication in the IFRS adoption setting. Australian Journal of Management, 39(2), 265-291.
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