The main motive behind the introduction of accounting worldwide guideline is to introduce such principles and standards those can be applied for the purpose of financial reporting of all the countries all over the world (Davies & Green, 2013). Global regulations play a crucial role in bringing harmony in financial reporting of all the countries in order to apply the same set of accounting principles and standards in the financial reporting of all countries (Davies & Green, 2013). This is majorly helpful for the investors all over the world who want to invest in the foreign countries. However, the regulators are needed to consider certain crucial aspects at the time of the introduction of new regulation or at the time of the merger of two of more sets of regulations; such as the cost of compliance, complex nature of introduced accounting regulation and others (Kalemli?Ozcan, Papaioannou&Peydro, 2013). It can be seen from the provided scenario that both the US FASB and London-based IASB have considered the full amalgamation of their principles for the development of new accounting and financial reporting standards called Global Accounting Standard Board (GASB). However, the Australian authorities are not agreed to adopt this new GASB standards due to the negative impact of these standards on the Australian firms and many other reasons. The main aim of this study is to discuss about the role of international regulations by considering the necessary aspects so that Australian Accounting Standard Board (AASB) can make the right choice about the implementation of new GASB standards.
Integrated Reporting (IR) can be regarded as the latest progress in to bringing improvements in corporate reporting. The main motivation behind the introduction of IR as a global reporting framework is to engage with the key stakeholders of the companies (De Villiers, Rinaldi&Unerman, 2014). IIRC provides the needed back-up to IR and IRCC is considered as a strong alliance of the investors, regulators, standard setters, companies, accounting professionals and non-governmental organizations who believe in the same view that effective corporate reporting must include better commination about the value creation. The main of IR is building effective reporting developments in order to provide a more holistic view that reporting the process of value creation by a firm while taking into consideration the resources which are not finance related like social, intellectual and human capitals along with the financial capital (Stubbs & Higgins, 2014). There is a requirement for critical thinking for actively considering the impacts of these capitals on the businesses as well as on society. For this reason, the adoption of IR ensures the involvement of all the business functions for the identification and collection of data for these capitals with the aim to create value for the customers. The presence of greatest clarity on the links between these capitals assists to take into consideration the problems in effective strategic decision-making process (Stubbs & Higgins, 2014). The vital concept of the value creation mechanism can be considered as a proposal that the firms must enlarge their corporate reporting further than the financial reporting stewardship for the inclusion of all resources that they have used for their business activities (Serafeim, 2015). The presence of six capital can be seen in IR; they are financial, intellectual, manufactured, human, social and natural. The adoption of IR ensures the connection of both the internal and external information by effectively managing the relevant capitals for the identification of major problems in value creation over short, medium and long-terms. The use of IR has created a major shift in focus from achieving short-term financial goals to long-term business strategy development that creates a strong commitment towards the social and environmental issues along with ensuring sustainable businesses and society (Dumay et al., 2016).
The presence of certain opinion can be seen for and against the original move to international standards in 2005. There were numerous advantages to adopt the international standards that pushed the countries towards the adoption of international standards. There was a strong reasin behind the adoption of international standards which was that these international standards made it easier to compare the financial outcomes of the companies from diverse countries in case the companies of those countries use the same standards (Zaidi & Paz, 2015). It allowed the investors in understanding the investment opportunities in the better manner. In addition, the firms which were listed in renowned stock exchanges were capable of using one single accounting tongue and they were able in presenting their financial reports through the use of same accounting standards to their competitor companies (Zaidi & Paz, 2015). In addition, the companies were able to effectively respond to the human capital needs around the world by using the international standards. In the presence of all of these aspects, the adoption of international standards in 2005 majorly assisted in bringing transparency, accountability and efficiency in the process of financial reporting. However, it could also be seen that certain countries opposed the implementation of international standards in 2005 and United States (US) was one of them. At the time of 2005, it could be seen that the movement towards the adoption of international standards initiated in Britain and its large business partners such as US and Canada (Outa, 2013). For this reason, the international standards reflected the British heritage and it became easier for the British heritage countries to adopt. At the same time, US did withdraw their commitments towards the adoption these international standards as they were majorly dissimilar from their own standards. In case another major against argument, the rules-based versus principles-based reason can be presented. The introduced international standards were rules-based that set decision threshold (Abata, 2015). These standards offered clarity but they failed in addressing circumstances that were not directly reflective towards the decision threshold. However, principles-based standards demanded more clarity as well as justification from the accountants. This was one of the major reasons for which many countries did not adopt international standards in 2005. After that, tax difference was considered as another key against argument for the adoption of international standards in 2005. Since, every country has different tax regime, the accounting standards must reflect this difference. This aspect was not there in the international standards that reduced the benefits of these standards. Apart from this, the adoption and maintenance of international standards required strong level of education of the countries (Horton, Serafeim&Serafeim, 2013). For this reason, countries with lower education were not interested in the adoption of international standards for financial reporting.
Every country needs to have certain accounting and financial reporting related standards and regulations so that the companies can conduct the process of financial reporting in the correct manner. It needs to be mentioned that certain processes are needed to be followed and ensued in the regulation-setting process (Davies & Green, 2013). Most importantly, countries are needed to ensure the fact that that their own regulators are responsible for the development of the local regulations in order to maintain the relevancy of the regulations. Local regulators of the countries have the perfect knowledge about the accounting as well as financial condition of the countries and for this reason, they are in better position in understanding the regulation need of those particular countries (Leuz&Wysocki, 2016). In the presence of precise knowledge about the financial reporting condition of the countries, the local regulators are able in doing the cost-benefit analysis of a particular regulation that the foreign regulators cannot do due to the absence of required information and understanding about the local trends in accounting and financial reporting. In this context, it needs to be mentioned that the aim of foreign regulators behind the introduction of new financial reporting regulation is to synchronize the accounting standards. This harmonization process combines the global financial regulations with the local regulations in order to develop a single set of accounting standards. However, in this process of harmonizing the regulations, the foreign regulators miss the crucial aspects like the compliance cost, difficulty in the nature of standards, required instructive qualification for the new standards and others (Goodhart et al., 2013). The local regulators take into account all of these aspects while developing the regulations. In the presence of all these reasons, it can be said that there is not any appropriateness in solely allowing the foreign regulators to make regulations for locals. In this process, the most appropriate action would be a discussion between the foreign and local regulators for the introduction of new regulations. This process would eliminate the issues discussed above and leads to the development of appropriate regulations for the locals. Hence, this procedure requires to be followed for developing appropriate regulations (Albu, Albu& Alexander, 2014).
In today’s world, greater growth of regulation can be seen in every aspect of economy and society. In almost every part of the society and economy, a piece of paper establishes certain degree of regulation related control. These regulations can be considered as mixed blessing as they have both the positive and negative impacts. When considering the positive side, regulations play a crucial role to improve social, environmental and economic standards of the people of Australia (Picciotto&Mayne, 2016). Unfortunately, regulations are not their best due to the presence of huge amount of regulations. When there is appropriateness in the regulations, the presence of more regulation is not good and there are certain reasons for this. Regulations are not free because of the fact that they use scarce resources like other activities. For example, the government agencies with clearregulatory function along employees huge number of employees along with millions of money (Holzhacker, Krishnan &Mahlendorf, 2015). Thus, more number of regulations occupy more amount of scarce resources. After that, more number of regulations lead to the increase in difficulty level related to those regulations. For instances, due to the occurrence of increased number of regulatory reforms, a simple regulations become complex in nature. For this reason, complying with all these complex regulation is considered as burdensome for the companies and others. Companies have to go through many time consuming processes for complying with these complex in nature of regulations. At the same time, they have to incur huge amount of expenses for complying with these increased number of compound regulations. At the same time, it needs to be mentioned that more regulations have certain unintentional impact due to the fact that more regulations sometimes weaken the actual goals behind the introduction of these regulations (Barth et al., 2013). There are certain reasons for this particular situation. Sometimes regulations are excessively narrow which places subsidiary instead of the fundamental objectives of these regulations. This aspect leads to meeting the subsidiary objectives while leaving the primary objectives unachieved. The occurrence of this particular aspect can be seen in the presence of more number of regulations. After that, it can be seen that the regulations do not come in ones or twos but in group of bunch with unforeseen interactions behind them (Gouldson& Murphy, 2013). For this reason, the interaction between these regulations creates confusion which often leads to non-compliance. Apart from these, more regulations often leads to the problem of regulatory outplay or unwarranted ambition. In majority of the times, regulations are considered as the clear response to the market flaw. Imperfection in markets is a universal aspect that cannot be reduced with the introduction of more regulations. Hence, it can be said on the basis of the above discussion that more regulation is inherently bad for the countries due to the presence of many negative aspects. A well-developed regulation must actually do well and must be better than more regulations, it needs to be robust of errors and it must state its objectives and what it is going to do. For this reasons, it is improved to have few good regulations than over regulations (Gouldson& Murphy, 2013).
It can be seen from the provided scenario that there are two alternatives in this case. The first option is that Australia supports the making of GASB for the harmonization of financial reporting standards and the second alternative is that Australia develops their own regulations for the purpose of financial reporting (Dimitropoulos et al., 2013). In this context, it needs to be mentioned that both the alternatives have certain risks involved due to the presence of certain factors; and these risks are needed to take into consideration for the purpose of financial reporting. According to the provided situation, the development of GASB will lead to a significant increase in additional regulations for the purpose of financial reporting. This particular aspect will create the risk of increased compliance with these regulations by the Australian companies (Cordazzo, 2013). Another major risk is that this increased compliance will increase the cost of compliance to these companies at almost double level. Moreover, the companies will have to bear more than double cost due to the changes. The GASB will include environmental performance measures and auditing; and this will create the risk of 40% increase in work load for the Australian companies. The provided scenario mentions that most of the environmental standards in GASB are vague and this aspect creates the risk of the adoption of incorrect integrated reporting framework (Kar??n, 2013). These are the major risks associated with the creation of GASB. At the same time, certain risks are also there in case of the adoption of the second alternative. The second alternative states that Australia develops their own regulations. It is mentioned in the provided scenario that US has approved on the inclusion of performance quantity under IR. IR is a major framework that is used to provide the stakeholders with the financial and non-financial information of company’s performance. The own regulations of Australia will not include this aspect which creates the risk of not-providing the financial and non-financial information. After that, the inception of GASB will create the same set of global accounting standards for the companies all over the world (Brad et al., 2014). In case Australia develops their own accounting standards, it will create the risk of non-harmonization of accounting principles which will make it difficult for the foreign investors to understand the financial statements and accounts of the Australian listed companies. At the same time, there is a probability that the own standards of accounting of Australia do not have environmental accounting and it will be a major risk factor for the financial reporting of Australia. Thus, it is observable from the above study that both the alternatives have certain risks that cannot be ignored. These risks are needed to be included in the decision-making process of the Australian authority (Zaidi & Huerta, 2014).
It can be seen from the above discussion that the authority of Australian Accounting Standards Board (AASB) has two options; they can whether implement the new GASB standards or can develop their own accounting standards. However, it is recommended to AASB to develop their own regulations of accounting by taking into consideration certain aspects. At the time of the development of the new financial reporting standards, it is recommended to AASB that they are needed to make their own financial reporting standards in accordance with the standards of International Financial Reporting Standards (IFRS) so that they can achieve harmonization as well as addition of financial reporting standards. The above discussion states that IR has become a vital part in corporate reporting as it provides assistance to the firms in the process of strategic decision-making. For this reason, it is recommended to AASB for the inclusion of IR in their financial reporting regime with the aim to provide their stakeholders with both the information on financial and non-financial performance of the firms. In this process, AASB needs to provide assurance on the fact that the included environmental factors in their financial reporting standards are not ambiguous as they need to be relevant to the current environmental scenario. Most importantly, AASB needs to ensure the fact that there is not any financial over-regulation; and it is also suggested that their own-developed financial standards are not complex. Simple and few precise financial reporting standards will lead to the reduction in compliance cost for the listed companies in Australia. These are the recommendations to AASB.
Conclusion
It can be seen from the above discussion that IR has brought certain key developments in the process of corporate reporting by providing the stakeholders with both the financial and non-financial information of their business performance. While taking into consideration the arguments for and against the implementation of international standards in 2005, it can be found from the above discussion that adoption of international standards developed a single set of accounting principles that can be used for the analysis and evaluation of the financial statements of the companies. The above discussion also discusses about the negative side of letting foreign regulators develop the local regulations. It can be seen that the foreign regulators will not be able to relate to the regulation demand of the local countries that will end in developing irrelevant regulations. Apart from this, it can also be seen from the above discussion that there are many negative impacts of the presence of more regulations inherently due to certain reasons like increase in complexity, increase in compliance cost, increase in compliance burden and others. At the same time, the above discussion also states that both the alternatives have certain risk factors that need to be considered at the time of their selection. Based on the whole discussion, it is recommended to AASB that they must develop their own accounting standards in accordance with the regulations of IFRS. This will provide them with the needed international exposure as well as integration with the international standards; and AASB will be able in invading IR for the purpose of corporate reporting.
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