Contemporary Accounting GAAP-Based Accounting Amounts

Question: Describe about the Contemporary Accounting for GAAP-Based Accounting Amounts. Answer: Introduction Scholars from various nations propounded on the fact there was a major requirement for a common accounting board and standard that would bring harmonization in the accounting standards and would consequently remove the pitfalls and the shortcomings that was seen in the local accounting standards. There was a critical requirement of a uniform reporting standard that would remove the deviations observed in various local accounting standards. The convergence program between FASB and IASB turned out to be the groundwork for the creation of IFRS. International Financial Reporting Standards are created as a common platform and standard for business house to base the preparation of their financial reports and statements. IFRS is designed to bring about transparency and cohesive understanding of accounts on a global level. It is a product of globalization, which reflected the growing incident of cross boundary capital flows. Since there were various variations and discrepancies in the nation al accounting board, the concept of IFRS was enacted and initiated to bring about uniformity and harmony in the accounting standards. The characteristic of IFRS is true and fair representation of financial statements and incorporation of transparency in financial statements. It embarked on fair valuation of assets instead of historical cost (Chatfield and Vangermeersch 2014). The study outlines the brief overview and history of International Financial Reporting Standards and the issues and development of Australia in adopting IFRS as the financial reporting standards. 1. History of International financial Reporting Standard The International Accounting Standards Committee was formed in 1973 with a purpose to address the requirements for standards that could be utilized by emerging nations for establishing and developing their respective accounting standards. The International Accounting Standards Board succeeded this board in 2001 (Miller and Power 2013). The IASB is a private body for setting of standards for non profit organizations and other government organization. It is situated in London. The fifteen members of the body were chosen on the grounds of technical skills and the members hailed from different countries. Four members of the group hailed from the United States of America. Fundraising activities were the sources of funds for this group. When IASB changed to International Financial Reporting Standards, one of the biggest challenges that were ahead was the arrangement of requisite funds for IFRS. Stability of fund was another major requirement. The main objective of IASB was to promote IFRS. Since IFRS was in the nascent stage and it was the duty and role of IASB to safeguard and protect IFRS. The regulatory structure and principles are very identical to Financial Accounting standards Board (FASB) in the United States of America. The IASC (International Accounting Standards Committee) was the body to whom the IASB reported to (Walton 2016). The introduction and the growth of the global market resulted in for a requirement of uniform set of financial reporting style and statements. It led to the need for a common language regarding global reporting. In relation to this, the IASB and FASB put forth the Norwalk Agreement in the year 2002 (Moore et al. 2013). There was a marked congruency in the requirements between the two boards and the agreements between the two boards paved the way for the requirement of a common standard of accounting standard that would be high standard and would facilitate reduction in cost, enhancement in the efficiency and fair and transparency in the information aspect for investors and stakeholders. The European Union required the listed companies to make and construct a consolidated financial representation under the standards and guidelines of International Financial Reporting Standards, from the year 2005. The two bodies namely, FASB and IASB stressed on a series on common and significant proj ects. The Securities and Exchange Commission enacted two major steps that acted as a catalyst and increased the pace of the timeframe of transformation of GAAP to IFRS (Brochet, Jagolinzer and Riedl 2013). Following in November, SEC released a final statement that permitted the foreign filters based in the United States of America to develop a framework, regarding the preparation and submission of financial data that had to conform to the standards of the IFRS and it eliminated the reconciliation to GAAP. The Securities and Exchange Commission issued a Concept Release in December, which required the feedback of the US public companies regarding their opinions of using IFRS in place of GAAP. Private companies and no profit seeking organization were provided the choice of adopting IFRS since the AICPA Council revised the rule 203 of the Code of Professional Conduct in 2008, in the month of May and gave significant recognition to International accounting standard Board as an internatio nal and standard body of establishing accounting standards (Daske, Leuz and Verdi 2013). IFRS, also known as International Financial Reporting Standards comprises of 41 IAS and 9 IFRS and some of them have been supplanted. Due diligence is applied by a stringent code during the phase when IFRS was being implemented into action. The former debates of FACB are used by IASB when it comes to the point f establishing and developing new standard and policies. According to surveys and reports, around 12000 have adopted and accepted IFRS as the financial reporting standards across the globe. The preparation of the financial statements by public organizations is based on IFRS. The local accounting standards are formulated and based on IFRS. The countries that have adopted IFRS are in progress of implementing IFRS in the accounting reporting standards (Kober, Lee and Ng 2013). The Securities and Exchange timeline provides an outline of the approach that would be adopted for converging IFRS. This emphasised on a convergence project that would be made between FASB and IASB from November 2008 till 2011. In the year 2011 the Securities and Exchange Commission decided whether it would go ahead with the transformation of GAAP to IFRS or whether it would withdraw the resolution. If it was concluded that GAAP would be transformed to IFRS, then the result of this would be that United States of America would have to use and adopt IFRS in the early part of 2014 (Pasko 2016). The changes took place in different stages. Major accelerated filters would adopt IFRS for the financial year ending December 15, 2014. Most public companies had to adopt IFRS by December 15, 2016. This timeline was constructed with comment duration ranging for ninety days, which was followed by an extension of comment days till 20th April, 2009. The Securities and Exchange Commission presented i ts final report regarding the issue in July 2012, which was complemented by a recommendation. Thus, it can be seen that convergence of accounting standards on a global level was not a new concept. The requirement of IFRS was a product of globalization, after the World War II since cross country capital transaction began with some acceleration and the integration of economies of various countries. This was done with the intention of harmonizing the accounting standards and reducing deviations and variations in the accounting standards (Nobes 2014). 2. Australian Accounting Standard Board and the adoption of IFRS by AASB Current Australian accounting regulatory framework is the Australian Accounting Standard Board. It is vested with the responsibility for developing, establishing and issuing accounting standards. The Australian Accounting Standards Board (AASB) has provided the A-IFRS. These standards in the accounting framework conform to the standards and guidelines of IFRS. These declarations replaced the former Australian Generally Accepted Accounting Principles and this took effect from the period post 1st of January 2005. Australia is one of the few countries that adopted IFRS at such an early stage in the national accounting standards. IFRS and IAS are a major component of the AASB. The AASB applied certain modifications to the declaration of IASB and have implied that there needs to be additional disclosures for Australian companies as well as non profit organizations. The non- profit organizations are obligated to make their financial statements that conform to the standards of IFRS. AASB imply on reflecting the changes that are made by IFRS as local declarations. AASB has provided Amending Standards to eliminate some disclosure policies, which were in the Australian accounting reporting context. The process of adoption of IFRS began with the AASB Exposure Draft and the evaluation of the fact that whether IFRS would promote the interests of the Australian economy. Necessary time was given to become acquainted with IFRS and establish information systems. To effectively adopt IFRS, the AASB gave an issue of AASB 1047, which disclosed the effects and inference of Adopting Australian Equivalents to International Financial Reporting Standards in 2004, in the month of April. AASB 1047 embarked on the point that entities needed to reveal the impacts in the financial statements relating to the year preceding to the year IFRS was adopted. It was given emphasis that major characteristics of extractive as well as insurance activities in Australia were retained in IFRS. Problems faced by AASB There were certain issues that made AASB adopt IFRS. There were gaps that were noticed in Australian GAAP that contributed to the adoption of IFRS. The deviation and the shortcomings that were noticed in the preparation of financial statement led to the adoption of IFRS. The need for disclosure policies, which were absent in the previous AASB policies had led to the adoption of IFRS. The lack of transparency did not make the accounting standards of Australia credible and reliable for stakeholders. Thus, AASB moved ahead to adopt International financial Reporting Standards (Barth, Landsman and Williams 2012). However, AASB have to face certain challenges regarding compliance with IFRS. The starting expenses revolving around the adoption of IFRS, especially regarding the compliance with IAS 39 has been high. Another challenge is the transformation from the development of domestic and national standard to contributing and assisting in setting of international standards. AASB has been involved in setting standards that comply with IFRS (Barth, Landsman and Williams 2013). AASB has been seen to transform itself, which has made the board to indulge in research in the activities of extractive industries and intangible assets. This is one of the major challenges that the board has to face. AASB has to comments and introspects all documents of IASB during consultation since the board has to incorporate IFRS features in its accounting standards. This is one of the challenges for the board (Bond, Govendir and Wells 2016). One of the challenges for the board revolved around the fact that AASB had to communicate with IASB of various interpretations and it did not allow the board to develop its own interpretations. This was one of the major shortcomings of the IFRS. It made the unable to address its own issues without having to contribute to IFRS (Kang and Gray 2013). Another issue that adoption of IFRS poses to AASB is the active participation in IPSASB activities. This sometimes poses as a challenge for the board since such active participation at times tend to be a big hassle (Thalassinos and Liapis 2013). AASB has to major contribute to the standards and guidelines of non-trading organization and other public sector organizations. It has to focus and evaluate the different reporting standards. These are major issues that the board has to face in such issues (Kober Lee and Ng 2013). It can be viewed that the major challenge that AASB has to face in adoption of IFRS is mainly revolving around cultural, political and educational issues. The board has to interpret the various standards from time to time and make continuous modifications to the standards of IFRS. Cultural and political differences also tend to be a major shortcoming of IFRS in context of Australia. One of the issues that AASB is the uncertainly regarding the staffing and governance structure of IASB, which impacts on the standard setting process and in the process there is major dilemma in adopting IFRS (Morris, Pickering and Aisbitt 2013). The cultures are always undergoing change and regulation systems are developing and adopting IFRS in such circumstances is a major challenge (Newberry and Ram 2015). Conclusion On concluding it, it can be seen that IFRS has become an important element of reporting standard and accounting standard in various countries. Australian Accounting Standard Board has made rapid progress in adopting IFRS and incorporating its effect in its accounting standards, which yielded many benefit for the accounting board and the reporting standards in Australia. 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