Abstract 100
The report consists of the relevance of Positive Accounting theory in terms of financial reporting. As per the relevant accounting standards, International Financial Reporting Standards IFRS standards are mentioned and compared for two countries. Australia and India have adopted IFRS standards, while the reasons for taking IFRS standards are mentioned in the report. IFRS standards is a global accounting standard adopted by more than 60 countries and 12000 companies. The transitional issues, challenges faced by reporting entities in adopting IFRS, benefits of adopting IFRS and similarities and differences in adopting IFRS standards by Australia and India are mentioned in the assignment.
Introduction 100
International Financial Reporting Standards is a process of global harmonization in terms of preparing financial reports. There is the rapid development of adopting IFRS standards by countries as it ensures the analysis of jurisdiction-specific criteria. The organization faces challenges and issues while adopting IFRS, which tends to benefit financial reporting in the future. There are a significant plethora of post-adoption implications of IFRS by companies on financial reporting. It leads to a reporting change in equity, disclosures, earnings and transparency of accounting standards. Organizations benefit from accepted financial reporting standards while reducing the cost of capital, increasing investors interest, better comparability of reports and higher quality financial reporting standards.
Relevance of Positive Accounting Theory 500
Positive Accounting Theory explains the significant concepts of economic consequences and financial accounting. Leverage, size and variables are enforced with the prominence paradigm shift of an organization. The positive theory refers to explain making good predictions in the business while considering certain variables. A more significant part of the method is undertaken in economics while working on efficient market hypothesis. Positive Accounting Theory (PAT) is developed in the modern era rather than normative accounting theory. PAT research has been started from 1960 while there are certain assumptions in theory. The method consists of two main parts, such as examination between stock price and financial statement and distinction between no-effects hypothesis and mechanistic hypothesis. The study of financial reporting and stock price was done in 1968 by Ball and Brown. The results indicated an association of financial reports, earnings and cash flow and risk in the business.
The other point to be considered in PAT research is about the distinction of two hypotheses such as mechanistic and no-effects hypothesis. No-effects hypothesis tends to explain the change in the stock price and the change of accounting procedure. With further analysis, the difference in cash flow is revealed using PAT research. The hypothesis explains the accounting procedures to be considered with deliberately excepting the change in the cash flow. The efficient market hypothesis is found and is based on contracting cost while considering the distinction between mechanistic and no-effects interpretation. A mix of the transaction is discussed in terms of contracting damage, and it includes agency cost, bankrupt cost and renegotiation cost. PAT is a ten-year perspective adopted by countries while focusing on stock price changes and working on systematic analysis in the capital market. PAT leads to a severe subject of considering numerous criticisms and perspectives of business on economic base and philosophical science. PAT predicts the importance of choosing and adopting a particular method of accounting for accounting managers. The two examples to illustrate the relevance of PAT in the business is considered.
PAT focuses on management motives that Australian accounting firms are motivated, and financial reporting choices are made considering the economic model of the business. With the help of PAT, statistical processing and analysis are found in the market with information asymmetry that products firms accounting choice. Opportunistic behaviour and attitudes are analyzed in the business while investigating positive elements on earnings management.
Implementation of IFRSs
Reason for adopting IFRSs 300
The reasons for taking International Financial Reporting Standards IFRSs in Australia is for effective accounting practice and economic stability in Australia. Australian financial reporting has improved with the adoption of international reporting standards. International reporting standards benefit the investors, companies and the economy. Therefore these are effective accounting practices in the Australian economy. Association of Chartered Certified Accountants ACCA supports and welcomes the financial reporting standards as well as praised by Australian accountants to implement the complex international reporting standards effectively. The international standards are consistent and have supported the financial reporting framework. IFRSs has a positive impact on the Australian economy and has increased the value of Australian companies in terms of global scale. Australia adopted IFRSs on January 1, 2005, and reviewed the adoption of IFRSs in 2015 for non-profit and profit organizations. The transition process is smooth after examining the adoption of IFRSs in Australia in most of the sectors. Appropriate benefits are achieved for NFP standards by AASB and modifications in terms of cost-efficient and quality of reporting are addressed in the review process. With the new international reporting standards, the economy is active and has moved to transfer knowledge and skills to individuals. Therefore IFRS standards are adopted and have enabled users to meet the needs of not for profit NFP sector.
Adoption of IFRS standards in India improved the accounting policies and principles in the country. The aim is to make accounting standards consistent and bring harmonization with accounting principles. IFRS standards are adopted to represent a change in the financial reporting system. With the help of IFRS, there are fundamental changes that are reported as it has a combined set of knowledge and high-quality accounting standards in the country. To carry out business affairs successfully, IFRS is adopted, keeping in view the objective to harmonies with the global accounting standards and local conditions of the business. Adoption of IFRSs in India was confirmed from April 1, 2011. The process of convergence was taken by the Institute of Chartered Accountants of India. The institute pronounced the accounting standards to be adopted in the year 2011. With the introduction of IFRSs, better reporting practices are observed consequently in the country while adopting international reporting standards.
Transitional issues 300
IFRSs created transitional problems in Australia as the country has improved on the accounting standards but lack the training purpose provided to business and the local community. With the inclusion of more choices, IFRS resulted in high professional standards and understood the steep pathway of adopting IFRS in the economy. The international reporting standards are more comprehensive and require evaluation, adoption and post-employment benefits. The process of assessment and employee benefit was not present earlier in the Australian GAAP. An additional cost was incurred while adopting IFRSs into Australian entities which was a big issue for Australian companies. The key challenges to adopting IFRS in the business are training and education level, which was not fulfilled by Australian companies. For example, the problem of educating regulators and auditors was experienced in the course, which led to lack of familiarizing accounting standards and raised a significant concern with IFRS adoption in the business. For example, there were issues regarding subjectivity and instability of reporting in IFRS. The financial results under IFRS are different compared to the Australian Accounting Standards. The business contracts were re-negotiated while adopting IFRS in the economy. With the new provisions, there were related challenges that were significant towards implementation.
With the convergence of IFRS adopted in India, issues like taxation and financial reporting processes are raised. There are companies in India that have still not taken the information systems due to the high cost in adopting the financial system. A fundamental review is critical by adopting IFRS. Taxation is one such issue which increases the liability of a company. The tax liabilities, for example, tend to grow with the increased number of Indian tax laws that are recognized with accounting standards. Reviewing IFRS results, the issues are observed as a big challenge for the country to focus on financial results while implementing IFRS in Indian companies.
Challenges 300
Australia faced several challenges by reporting entities on adopting IFRS. Copying the actions of reporting entities, lack of management support and working on broader business are the significant challenges that the country faced in accessing the implementation of IFRS financial reporting. Lack of knowledge about implementing IFRS was the major challenge for the country as there were difficulties in prioritizing the IFRS implementation. Developing accounting policies was one of the most critical challenges. Lack of knowledge and training of IFRS in financial organizations was observed while it was challenging to create IFRS compliant and work on accounting policies. Lack of management support and anticipated business implications were the challenges that raised issues on several occasions. Data was captured with difficulties which were one such challenge to be addressed with own prioritization. Challenges in obtaining relevant information are one such challenge that is improved with the necessary steps and greater depth and analysis. The relative complexity and challenges are mentioned with the practical study of the implementation of IFRS in Australia.
There are several challenges of implementation of IFRS in the Indian economy. With the convergence of IFRS, the technical exercise is involved in concentrating on accounting standards in India. Uncertainty in taxation was observed by GAAP, which was a difficult task by the Indian economy. Interaction between accounting standards and legislation leads to one such challenge for convergence of IFRS in India. GAAP reconciliation is one such proposal for traditional IFRS which was adopted with an ongoing step to reconcile with the financial statements to US GAAP. SEC Securities exchange commission tend to have significant options to call for traditional IFRS with Indian Lawmakers.
Benefits 300
IFRS standards adoption has been positive for investors and listed companies in Australia. A positive impact on the adoption of IFRS standards is related to for-profit and not for profit organization. The four significant aspects that were reviewed in the review stage are the quality of Australian reporting standards, comparability of financial reporting benefits to investors and perceptions of personnel listed in Australian companies. IFRS has improved value relevance and firm engagement in terms of earnings management. With the deferred taxes regimes, IFRS has made improved accounting quality. Australian Generally Accepted Accounting Principles AGAAP has accepted the treatments for accounting standards and prepare annual reports with IFRS standards as it is easier to reflect on global practices. The other benefits revealed while adopting IFRS standards are cost savings that require multiple national GAAPs, larger private entities, listed entities and ability to guide the subsidiaries to adopt IFRS standards readily. The quality of standard policy enhances stakeholders interest and benefits accounting professionals to move from one sector to facilitate and report across industries. IFRS has even benefited the financial performance of firms with different areas. A neutral approach is related while adopting IFRS standards that retains the benefits in several transactions.
Implementation of IFRS has benefited the economy, investors and professionals in India. IFRS helps in applying accounting standards globally and ensures reliable financial statements. Efficient allocation of capital by attracting investors through transparency and reduction in the cost of capital will increase the response of IFRS. Investors are benefited with accounting information as the information is relevant, reliable and essential across the global framework. Comparability between statements of several organizations across the world is possible with IFRS. Therefore confidence and better understanding are revealed among investors as better investment decisions are made by comparing accounts. The services provided by professional will be in various parts of the world as IFRS benefits professionals to serve international clients.
Similarities and differences 300
The similarities in the adoption of IFRSs faced by Australia and India are to focus on international standards and ensure acceptance of improvement in terms of quality and cost of financial reporting. Australia benefits with the adoption of IFRS. It enables transferable knowledge and skills to its professionals, same way India focuses on providing a better platform for professionals and accountants while adopting international standards. Acceptance of IFRS by Australia was quick as AASB continued to work on standard-setting policy for modification and appropriate use of NFP entities. Accounting Standard Board ASB constituted accounting standards under ICAI Institute of Chartered Accountants of India; now the primary goal is to focus on international standards while adopting IFRS International Financial Reporting Standards. The international standards are practised and have incorporated change in the overall accounting standards in Australia and India. Change in corporate legislation is addressed on an international level. Application of IFRS was successful in both the countries while IFRS standards are examined and reviewed by both countries making specific improvements. Therefore, there is a field of setting that brings a change in the reporting of financial statements.
There are individual differences in the adoption of IFRS in Australia and India. The date of implementation is the significant difference between the adoption of IFRS, which significantly differ. Australia adopted IFRS in 2005, India adopted IFRS in the year 2011. Successful implementation of IFRS is observed in Australia as there are specific improvements on IFRS that change the primary benefits that Australia has received. The factors that had caused the differences in adoption of IFRSs by Australia and India are the adoption of IFRS and the success of IFRS.
Adoption of IFRS 300
Adoption of IFRS was successful in Australia as there are benefits of IFRS realized by the Australian accounting system. IFRS transition process has been smooth in several sectors; the appropriate basis for AASB was recognised with the development of NFP, not-for-profit entities. The benefits of adopting IFS ensures and prepare users to focus on transferable knowledge and skills. Organizations in developing financial reports experience Cost-saving results. SMEs and NFP entities are concerned while adopting IFRS complying with AASB rules and regulations in terms of disclosure requirements. IFRS has resulted in positive adoption for listed companies. The analysis is accordingly made with a more celebrated analyst forecast. While improving the value relevance, IFRS goodwill impairment is addressed with associated and improved quality. Annual reports have gained importance as it is easier to read and analyze the annual reports of the company even though annual reports are longer while adopting IFRS standards. Improved comparability is observed while focusing on the NFP sector, and significant assess is towards the ongoing neutral approach.
Adoption of IFRS standards provides access in the global market. Therefore it was successful in India. Single accounting standards are confusing but adopting international reporting has helped investors to make significant investments and engage in a financial statement that allows investors to enter the global market. Better quality of accounting standards and financial reporting has ensured successful implementation and adoption of IFRS in India. Accounting standards are reliable, and a Fair value accounting is reflected in true worth. A common platform is provided while adopting IFRS standards that ensure truthful financial statements. Efficient allocation of attracting investors and reducing the cost of capital has made a positive impact on the convergence with IFRS. Therefore, convergence to IFRS is still expected to be improved by India as the benefits of IFRS will set high-quality accounting standards for the companies. IFRS has already been adopted by more than 12000 companies and 150 countries. They are taking into consideration. India adopted IFRS through IND AS in all the sectors that even included SMEs in the year 2017.
Recommendation 200
There are some recommendations to the national accounting setting bodies of Australia on ways to ensure IFRSs continuous improvement.
Training programs for professionals
Preparing an action plan for the companies
With the convergence of IFRS, there should be accelerated efforts by government and fortified means of adopting IFRS standards in all the sectors. Providing training programs to professionals and enriching the knowledge and skills of improvement in terms of proactively supporting the use of IFRS standards should be efficiently considered. Support of an action plan that will provide considerable weight in government circles should be prepared for economic benefits and significant funding purpose by the government for implementing international accounting standards in the country.
Recommendations provided to national accounting bodies of the Indian government are
Adoption of IFRS for SMEs
Review IFRS standards every year
Accounting standards in India are based on IFRS standards which are adopted by some organizations. Therefore IFRS standards must be taken by small, medium enterprises to ensure and amend accounting standards all over India. To align the business activities, IFRS standards should be like jurisdiction and should be provided by modifications and review policy. The extent of IFRS application is limited and is specifically for large organizations. For domestic companies, the security trade aspects and public market analysis should be addressed. Companies listed in SME should be permitted to follow IFRS standards for equivalent measures.
Conclusion 100
The assignment proposed the introduction of IFRS in Australia and India. The primary analysis was comparing and contrasting the two countries while adopting the IFRS standards of each country. Australia and India faced different challenges, issues and benefits of IFRS. These aspects are compared and contrast while providing detail for each element. The assignment provided detail about the findings and recommendations of IFRS for Australia and India. IFRS adoption date and the year is provided, which helped to analyze the success of IFRS in Australia. IFRS standards in India need improvements which are discussed in recommendations.
References