Adoption of Ifrs in Australia
Internationally, more than 100 countries have adopted International Financial Reporting Standards IFRS or IFRS equivalents, including all EU countries and major Asian countries such as Hong Kong and Singapore which have adopted IFRS almost in their entirety. (KPMG, 2006, pp. 11) The adoption of IFRS in Australia through the Australian equivalents of International Financial Reporting Standards (AIFRS) since the beginning of 2005 has reflected how Australia is also part of global momentum for consistency and high quality of financial reporting.
Since the formation of International Accounting Standards Committee (IASC) in 1973, we see how accounting standards has become an important issue and an on going public concern. IASC was first founded in June 1973 in London and was later replaced by the International Accounting Standards Board (IASB) on April 1, 2001. International Accounting Standards (IAS) was first introduced in 1973 by IASC, until it was adopted by IASB in 2001 for further development, calling the new standards IFRS.
At that time of formation, the board of IASC consists of Australia, Canada, France, Germany, Japan, Mexico, Netherlands, UK, Ireland and USA. The establishment of IASC was a result of an agreement by the accountancy bodies within those countries. In 1977 International Federation of Accountants
The main objective of the IFAC and IASC is the achievement of a harmonized – ultimately globalised – profession with the highest technical and ethical standards”. (Tsufuoki F, 2000) In 1981 both bodies agreed that IASC would have full control in setting international accounting standards as well as issuing documents in relations to international accounting matters. All members of IASC were also part of the IFRC members until IASC changed its Constitution during May 2000. Australia itself was operating under AASB accounting standards before it changed to pre IFRS accounting standards in 2004.
The decision of adopting international accounting standards in Australia from 1st of January 2005 has significant impact for the entire economy. The current corporate governance focuses on the increased disclosure, independence and best practice guidelines in company annual reports. According to Australia Senate’s annual report for the year 2003-2004, the aim of adopting IFRS in Australia under the Corporations Act 2001 is so that Australian entity can have more access to overseas capital markets by preparing their financial repots according to accounting standards that is more widely used overseas.
Further more, under statement 4 of the international convergence and harmonization policy in April 2002, AASB need to fulfill its function of participating in, and contributing to, the development of a single set of accounting standards for world wide use, as well as harmonies Australian accounting standards with those accounting standards issued by IASB, international federation of accountants’ public sector committee and other IASB liaison members standard setting bodies. (Policy statement 4, 2002 pp. 4). The adoption also allowed Australian investor to have access to high quality financial reports.
This at end will also arise cost saving advantages as companies need not reconcile financial reports between different accounting regimes since slowly but shortly countries around the globe is accepting IFRS as their financial accounting standards. Has Australia made the right decision in regards to the adoption of IFRS? In this section we’ll be looking at the advantage and disadvantage of IFRS as well as the over all affect of the adoption and whether or not the advantage has out weighted the disadvantage such that Australia has benefited from the adoption.
Advantages of our former accounting system AASB includes the relative independence, the relatively detailed conceptual framework, the close links and interactions with the accounting professions and most importantly compare to IASB it can be more detailed in some areas of the standards. E. g. SAC 1 and 2 was not mentioned in IASB thus, Australia has to keep some of its standards as they were missing in the international accounting standards. The main advantages of IFRS include increase capital inflows, higher trade volumes and growth in Australia’s capital markets. (Wayne L, 2005. p10) As well as the support of international harmonization of accounting standards which shows the rest of the world how Australia is also part of the leading countries such as the EU. In addition, the adoption of IFRS means that it would be easier for businesses to expand both within the region and also around the world. (FRC session 2 background paper, 2005 pp. 1) This is because so far over 100 nations have already adopted FIRS reporting standards. But let’s not get over excited about the advantage of adopting IFRS. Arguments against IFRS include the high cost involved for small companies which comprise around 80% of Australian companies.
Past experience shows that in attracting international companies to list in Australia in respect has no direct relations in the adoption of IFRS. (Wayne L, 2005. pp11) Also, the logic behind having independent accounting standards is that it allows the AASB to access significant control over the company’s financial reports. The fact the Australian financial reporting regime is required to fully adopt IFRS effectively means that the Australian Parliament has abrogated its legislative power over Australian companies to the IASB, which resides outside of Australia and on which Australia has only one vote. Wayne L, 2005. pp11) And thus, this will result the loss of accounting intellectual capital as well as the diluted financial reporting regime. In conclusion while International Financial Reporting Standards (IFRS) have been implemented successfully in the European Union, there is still a long way to go to achieve consistency and comparability in all aspects of financial reporting. But on the other hand the disadvantage may not hold in future.
Whether or not Australia benefits from the adoption depends upon the future development of IFRS and how much influences Australia can have over the international accounting standards. Reference List “International Convergence and Harmonisation Policy”, Australian Accounting Standards Board, ISSN 1320-2553, April 2002, pp4 Kris P, Andrea W, “Across the board-IFRS: reporting revolution or expensive distraction? ”, KPMG, August 2006, issue 11, pp 1 Wayne L, “The Emasculation of Accounting Standard Setting in Australia”, September 2004, pp2-11
Australia senate, retrieved on: 21st of April 2007 http://www. aph. gov. au/senate/dept/annual05/financial/fin_notes2. htm “International Accounting Standards Board” retrieved on: 21st of April 2007, http://www. iasb. co. uk “International Financial Reporting Standards”, Wikipedia the free encyclopedia, April 2007, retrieved on: 21st of April 2007, http://en. wikipedia. org/wiki/International_Financial_Reporting_Standards Tsuguoki F, “The Founding of IFAD”, November 2000, retrieved on: 21st of April 2007, http://www. ifac. org/MediaCenter/? q=node/view/299