An accounting standard is a basis of accounting that applies to various transactions and events of accounting. All the organisations are expected to prepare their financial statements on the basis of these standards. If there is any change in the methods, then proper disclosure must be given by the company. The framing body that frames these standards has to apply a lot of rational thinking before framing them. The standards must be easy to understand, price and clear. It is important that the members of the board of AASB, that is part of the framing comity, takes into consideration all the people who depend on these standards and policies to show the true state of business affairs. While in the process of formulation of the accounting standards the Australian stakeholder can also suggest the board regarding some technical issue that they face and the board can comment on the same. After the issue is identified, a project proposal will be designed which will cover all the important points relating to the project. The overall benefits, the total cost consideration and what affect it will have on the organisations. (Abbott & Kantor, 2017).
1.One of the most important functions of the AASB is the preparation and presentation of the accounting standards. This standard setting process is a technical process and a lot has to be considered before the formation of particular standard.
The process starts with identification of technical issue that may be there in the accounting process. The International Accounting Standards Board (IASB) or the IFRS Interpretations Committee (IFRIC) identifies it. Since January 1, 2005, the Australian government has adopted IFRS, therefore all the issues that were part of the IASB or the IFRIC committee were also a part of the AASB. The International Public Sector Accounting Standards Board (IPSASB) also identified the issues. The main work of the AASB is to monitor the work of the (IPSASB), and take its decision based on the same. It undertakes works on particular topics and then comment on the same (Chariri, 2017). The Australian stakeholder can also suggest the board regarding some technical issue that they face and the board can comment on the same. After the issue is identified, a project proposal will be designed which will cover all the important points relating to the project. The overall benefits, the total cost consideration and what affect it will have on the organisations. After considering all the factors, it will be decided whether to carry forward the project. If the project is considered it will be added to the agenda, once the agenda is considered the AASB will look into the specific details of the matter based on the reports submitted by the members of the board. Relevant materials may be taken from the other standard setting board like the IASB, the IPSASB and the New Zealand Accounting Standards Board, or from other organisations. After the research is completed, proper consultation is taken from the stakeholders. All the necessary public documents related to the project like the exposure draft that is a draft on the proposed standard, invitation to comment, draft interpretations and discussion papers are made available to the public and the stakeholders to give their comment on the same.
The AASB may choose to issue international document in Australia in line with the standards that they are considering for framework. The other ways to getting proper opinion for the proposed standards is by Roundtable discussions, Project Advisory Panels, Interpretation Advisory Panels etc (Abbott & Kantor, 2017).
After considering all the opinions, the board may decide to issue the pronouncement either in the form of document, or an announcement. When it comes to standards for the profitable organisations, they must be in line with the international standards that are issued by the international bodies like the IFRS. It is to make sure that the standards that are issued by the AASB must be in line with the IFRS. In case of AASB, it follows a neutrality policy, where transaction whether it belong to a public company or private company, it must follow the same basis of accounting. It does not matter whether it is a profit oriented industry or a non-profit industry. After the formation of the draft, it is submitted to the international organisations after taking into considerations all the inputs and feedbacks that it received from various sources. After finalisation, the board looks after the proper implementation of the proposed standards and makes sure that all the companies on which it is applicable follows the same to the best of their ability, with proper disclosure (Guragai, Hunt, Neri, & Taylor, 2017). While making changes to the existing standards, the board considers any kind of technical issues that the companies or the stakeholders are facing. After doing proper research into the matter and taking knowledge about the same in conformity with the other international standards, the board will follow the e same method of preparation and presentation of the draft, and then implement the same and monitor the results. This is the standards procedure for formation of the standards and for making any changes to the exsisting standards. The main point is that all the standards that the AASB develops are in line with the international standards that are framed by the international organisations. All the changes that the board proposes in the relevant standards are given out in the media news with all the necessary details. Details about the same can be ascertained on the official site of the company (Drew & Grant, 2017).
While developing these standards it is important that the board must consider the local domestic issues that the companies in Australia faces because of any technical issues. It is important that the same must be considered while formation of the standards. The boards ask for feedbacks from various stakeholders and corporate on the proposed draft that is related to any standard in various ways. It releases exposure draft on which the public can give their feedback; it also arranges panel discussions, in house discussions, to get the opinion of the people who might be affected by the decision of the standard (Maynard, 2017). After taking all the feedback that is necessary the board incorporates the same, that is feel is relevant in the proposes draft and then finalises the same. The companies have the option to make proposals to the board in cases where they might find any technical issues and ask the board to provide a solution on the same. While formation of the standard the board considers all these recommendations that are given by the companies in its board report. The domestic body prepares the standard that is in line the international financial reporting standards but are not copied. They are amended to suit the needs of the local companies so that the essence of accounting is maintained. The only changes are there that is present is in the execution of the method, the method always remains the same. Like in the case of AASB 136, the board has issued specific rules for non-profit and profit organisations to suit the needs of the local companies (Bond, Govendir, & Wells, 2016). Thus, there are many ways by which the Australian board can consider the demands and the needs of the local bodies to suit their compliances with the accounting standards. The demands of the domestic companies must be taken into consideration. These standards are based on the international standards but are amended as per the domestic companies. This is the main basis of formation of the domestic standards on basis of the international counterparts and how they affect the domestic companies is in the hands of the forming bodies that are responsible for setting up these standards as per the needs of the company (Birt, Muthusamy, & Bir, 2017).
The ED 116 is issued for the recognition of the property plant and equipment of the company. It gives basis to the relevance of fir value in accounting and measurement. As per the AASB consideration, if the companies adopt this method for valuation of their plant property and equipment, they will have more benefits and the overall cost will reduce. After considering all the points that the board laid down in the matter of adoption of these policies, it can be stated that adoption of fair value analysis is better because it is more financially viable then recognition based on historical data. The rules have been set out for the profit and the non-profit organisation. It is said that the in case of revaluation of any class of asset, the net revaluation shall be recognised under the heading of revaluation surplus. It has also been laid down that if the companies are acquiring any asset at cost the company shall recognise less than the fair value, then the extra amount as surplus. The main point to be considered is that the company should recognise all the fixed assets at the fair value so that the accounting transactions and records are more viable. As a critic, if a comment is to be given on the proposed draft of the board, it can be said that the change is very effective and will help in improving transparency in the business, if fair value approach is followed. Previously while recognising fixed assets and calculating depreciation, historical costs were considered which often led to under or over valuation of the assets of the company. Moreover the propend exposure is in line with the international standards that have been framed in this regard this lends a uniformity to the overall transaction and the business of the company much more viable when it comes to international terms. The disclosure policies under this standard are also very simple, with importance given to recognition of the cost-carrying model along with the fair value recognition. However, the same does not apply to the non-profit companies. The board can made specific changes in the proposed standard for non-profit and profit generating organisations of the country (Minnis & Sutherland, 2017).
If we see closely the main points that have been stated by the board for the adoption and modification of the new standard is that previously the revenue-based models that were used by the companies for calculation of the net depreciation is not correct. This is because when the revenue-based model is used, the depreciation calculated does not show reduction in the economic benefit of the asset, because many other points are also taken into consideration. Hence, it does not provide a very clear picture. It is thus considered that fair value approach must be followed for recognition of the assets and the calculation of depreciation. It is a very good step that the board has proposed specific changes, that are applicable to the profit and the non-profit generation companies, based on their functioning (Drew & Grant, 2017).
With changes in the method of calculation and recognition of the asset, the large number of companies over the world will also be affected. The industries like minning and petroleum and mostly that are based on manufacturing, will be affected. As previously there were many different methods to calculate the total csost of manufacture and record the same, so companies who were not in this field found it difficult to analyse.These standards are proposed keeping in view establishing uniformity between the various accounting policies and assumptions of the countries around the world. The manufacturing sector is the biggest sector that uses these plants and equipments for manufacture of products. Changes in the method of depreciation and to recognise them at their fair value will affect the overall financials of the company. Now since recognition will be at fair value, it will help in improving the overall profitability of the company, as it will help in improving the overall transparency. Correct value of depreciation without considering the various other factors just on the basis of the economic value of the asset, will help in improving the overall profitability of the company, as les depreciation will mean more profit but the companies will have to pay more taxes, this is a drawback for the company. However, for the government it will be beneficial to adopt such methods.
The need of a "one size fits all" approach in relation to the various other international standards framing body is more or less important and in the long run much more viable. If the independent board forms their won standard that is different from the international bodies, it will not lead to uniformity between the accounting standards within different countries. If the basis is the same, with some modification as per the requirements, it will help in inter firm and intra firm comparison between the countries and help the companies to judge the effectiveness and their standing in the international world. In case the need arises that, the domestic companies are facing many issues because of the international standards or the technicalities are too much, then the domestic board can make changes but that should be in line with the international standards. There are many advantages of uniformity, as it will help in maintaining the same accounting language all over. In the end, when the domestic companies will start expanding their business it will be helpful. The preparation and presentations of the books of accounts become much easier. It will help them to be in par with their foreign counterparts in different parts of the world. It also helps in making international comparisons, and the foreign investors find it easy to invest in such companies that prepare their books in line with the international standards.Thus the major recommendatiosn will be that all the domestic bodies should thus take proper advice from all the stakeholders and prepare their standards keeping in mind the need of the hour and in order to provide the best solution to any proposed problem. They might modify when the need arises but the base should be the same. It must not deviate from the essence of accounting that is proposed by these international standards (Abbott & Kantor, 2017).
After the entire analysis, we can say that formation of accounting standards should be such that it helps in reflecting the true state of affair of the company and reflects the overall financial viability of the company. It is a long process that the board undertakes to form the standards that must comply with the international rules and be in favour of the domestic companies. However, adoption of the IFRS is very important because in the end it will help in improving the standard of comparison between the various international companies. Companies will have a basis that will help them in analysing their work in relation to their international counterparts. Overall, the adoption of the international standards for formation of domestic standards is a very good approach and will be very helpful in the end. It will help in establishing a single accounting language all over the world (Malone, Tarca, & Wee, 2016).
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