Important Role Of Accounting Standards Essay


You are to report on the processes used to make changes to Australian accounting standards. You will find a lot of information here at the AASB web site to get you started.



Accounting plays very important role in the success of every business. Without the accounting no company can run smoothly and effectively. To maintain the accounting on uniform basis, the accounting standards board has been developed and it provides the guidelines as to how the accounting will be done and presented to the users of the financial statements with appropriate disclosures. In the given report, the main aim is to identify and ascertain how accounting standard is changed and what pushes the accounting board to change the accounting standard. With this aim, the report has been started with the executive summary detailing the aims of the report. Thereafter, the literature review has been conducted and detailed. In this it is mentioned as how Australian Accounting Standard Board incorporates the changes if any made by the International Accounting Standards and how the local issues specific to the country is considered by the respective accounting standard board has been detailed. In the second part, the light has been focused on the Exposure Draft of Australian Accounting Standard 116 and it has been detailed as to how the same have impacted the accounting of companies and how it has majorly affected the companies with the high exposure to manufacturing companies. Thereafter, the report has been ended up with the proper conclusion and the appropriate recommendation.

Literature Review

With this literature review, the process relating to changes in the accounting standards has been explained and the discussion has been mainly for the Australian Accounting Standards and how it incorporates the changes of International Accounting Standards and also change according to the local issues of Australia itself.

Australian Accounting Standard

How AASB Incorporate changes to International Accounting Standard–

AASB is defined as the Australian Accounting Standard Board which sets the accounting standards prevalent and mandatory for the companies operating in Australia. As per the accounting principles, financial statements of all the companies whether operating within Australia or outside the Australia, shall be inconsistent with the International Financial Reporting Standards so as to give uniformity in the prepared financial statements of the companies (AASB, 2017).

At the very first, when the Australian Board has adopted the International Financial Reporting Standards as the Accounting Standards, the Australian Accounting Standard Board has accepted the accounting standard with few modifications with deleting the extra disclosures and adding some options. The first adoption has been started in the year of two thousand and five and thereafter the process of adoption has started with the modifications. But in the year of two thousand and seven, the Australian Accounting Standard has decided to adopt the International Financial Reporting Standard as issued by the International Accounting Standard Board as it is without any reductions but have decided to adopt them with the additional disclosure requirements (Zeff and Nobes, 2010).

The Australian Accounting Standard Board has the defined standard setting process. The process starts with the identification of the issue which has come across the business community and the other communities at large as to how the same is required to be dealt with the accounting purpose and the preparation of the financial statements thereon. Although there are three ways through which the technical issues are addressed. In this heading, two ways have been discussed. First is the identification of technical issue by the International Accounting Standards Board or the International Financial Reporting Standards Interpretations Committee. The Australian Accounting Standard has adopted the International Accounting Standards in the year of two thousand and five and accordingly if any technical issue arises from the International Accounting Standard Board, it gets included in the Australian Accounting Standard Board and gets embedded in the Work program. The work of the Australian Accounting Standard Board is that it closely monitors the activities of the International Accounting Standard Board and considers the relevant issue accordingly. The second way through which the technical issue of consideration is defined is that the Australian Accounting Standard Board itself identifies the issues and these are normally identified by the staff and members of the accounting standard board. Thereafter, the issue so identified is referred to the International Accounting Standard Board or the International Financial Reporting Interpretations Committee for the consideration. The second that comes into place is the adding of issue to the agenda of the meeting when it will be held (AASB, 2017). The adding of issue to the agenda will help the board members and the staff to discuss the issues in detail in conjunction with the happenings at the International Accounting Standards Board and forward the issue for further. The third stage that comes into picture is to research the advantages and disadvantages of the issue and disclosing whether the same will be in benefit for the country or not like in order to have the relevant financial information the accounting standard one hundred and one on presentation of the financial statements have been issued so as to equip the users of the same to have more and more information of the company. After researching about the issue and considering the same in detail, the issue is then made available to the stakeholders, business communities, Government and other individuals in the form of the Exposure Draft (Gordon and Gallery, 2012). Stakeholders are defined as the persons or group of persons including the body corporate and the artificial judicial person who are concerned with the issues and in normal terms have stake in the issue. Through this exposure draft, all the stakeholders including the Government give their suggestions on each and every clause that is mentioned in the exposure draft and each and every suggestion of the stakeholders are discussed in detailed (Nobes 2011 and Nobes 2012). After having the due discussion and consideration of the issues of the stakeholders and their suggestions also, the Australian Accounting Standard Board issues the Accounting Standard. One stage is also there after consulting with the stakeholders and before finalizing it as the accounting standard. This stage includes the reference to the International Accounting Standards Board. Simultaneously if the International Accounting Standards Board passes all the discussion and the arguments then the accounting standard is made applicable with all the necessary modifications as per the need of the stakeholders and necessary modifications made by the International Accounting Standards Board (Christenen, 2015 and Stoddart, 2011).

In this manner, the Australian Accounting Standard Board incorporates changes to International Accounting standards into the Australian Accounting Standards so as to bring the uniformity in the preparation and presentation of the financial statements across the globe (Tutticci, 2014).

How AASB incorporate Australian issues to Accounting Standards: In this heading the third way as to how the Australian accounting standard is developed and made applicable for the business community of Australia is discussed. Under this, the identical issue is identified by the companies and the organizations of the Australia including the individuals who are working under the proprietary firms. They provide the Australian Accounting Standard Board with the issue which they are facing in the accounting treatment of some transactions like how to value the property plant and equipment and how much useful life shall be taken so as to depreciate the value of the asset over the period of time. These local issues are addressed by the Australian Accounting Standard Board in the same manner in which they have themselves identified the technical issue. They again made the issues and draft of the Australian accounting standard available to the stakeholders including the Government and individuals as to come up with the proper suggestion and the considerations (AASB, 2017 and Hail, 2010). After having the due considerations and suggestions, the Australian accounting standard board incorporates the same into the accounting standard and made it applicable from that date only.


Impact On Accounting

Accounting Standards are backbone of every entity’s accounting to maintain the uniformity in Financial Reporting. Every country has its own accounting standards which have been originated from International Accounting standard with certain changes to it according to the geographical and economical condition of that particular country. Accounting treatment defines in the Accounting Standards has to be complied by entity while doing accounting in relation to the item for which Accounting Standard formed. Any change in Accounting Standard results in change in accounting treatment and thus, accounting of an entity also changes. One of the major examples to analyze this change has been taken into consideration in preparation of this report i.e. Australian Accounting Standard Board 116 / International Accounting Standard Board 116 (SACE, 2011).

Changes in IAS 116/ AASB 116

AASB 116/ IAS 116 deals with Property, Plant & Equipment and it helps the different users of accounting to understand the funds invested by an entity in its Fixed Assets- Property, Plant & Equipment. This standard provides the accounting treatment for major portion of investment of an entity on this basis the different users are able to ascertain the security level of their interest in the entity. This standard provides how much will be the carrying amount of Property, Plant & Equipment and how much is the depreciation on them along with the impairment calculation on that asset at a particular point of time

AASB 116/ IAS 116 have coverage on the major portion of the accounting of any entity and any changes in these Standard impacts the major accounting treatment and accounting policies of any company. Changes in AASB 116/ IAS 116 not only impact the accounting treatment related Property, Plant & Equipment but also impacts all the accounting policies related to other incidental things to Fixed Assets in any organization (AASB 116, 2017).

As per Exposure Draft for Amendment in AASB 116 on the basis of IAS 116 changes is about the treatment of sale price of items produced from property, plant & equipment during testing phase of that equipment or plant. The IAS 116 has amended the treatment of sales proceeds from capital receipts to revenue receipts by not allowing the same from deduction of cost of asset rather showing them as revenue receipts in Income statement

Impact On Countries

Changes in International Accounting Standard and its incorporation in any countries accounting standard has impacted the economic operations in any country and also the major operations of big industries in that country. The Accounting Standard Board of the particular country has to think about the pros and cons of changes before their incorporation in accounting standard in that country according the working condition and financial condition of the country.

Exposure to Manufacturing Operations

Manufacturing Industries covers more than 50% of the industries in any country and Property, Plant & Equipment are the major and main item in the Financial Report of any manufacturing company. Any changes to Property, Plant & Equipment has high impact on the accounting policy of the manufacturing company and thus effect the manufacturing operations of the company and in turn effect the overall manufacturing industry in any country.

The proposed change which has been done by IASB in ascertainment of cost of property, plant & equipment has high impact on the value of Property, Plant & Equipment which has been shown in the Financial Report of Manufacturing Company. With the exclusion of the sales proceeds the cost of Property, Plant & Equipment in particular company has increased the value of the Assets. The net worth of that company will increase results in more funds from the investors and inclusion high and new technologies in manufacturing operations of that company (Ahmed, 2013). Also, by considering the sales proceeds in testing period increases the revenue of that particular year and the manufacturing company can use this revenue in doing the operating expenses of that year which enables the manufacturing company to have more profits that can ploughed back in the business next year. All this changes will help in manufacturing industry to grow in the particular country.

Proposed Changes

The proposed changes by IASB in International Accounting Standard have framed keeping in mind the economical and financial condition of world as a whole. The requirement of different users from Financial Report and understandability from Financial Report about the particular item enables the IASB member to identify the need for changes in accounting standard and account policy of any particular item (CPA, 2015).

International Standards or National Standard

The environmental and economical condition has being changing with the passage of time and changes in accounting standard are also necessary. As the time passes, accounting people who do accounting understand the flaws in the accounting standard and try to misuse them procedures by doing manipulation and misguide the different users of accounting data and influenced their decisions indirectly. As change in treatment of income earned during testing period change the accounting and economic event in relation to cost of assets to be recognized in the books of account which saves the manipulation of done by different accounting professionals in the showing the low costs of Property plant & equipment. The consideration of income earned during testing period as revenue income also helps the users to understand the clearly the testing period length along with non occurrence of this revenue over other period and helps the stakeholders to take efficient and effective decisions in relation to PPE (AASB 116, 2017 and Street, 2012).

Accounting Standards of Australian country has be formed in compatibility with International Accounting Standard and implemented with the motive to make Australian companies financial statement comparable and meaningful across the Globe. Any changes in International Standard made it necessary to changes Australian Accounting Standard so that Australian standard are compatible with International standard and the information can be used by any users from any country.


Accounting Standards are the guiding tool for the organizations to maintain their financial statements in true and fair manner so that the users of the financial statements can have better view of the functioning of the company. Through this report the adoption of accounting standards have been detailed along with them process as how the same is bought into consideration and the made available for the users. Secondly the light has been thrown on the accounting standard 116 on the Property plant and Equipment. To conclude the report has been the detailed one with all the relevant facts and procedures.

It is recommended to have the consideration of the International Accounting Standards in the country specific standards so as to give uniformity on the preparation and presentation of the financial statements.


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