Objective of the Report
The objective of the current report on discussion and analytical evaluation of the organization is to assess the reasons for harmonization, understand diverse issues in harmonization with reference to operations of the corporation Wesfarmers Limited.
Country Selected & Brief Accounting Standard
In the current case, the country Australia has been selected for assessment of reasons of harmonization and issues in harmonization. The adoption of IFRS in Australia can help in informing IASB or else IFRIC of different interpretation issues, maintenance of close association with New Zealand, vigorously contribute in IPSASB actions (Wang, 2014).
Process of adoption of IFRS can be facilitated by the regulations stipulated under the accounting standard AASB. This also includes declaration of AASB 1047 that is related to “Disclosing the Impacts of Adopting Australian Equivalents to IFRS” during the period 2004 (Haas, 2013). This accounting standard calls for the need to disclose pertinent influence in the financial declarations. Furthermore, the process of IFRS adoption also retained features of Australian insurance as well as extractive activities as “IFRS 4 Insurance Contracts” as well as “IFRS 6 Exploration for and Evaluation of Mineral Resources”. Business entities also need to declare under the regulation “Australian Corporations Act 2001” and need to implement AASB regulations (Ahmed & Ali, 2015). Therefore, while preparing financial declarations, corporations need to follow different standards; A GAAP and IFRS (Strouhal, 2015).
IFRS adoption in Australia involves the following factors:
- Institutional arrangement,
- Decisions for adoption of IFRS,
- Preparation for adoption of IFRS,
- Adoption procedure of IFRS,
- Important policy decisions,
- Outcomes as well as continuing challenges (De George, 2013).
Financial Reporting Council (FRC) as well as AASB are essentially government units that administer harmonization and FRC provides strategic direction to the AASB. AASB contributes towards design as well as development of an individual set of accounting standards for worldwide usage. Business concerns call for the need of reporting under the Australian Corporations Act 2001 and need to implement AASB policies, conformation with standards administered by Australian Securities as well as Investment Commission (Otrusinov? & H?blov?, 2013). The decisions to assume IFRS help to attract capital to Australia and lower cost of capital, lower costs for preparers, assessors and users of financial declarations of multinational business concerns and fill certain gaps in Australian GAAP.
Wesfarmers Limited can be considered one of the largest conglomerate of Australia that has predominant interest in the retail sector of Australia and New Zealand and other business segments such as chemical and coal mining among many others. The company is essentially a for-profit organization that prepares and presents financial declarations in conformation with the requirements stated under the Corporations Act 2001, regulations stipulated under the Australian Accounting Standards Board (AASB) as well as the International Financial Reporting Standards (IFRS) declared by the International Accounting Standards Board (Wesfarmers.com.au, 2017).
Definition of Harmonization of Accounting Standards
The board essentially outlines standards that needs to be followed whilst reporting different financial declarations. Therefore, while preparing financial declarations, all business concerns need to follow certain standards (Beke, 2013).
Application of IFRS and Globalisation
Ramanna (2013) suggests that globalization has directed diverse large corporation to expand their business beyond their domestic market in a bid to increase their sales as well as growth potentials. Thus, in order to draw equity in addition to debt financing for attainment of the stated goals, several companies get listed on diverse stock exchanges. Furthermore, financiers also expand their entire portfolios beyond home borders since global market places have generated greater prospects for investment. Accordingly, the variances in the practices of reporting of these global companies is of huge significance as this lead to complications in preparation, consolidation, audit as well as interpretation of financial declarations (Lakmal, 2014). The adoption procedure of IFRS can be facilitated by issuance of “AASB 1047 Disclosing the Impacts of Adopting Australian Equivalents to IFRS” during the period 2004 and AASB 1047 that calls for the need of disclosing pertinent influence in the financial reports (Christensen et al., 2015).
Reasons for Harmonisation
Harmonization is particularly aimed at lessening the variances in financial reporting procedures across the world. Particularly, the primary intention as well as purpose of harmonization is to attain certain degree of comparability in the manner financial pronouncements are arranged and prepared. At the time when harmonization takes place, the complications for corporations as well as individuals substantially decrease in the process of presenting different financial reports along with their assessments (Ramanna, 2013). Worldwide harmonization can help many nations in drawing advantages from the same and enhance the entire access to the global financial markets and augments the confidence as well as knowledge of financiers that might trigger a rise in upcoming investments. As rightly indicated by Lakmal (2014), harmonization of accounting standards can lead to increased efficiency of the process of auditing in addition to money saving since corporations have the need to utilize only one particular set of accounting standard.
With the attainment of worldwide harmonization, the degree of global comparability increases that assists the companies to prepare as well as present financial declaration. This in turn serves the needs different financiers along with creditors of the firm. Together, it also serves the needs of the transnational corporations that carry out overseas operations. In addition to this, the harmonization of accounting processes also meets the needs of different intergovernmental transnational units and worldwide accountancy firms. Furthermore, this too aids comparative evaluation of diverse different accounting information, lessen challenge of analysing financial standards, augments the knowledge as well as confidence of financiers and decreases the Cost of capital and lessen risk to financier (De George, 2013). Thus, it can be hereby inferred that the harmonization of accounting standards can help transnational corporation in strengthening the overall management and make the process of consolidation easier and provide admittance to different foreign investor.
Issues in Harmonisation
Analysis of harmonization reflects the fact that there are several integration issues associated to the process of harmonization. Altering the existing accounting model also requires several changes such as changes in the tax accounting procedure. Furthermore, there are different international sovereignty problems (Wang, 2014). Particularly, adoption of international accounting procedures conflicts with the Australian statute regulations as well as constitutional regulations related to states authority.
As rightly put forward by Wang (2014), accounting standards are designed in diverse nations under dissimilar licit, economic, societal in addition to cultural surroundings. Hence there occurs such variety in accounting principles among different nations through the world. However, it is obligatory to reach a contract as to the main intention of financial broadcasting if convergence or else harmonization is to be attained. The AASB principles are concerned with serving the requirements of financiers as well as capital markets. However, nations that have a diverse financial broadcasting philosophy might possibly find it very challenging to harmonize domestic standards with specifically the IFRS (Ramanna, 2013).
However, the overall superiority of financial declarations relies on the entire excellence of accounting principles along with the usefulness of the procedure by which specific principles are executed. However, suitable regulatory in addition to additional supports are essential to make certain appropriate execution of accounting standards. In addition to this, application of accounting principles is a challenging activity (Lakmal, 2014). Despite convergence, assurance cannot be provided regarding the implementation with the similar amount of vigour in all authority.
Again, conjunction of accounting principles with world-wide approach can inescapably increase the questions of regulations as against notions and principles. However, AASB standards are mainly based on principles (De George, 2013). Therefore the nations that contain directive-based principles are anticipated to experience substantial challenge in harmonization of standards with specifically the IFRS.
Case Study to Illustrate the Success of Failure of Harmonisation
The AASB seeks to harmonise and congregate standards with that of the IASB. This also aims to aid the overall Public Sector Committee (PSC) of the particular International Federation of Accountants in designing principles for public sectors. During the period 2002, the Financial Reporting Council provided a wide-ranging strategic direction to particularly AASB that requires implementation of declarations delivered by the International Financial Reporting Standards. In view of that, Australian parallels to IFRSs implement to annual reporting periods from 1st January, 2005. However, the AASB has engaged certain national standards as well as elucidations. The corporation Wesfarmers has successfully implemented the IFRS for preparation of the financial statements of the company. The company Wesfarmers prepares the financial declarations as per the directives stipulated under Corporations Act 2001, Australian Accounting Standards Board (AASB) as well as the International Financial Reporting Standards (IFRS) declared by the International Accounting Standards Board (Wesfarmers.com.au, 2017). In addition to this, the annual report of the firm also states clearly different new as well as amended standards that the company has adopted. The company has successfully adopted the AASB 2014-1 that is the Part A that states Annual Improvements to essentially IFRS 2010-2012 on from 1st July 2014. Furthermore, the company has also adopted the standard “AASB 2014-1 Part A: Annual Improvements to IFRS 2011-2013” (Wesfarmers.com.au, 2017). This regulation essentially refers to the amendment made to the directives of IFRS that includes clarification of specific portfolio with certain exceptions mentioned under the paragraph 52 of particularly AASB 13 Fair Value Measurements in addition to clarification of different items stated under AASB 140 Investment Property (Wesfarmers.com.au, 2017).
In case of preparation of financial statements such as cash flow statements, the IFRS regulations essentially complies with the AASB regulations, while supplementary disclosures are necessary at the time of comparison with the IFRS. The financial standard establishes modifications to several IFRSs counting illumination of specific definitions in “AASB 2 Share-based Payment” as well as “AASB 124 Related Party Disclosures”. This also removes references to different regulations namely, AASB 137 Provisions, rules for contingent Liabilities as well as Contingent Assets as mentioned in AASB 3 Business Combinations. This also requires supplementary revelations as declared in AASB 8 for Operating Segments.
The above study helps in gaining deep understanding regarding the objective of the harmonization particularly in Australia. Firstly, the study helps in understanding the objective of harmonization along with the needs and limitations of the same with special reference to the operations of Wesfarmers. Moving further, the current study also draws reference to the successful adoption of IFRS by Wesfarmers and elucidates in detail IFRS regulations that are adopted by the corporation successfully.
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