Research and Compare the Role of Aasb free essay sample

The Australian Accounting Standards Board is an Australian Government Agency and according to Deegan (2010), AASB is defined as the â€Å"body charged with developing conceptual framework for accounting practices, making and formulating accounting standards and participating in and contributing to the development of a single set of accounting standards for the world wide use†. Therefore AASB plays a very important role in the Australian Accounting Standards but however, since the Financial Reporting Council (FRC) has been imposed and also due to some legislative changes, the effectiveness of the AASB appears to have been neglected. AASB Background Accounting Standards in Australia were originally developed by the professional accounting bodies and were enforceable under their ethic codes. The professional bodies then joined the Australian Accounting Research Foundation (AARF) in 1966 and this eventually encompassed both the Accounting Standards Board (ACSB) and the Public Sector Accounting Standards Board (PSASB). These boards worked in accordance and prepared standards for both private sector and public sector organisations. Then, at the start of 1984, the Accounting Standards Review Board (ASRB) was established by the Ministerial council for Companies and Securities to review the standards and give them the force of company law where it was approved by ASRB. This system then operated under the companies Act 1981. The ASRB then merged with ACSB in 1988 with the latter working closely with the PSASB. The ARSB was then re established under the Australian Securities Commission Act 1989 and in 1991, it was renamed as the Australian Accounting Standards Board (AASB) and the AASB’s laws were then applied under Corporations law. Another major change was in 2000 was the merging of AASB with Public Sector Accounting Standards Board (PSASB). The new AASB was officially re-established under the Australians securities and investments Commission Act 1989. The regulatory changes included the setting up of the Financial Reporting Council (FRC) by the government of Australia to manage the activities of the Australian Accounting Standards Board (AASB) that is FRC acts as an intermediary council between government departments. In simple words it means AASB reports to the FRC. The new AASB standards now apply under the Corporations Act 2001and the AASB continues to operate under the Australian Securities and Investments Commission Act2001. The FRC gave another direction to the AASB in 2002 requiring the adoption of pronouncements required by IASB. As it is the main aim and objective of the report is to focus on the change that occurred to AASB in 2005. A dramatical change in 2005 for the AASB was when it was required to formulate new International Financial Reporting Standards (IFRS) under FRC and this was compulsory for all Australian reporting entities. The function of AASB in 2005 was seen as very important and showed a way of direction of the International Accounting standards board (IASB). This in turn made some formerly developed Australian Accounting standards outdated, while the main aim of that was to meant to bring Australian Accounting Standards into global markets. The Purpose, Objectives, Status of AASB and future prospects of AASB. The purpose, status and objective of Australian Accounting Standards Board before and after these changes will now be investigated. We will also examine the changes in the way they are perceived by other players in the accounting field. We will also discuss how these players view the Australian Accounting Standard Boards in terms of the current status and future prospects therefore concluding as to whether the Australian Accounting Standards Board is a significant player or a toothless tiger. According to Deegan 2010 (page 13) the functions of AASB are listed at section S. 227 of ASIC act and include: * Firstly, develop a conceptual framework, not having a force of an accounting standard, for the purpose of evaluating accounting standards and international standards; * Secondly, make accounting standards under S. 34 of the corporations act for the purpose of national scheme laws; * Thirdly, formulate accounting standards for other purposes and * Fourthly, participate in and contribute to the development of single set of accounting standards for worldwide use. Another main function or role during the setting up of IFRS was whether there was a need to keep an Australian Accounting Standards authority when Australia wa s to adopt the international standards approved by the International Accounting Standards Board (IASB). AASB will continue to have an important role in setting future standards in Australia as well as having an important impact on the development of IFRS’s as stated by Carol amp; Dixon (2003). Ultimately, IASB would be responsible for setting the conceptual framework and for the resulting standard developments in Australia. After the early struggle,† the AASB had largely accepted the change to its own powers in relation to standard setting. It was no longer a free standard setter. It had lost its power to set its own standards† (Godfreys ,J. amp; Chalmers K. 2007). AASB had very little ability to retain its own standard setting powers domestically and it was enforced to implement the IFRS’s to align Australia with the rest of the world. AASB had to pick up the missing pieces as the standards it did, did not have a control over those which were not covered under the IFRS. Also, AASB facilitates the provision of financial information about entities to enable inv estors, analysts, creditors and the entities themselves to make informed decisions about the allocation of resources. Accounting standards are essentially about disclosure and, in many respects, are at the heart of market efficiency. Clearly, while accounting standards assist preparers of financial statements by providing a framework within which to construct the statements, their prime importance is to assist users of the statements to make meaningful assessments about the financial position of an entity. Users of financial statements range from directors to investors, through to credit rating agencies. Effective financial reporting, which is essential to investor confidence, can only be achieved if it is underpinned by relevant and well designed accounting standards. As the detail of financial reporting requirements is increasingly being left by legislation to be filled in by accounting standards, the importance of accounting standards is becoming more important. Accounting standards facilitate both the efficient day-to-day operations of individual business entities and contribute to the efficient operation of capital markets. Australia has influenced international accounting standards well in excess of its comparative economic position. This has occurred because of the expertise in standard setting which has been developed in Australia and the high profile which the Australian accounting bodies have taken in international forums. Role of International Accounting Standards Australia, Canada, the US and UK are widely considered to have the pre-eminent national standard setting bodies in the world. Australian representatives meet with other members of this group and the IASC on a regular basis. The objective of the AASB, ICAA and ASCPA on the world scene has, more recently, been to pursue the development of an internationally accepted set of accounting standards which can ultimately be adopted by Australia. Australia is a founding member of the IASC and has been one of the most active and influential members of its committees since its beginning. Have the purpose and objectives and status changed as a result of 2005 changes? On January 1st 2005, a significant changed occurred to the structure of the Australian Accounting Board. Australian Accounting Standard Board (AASB) made Australian accounting standards equivalent to the International Accounting Standards Board (IASB) and Australia completed the phasing out of the Australian accounting standards. The International Accounting Standard Board (IASB) co-operates with AASB to achieve convergence in accounting standards around the world. Australian Accounting Standard Board (AASB) acted in making this decision with accordance with the Financial Reporting Council (FRC) strategic direction. One of the key functions of the Financial Reporting Council (FRC) is to provide broad oversight of the processes for setting accounting standards in Australia. Specifically, the FRC is responsible for determining the broad strategic direction for the setting of standards to be followed by the Australian Accounting Standards Board (AASB). When International Financial Reporting Standards (IASB) board was adopted, the reason behind this decision was because it would help attract capital to Australia which in return would lower our cost of capital. It would also lower costs of prepare, auditors and user of multinational entities , financial reports and further more it would fill up gaps in the Australian Generally Accepted Accounting Principles (GAAP) such as financial instruments. On the other hand, Profession accounting bodies and representatives from business and financial reporting communities made many objections to the post 2005 changes of adopting the international reporting standards. And it was also felt that by changing the Australian accounting standards would cause loss of the Australian reporting environment renowned quality and therefore it would ave an impact on the Australian capital markets and the economy in general. Also other costs of adopting International Financial Reporting Standards (IFRS) was the introduction of optional accounting treatments would equal to less comparability, loss of freedom to develop own for profit entity standards. The AASB’s approach as whole was to adopt the content and the wording of the International Accounting Standard Board (IASB). The AABS focus on all reporting entities but IASB only focus on the for–profit entities. For those non-profit entities, AASB has control over it has included different or additional requirements. The change of adopting IFRS has changed the focus of AASB form one internationally renowned professional based to a government control entity and has to perform by an authoritative direction of the accounting standards set by the international guidelines of the international accounting standard board. The Australian accounting standard board (AASB) has become a government standard setting instrument which obeys to the pressures of the international financial reporting standards boards and multinational reporting entities and has lost their independence and power of setting standards. Moreover the power of Financial Reporting Council (FRC) has, to appoint the member of AASB and the overseeing authority of Financial Reporting Council (FRC) has over AASB, clearly states the fact that AASB has lost their independences and power after the transition in January 2005. However, the Australian Securities and Investments Commission Act 2001 limit’s the FRC’s ability to become involved in the technical deliberations of the Australian Accounting Standard Board (AASB). On the other hand, even though AASB has lost its independences and power , it still will continues to maintain standards to particular relevance to the Australian environment which specifically deals with the non-profit-organizations which do not have a equivalent international accounting standard board standard. Carroll and Dixon 2003 address that AASB will continue to play an important role in building the future standards of Australia and on the impact of the development of the International Financial Reporting Standards (IFRS). This created a speculation among the business and accounting circles because after all International Accounting Standard Board (IASB) would be setting the conceptual framework and setting standard developments in Australia. â€Å"The AASB has largely accepted the change to its own power in relation to standard settings. It is no longer free standard setter. It has lost is power to set its own standards†. (Godfrey, J amp; Chalmers K. 2007, pg 104). Australian accounting standard board (AASB) has finally accepted that they have lost their independence and power since the changes in 2005 January. When considering the status of Australian Accounting Standard Board (AASB), we need to look at the responsibility of AASB, which is to develop and issue accounting standards which are applicable to Australian entities and the care and maintenances of the body of standards. This standard’s purpose is to make financial statements of an entity more comparable and more useful for wider rages of users such as investors, auditors, regulators when comparing different entities. Even though the power of setting standards is given to Financial Reporting Council (FRC) and International Accounting Standard Board (IASB), also Australian Accounting Standard Board (AASB) has a very important role to play. When answering the question whether Australian Accounting Standard Board (AASB) is a toothless tiger since the changes in structure after January 2005, looking as the facts and information from what we have explained above, we can see that AASB has lost their control and power to set standards to the IASB and has gone from an independent entity to a government controlled agency. Who has to follow the standards set by the International Accounting Standard Board (IASB) and the Financial Reporting Council (FRC). Future Prospects amp; Other Players Views of the Current Status of the AASB and the Future Prospects of the AASB – Achint amp; laksh The ultimate objective for the setting of accounting standards in Australia should be the production of high quality accounting standards that facilitate Australian business by leading to lower costs of capital and enabling Australian companies to compete on an equal footing overseas, while also maintaining investor confidence. In the immediate future, Australia should continue to harmonise its standards with International Accounting Standards Committee (IASC) standards so that compliance with Australian standards will automatically result in compliance with IASC Standards — this should not lead to a diminution in quality of Australian standards, but rather make Australian standards more internationally recognisable, so that Australia’s capital market is not out of step with major overseas capital markets . Australian Accounting Standards Board (AASB) finally approved the adoption of its own model of interpretation of International Financial Reporting Standards (IFRS) on 24th june 2006. Model analysis is steady with the recommendations of the Committee on the International Financial Reporting Interpretations Committee (IFRIC) and it also provides path on the adoption of IFRS for Australian organizations which helps in stipulating issues relating to the Australian accounting legislation. The Australian standards board assumes the full responsibility for the development of interpretations in agreement with the provisions of the model, which entails the closure of the Working Group on current issues in accounting (Urgent Issues Group, UIG). One of the major problems identified and detected by the analysts is the transfer of authority to develop interpretations of IFRS. Interpretation of international standards by your own in Australia as well as different countries of the world, undermines the essence of IFRS as a standardized system of international accounting standards. The main points about AASB that are necessary to mention are * The AASB created the Interpretations Agends Committee(IAC), Which includes the chairman of the Australian Accounting Standards Board and and two of its members, to develop proposals and issue recommendations for AASB. The Australian Securities and Investment Commission (ASIC) which is the main oversight body for compliance with corporate laws in Australia, assumed a supervisory role over the activities of IAC. All recommendations of IFRIC will be evaluated from the standpoint of the possibility of adopting them in Australia (Deloitte, 2006). The AASB’s development of accounting standards is to be agreed with the IFRIC. The emphasized point is that they will make their own versions of the International requirements of the IASB (International Accounting Standards Board, IASB), due to unique characteristics of Australian accounting legislation as an exception to the rule only. The prime focus of the proposed Australia n Accounting Standards Committee (AASC) is to influence the development of high quality and relevant IASC accounting standards with the objective that these willbe adopted internationally for domestic purposes, especially within the major economies where capital raising takes place. However, during this process the Council had to: * Discard altogether or greatly modify some of the treatments allowed under IFRS; * Provide users with additional standards for the application; * Require additional reports; Independently implement additional financial reporting standards, or additional sections of existing standards adopted by the armament system. The resulting outcome can be called unilateral convergence: all the companies that prepare their statements in accordance with A-IFRS, will automatically make it to IAS (i. e. , the original IFRS†), but the converse (i. e. , to prepare IFRS and hence also to A-IFRS â€Å") is false. This could mean that the conducting experiment has not brought such good results, which it at first expected. The implementation of international standards on a global scale is generally not carried out as smoothly as anticipated: many countries complain of difficulties, misunderstandings, and other misinterpretations. Australia is different in this matter from all other countries in regard that in addition to the existing difficult moments in the IAS it has added their own. The following main disadvantages that can be identified: * the existing arrangements for accounting standard setting are confusing, inefficient and not conducive to stakeholder participation; * there is duplication between the AASB and PSASB; Australian accounting standards are not understood in, and are out of step with, the major capital markets in the United States (US). United Kingdom (UK) and Europe, thereby resulting in higher costs of capital for Australian business. * the standard setting process is perceived to be dominated by the accounting profession and there is no real accountability to its users. * accounti ng standards do not reflect modern business practices, being too prescriptive and overly technical, thereby imposing excessive costs on business. the processes involved in standard setting have failed to attract broad input and the necessary level of financial support, with the result that accounting standards are not meeting the demands of constituents. Recognizing this problem, the Australian Accounting Standards Board is preparing a trial version of possible changes in regulation, which should bring together A-IFRS and IFRS. This includes the abolition of a number of additional reports, rethinking the possibilities of companies in the framework of existing standards, the elimination of some requirements. Similar steps have been taken in April 2006 – the results were immediate (Deegan, 2007). The ultimate objectives to be achieved from reforming the accounting standards framework in Australia are to inspire investor confidence in Australian enterprises, improve the regulatory environment within which Australian enterprises operate domestically, reduce any inhibitors to the expansion of our enterprises overseas and increase international investment in Australia. . The work is not completed yet, and is preparing to trial the new changes would be made public only in a certain amount of time.