textbook solutions
1.24 Explain the relationship between the Australian Accounting Standards Board (AASB) and the International Standards Board (IASB).
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The AASB is responsible for the development of accounting standards to be followed when preparing GPFRs (General Purpose Financial Reports). The standards have the force of law under the Corporations Act. Disclosing entities, public companies and large corporations must apply the standards when preparing their financial reports. Since 2005, the AASB has released AIFRS – Australian Equivalents of International Financial Reporting Standards issued by the IASB.
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1.25 Growth areas for accountants in the future include sustainability reporting and more specifically carbon accounting. What are the costs and benefits for entities in reporting their carbon ‘greenhouse gas’ emissions?
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There are several benefits for firms in disclosing information about carbon ‘greenhouse gas’ emissions. Information of this nature can assist in determining how effective the company has been in reducing carbon emissions and other pollutants. It can also provide information to special interest groups to determine whether the entity has considered environmental, social or industrial aspects during its operations. Costs to the entities include information processing costs and the potential loss of business to the entity if the information sends a negative signal about the entity e.g. increases in greenhouse gas emissions and other pollutants or increased water consumption levels.
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1.26 Briefly describe how the AASB develops accounting standards.
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Since 1 January 2005, Australian entities have complied with International Financial Reporting Standards (IFRS). The Australian Accounting Standards Board (AASB) is responsible for the development and maintenance of high-quality financial reporting standards in Australia, and to contribute to the ongoing development of global accounting standards. The AASB provides input into current accounting standards issued by the IASB by contributing to the due process. . The due process of an accounting standard includes identifying a technical issue through submissions and other materials from interested parties; developing a project proposal to determine if the project is worthwhile; researching the issue comprehensively; issuing an exposure draft, discussion paper or an invitation to comment; and issuing a draft interpretation.
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1.27 How do accounting standards assist large companies?
The Corporations Act stipulates that large companies must apply accounting standards in preparing their financial reports. The accounting standards assist with consistency in financial reporting and ensuring the users of financial reports (e.g. investors, consumers, employees, regulatory bodies) will have the necessary relevant and faithfully representative information to assist them in their decision making. Without accounting standards, there would be no comparability in financial accounting – firms would produce an income statement with differing amounts of information. Some firms would report large number of intangible expenditure and others would report minimal amounts or none at all. A lack of consistency would make it impossible to compare one firm against another.
1.28 What is an IFRS and how does it impact on standard setting in Australia?
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Australia adopted Australian equivalents to International Financial Reporting Standards, (IFRS), from 1 January 2005. The adoption of IFRS helps ensure compliance with internationally agreed principles, standards and codes of best practice. The adoption of IFRS also reduces the amount of standard setting in Australia by the Australian Accounting Standards Board, (AASB), which allows the AASB to focus on providing expert advice on some of the International Accounting Standards Board future projects and interpreting issues arising out of the adoption of IFRS.
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1.29 What other accounting standard setters exist in the rest of the world?
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Other standard setters include: the Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB), Singapore Accounting Standards Council (SASC), and the Accounting Standards Board of Japan (ASBJ).
Problems
1.30 Australian Accounting Standards
There are at least 50 Australian Accounting Standards. Go to the AASB website at http://www.aasb.gov.au and choose one. (Hint: Go to ‘Quick Links’ and select ‘Table of Standards’.) One of the recent accounting standards is the standard on fair value measurement. Briefly describe the meaning of ‘fair value’ accounting. What is the purpose of this standard?
AASB 13 Fair Value is a recent accounting standard issued by the AASB. Fair value is a market-based measurement. For some assets and liabilities, observable market transactions or market information might be available. The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions.
The purpose of the standard is to define fair value and set out a single standard for measuring fair value and the required disclosures in the notes arising out of applying fair values to assets and liabilities.
1.31 AASB and standard setting
The AASB, as part of its work program, offers comment on documents such as proposed agenda decisions, exposure drafts, draft exposure drafts, invitations to comment and discussion papers. Go to the ‘Work in progress page of the AASB website at http://www.aasb.com.au and choose ‘Pending’. One of the topics listed relates to the exposure draft – ED 242 Leases. Summarise the main changes to this proposed standard.
The main changes of ED 242 Leases relate to the classification of operating and finance leases. The following table summarises the current situation and the proposed changes.
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