Australian Companies are required to adopt International Accounting Standards by 1st January 2005. What are the reasons for this move and what problems does it cause for financial reporting by these companies?
accounted for and reported in the same manner everywhere in the world. With other words, similar Accounting Standards lead to a better comparability between companies. It would enable investors, banks or financial analysts to make better decisions. Therefore, greater comparability results in better understanding, lower risks and more efficient selections of investments. Choi et al. argue that “financial statement users have difficulty interpreting information produced under non-domestic Accounting Systems. They claim that harmonization will make it more likely that users will interpret the information correctly, and thus make better decisions based on that information” (Choi et al., 2002:293).
For the society at large it can be said that harmonized Accounting Standards are important, because they lead to a well-developed and good functioning capital market. That is important in our view, because companies and others can raise money for investments there. This again is a pre-condition for a good economy and development. (Epstein and Mirza, 2001)
The main advantage for Australian companies to use financial data would be the better comparability of financial data. In contrary Pellens asks, whether harmonized Accounting Standards are actually necessary for participants of the capital market. He argues that for understanding such rules, detailed knowledge of those is necessary. Maybe Pellens is right that not all analysts will understand the rules of IAS. Therefore, we think it is important for the IASB to further work for an understanding of their standards. He argues further that national comparisons with competitors and branch information are in first line necessary, for analysts to make comparisons. He is of the opinion that only in second line international comparisons with foreign companies are made, which would mean that international Accounting Standards are not needed. (Pellens, 2001) We consider his last argument only to be true for small enterprises. International comparisons are in our view of high importance for the evaluation of the performance of global acting companies.
Another statement, made by Goeltz, is that global capital markets would even have developed without international Accounting Standards. (Goeltz in Choi et al., 2002) We agree with Goeltz on that aspect. On the other hand it is obvious that the need for reconciliation or a full preparation of financial statements according to foreign Accounting Standards are barriers to the free competition of capital.
Problems cause in adopting IAS for financial reporting by Australian Companies.
(A) The adoption of some IASC standards on issues where there is no equivalent Australian standard.
The program involves the introduction of standards where there are no equivalent Australian standards, for example, borrowing costs, accounting for superannuation liabilities, provisions and contingencies and intangible assets.
However, concerns have been expressed by the Business Community (Group 100) and others about some outcomes of the program for example, the failure in ED 84 "Acquisition of Assets" to propose harmonisation in respect of pooling of interests. The Group of 100 has indicated to the Board that the process of harmonisation will involve a balancing of some benefits (such as harmonisation with some requirements that are not presently permitted in Australia, [next page]