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?
Australia, for example, pooling of interests) and some costs (such as removal of some current practices).
(B) A challenging program of revision and harmonisation with new developments
An important feature of the program is the renovation and refurbishment of the fabric of Australian standards. Many standards, which were developed several years ago, are in need of care, maintenance and updating, for example, profit and loss statements, inventories, segment reporting, and extractive industries. This has not occurred because of a lack of resources and new projects being given a higher priority.
The updating of old standards and the filling of gaps in the suite of standards will benefit the preparers and in particular, the users of financial reports.
The harmonisation program and the cooperation between standard-setters, for example, the G4+1, is also resulting in a convergence in the approach to issues, which are being dealt with at approximately the same time. Projects on provisions and contingencies, impairment of assets, performance reporting and the recognition and measurement of financial instruments have been initiated during this period.
It is anticipated that an enhanced financial reporting framework resulting from the program will provide more relevant and reliable information for decision making which will result in improvements in the efficiency of capital markets and in corporate governance and accountability.
(C) Effect on domestic standards
Part of the price of globalizations is that the international standard-setter may not give Australian needs and circumstances the same emphasis, as would a national standard-setter. As such, in the absence of a strong national standard-setter with a clear brief on the quality of financial reporting and active participation in the development of international standards, there may be some erosion of quality in relation to domestic standards. However, the compensations for this are the benefits to the economy and international competitiveness of a move to international harmonisation, which is considered to be unavoidable in a period of globalization of commerce, technological and financial innovation.
We consider the following points as problems faced by the Australian companies:
• Close relationship of IASB to philosophies of the Anglo-American Model
• Convergence means only to harmonize IAS and U.S.-GAAP
• Developing countries are neglected.
The international harmonization process of Accounting Standards started somewhere in the 1960s’ and recent developments show that it is still going on. For us it seems interesting to reflect on this process and to ask about the characteristics (driving forces, actors, stages) of it.
(D) Differences in International Accounting Standards
Australia’s harmonisation of financial reporting requirements with the wider global community would confront a number of impediments because of inconsistencies between IASs, US GAAP and EU Directives. IASC-consistent reporting is unlikely to enhance Australia’s link to the world community. This could lead to potential negative consequences in both financial and product markets. Nevertheless, Hegarty (1997) argued that purely national regimes are not conducive to the internationalization of markets, since differences in approach give rise to barriers to trade and investment. But it is problematic whether the choice of IASC standards is a step forward.
Moves to link Australian accounting standards to those of the [next page]