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?
Costs
Difference in IAS and Australian Accounting Standard may result in extra cost involved that a change in the method of accounting practice. Initial cost will include re-training the accounting profession and the users of financial reports. Ongoing costs will stem largely form the need to identify, and even update for each reporting period, the tax base of assets and liabilities. Australian companies may face costs in installing systems that record the information in a way that enables the calculations to be readily performed.
Current Concerns By Australian Companies
A number of Australian companies and participants in the process have recently expressed concerns about the approach to harmonisation and the timing of the process. Overall, Australian companies support the principle of harmonisation but are concerned about:
§ The approach on particular issues, for example, accounting for intangible assets;
§ The effect of adopting a new accounting requirement in respect of transactions and arrangements which were structured and undertaken under previous arrangements;
§ The perceived damage to competitive advantage resulting from the adoption of standards which are more restrictive than those applying to competitors;
§ The intensity of the international harmonisation program and the resultant lack of time to adequately review the proposed changes, their implications for current practice and to prepare submissions on exposure drafts etc; and
§ The process by which IASC standards are to achieve acceptance in international capital markets.
§ Australia’s accounting conceptual framework is more detailed than IAS
§ Adoption will dilute some of Australia’s current accounting standards.
§ Australia’s superior accounting standards represent a competitive advantage in a corporate world full of uncertainty at present.
§ Australia represents just 1% of the global equity capital market.
§ Adoption will result in the loss of Australia’s competitive advantage and a higher cost of capital for Australian companies.
Conclusion
Harmonisation and convergence of accounting standards are no longer just buzzwords and nice to have, they are very fast approaching reality. Although Australian standard-setters have been harmonizing the country's accounting standards with IAS for a number of years, the move to full compliance with IAS still came as a great surprise to both the accounting fraternity and the corporate world, not only because of the short time frame for full compliance but also because of the wide ambit of its application.
While harmonisation has brought about many similarities between Australian standards and IAS, some substantial differences and gaps between the two sets of standards do exist. It is particularly the existence of these gaps in the Australian suite of standards that will have far-reaching impacts on the future financial reporting of Australian companies. They also present a great challenge for Australian companies in getting themselves ready for the new reporting regime.
Recommendations
To allow Australian companies easily adopt the International Accounting Standard,
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