The assignment determines the detail about the adoption of the IFRS in the two countries. The two countries that are taken for the assignment are Australia and Pakistan. The assignment includes the various benefits and challenges faced by the two countries in the adoption of the IFRS principles. The details of the adoption of IFRS in the two countries are depicted through various examples related to accounting standards are shown in the assignment. The assignments give the detail about the conceptual framework of the financial reporting system.
The assignment is based on the adoption of the IFRS in the two countries. The whole assignment gives the details about the IFRS. IFRS are known as international financial reporting standard used by the international accounting standard board (IASB). IASB is an independent not for profit organization work to harmonize all the accounting transaction so that all the common people were understand and compare the language with the other companies and check the deficiency occur on that comparison, it increases the transparency in financial information. The goal of IRFS is to provide help to the public companies in disclosing their financial statement. The IFRS includes the common language that are used by the business for the presentation of the financial statements. It also helps in the easily understanding of the various financial aspects.
Relevance of the conceptual framework of the financial reporting framework
The conceptual framework is the system, ideas and various objectives that results in the creation or formation of various set of standards. The conceptual framework for the financial reporting is an important aspect because it provides the framework for the settlement of various accounting standards, helps in the resolving the disputes generating in the accounting and it provides various fundamental principles that are not repeated in the accounting standards. Conceptual framework for financial reporting was published by the international accounting standard board (IASB) for review only. The published statement was modified after receiving the comments and before issued in final form.
All the comments received will be in public record and posted on the website.
The IASB issued the revised conceptual framework in march 2018.
The ideas and the rules given through the conceptual framework sets the nature and functions of the financial accounting and the financial statements. With the proper framework in the financial accounting the Financial Accounting Standard Board are able to issue the standards that will be helpful in the financial statements (Rashid et. al., 2012). The framework also makes the presentation of the financial statements easily understandable. It builds the confidence among the users and make it easy for the companies so that they can compare the financial statement and make decision on the basis of it.
The another purpose of the conceptual framework is to help the Indian Accounting Standard Board in development and the revision of the IFRS principles that helps in the formation of the various accounting policies that are not included or covered in the accounting standards (Rehman & Shahzad, 2014). If the sometimes any accounting standard is not available for any situation at that point of time these frameworks can be used by the management to make judgements according to the accounting policies that are important and provides important information.
2. Comparison of the adoption of IFRS in the two countries
The two countries that have been selected for the comparison of the adoption of the IFRS are Australia and Pakistan. The detail comparison of both the countries are shown below.
Reason for the national accounting body adopting IFRS
The IFRS was adopted in the year 2005. It came into effect on the I January 2005. In the year 2015 the Australian accounting standard boards reviewed and extended the adoption of the IFRS to the profit and non-profit organisations of the Australia. The country adopted the IFRS because it results in the smooth functioning of the transaction of the various sectors (Odia & Ogiedu,2013). The adoption of IFRS helped the users and the enablers to move between the sectors and different countries with considerable skills and knowledge. The adoption of this system also results in the cost saving in preparation of the financial accounts. In 2005 the Australian companies followed a number of years’ policy for international accounting standard. Australia was the first major economy to adopt IFRS. The uses of IFRS provides the number of potential benefits to the Australian companies.
the specific focus on four lines of enquiry: –
1 – impact on quality of Australian financial reporting
2 – impact on comparability in Australian financial reporting
3 – benefits for the investors and analysts on publicly listed Australian companies
4- survey for senior personnel in capture their perception
The adoption of the system of IFRS was done by the Institute of the chartered accountants of Pakistan(ICAP). The institute of the chartered accountants of Pakistan plays an important role in the implementation of the IFRS in the country. It was adopted in the country so that the comparison of the financial statements can be done easily. In Pakistan the ICAP laid down the strategy for the adoption of the principles of IFRS on 31 December, 2007 (Christensen et. al., 2013). This principle at that time came into force in all the public companies of the country. The ICAP adopted the strict adoption and monitoring strategy so that they can review the implementation of IFRS on the daily basis. This strict strategy was adopted in Pakistan so that the institute can detect the problems occurring in the implementation of the principles.
Transitional issues faced by the two countries in adoption of IFRS
The various transitional issues faced by the two countries are:
In Australia the accounting professional faced problem in the valuation of the asset (Yip & Young, 2012). The IFRS required to bring the transparency in all the book value and the fair value of the assets that created problem for the accountants to calculate the fair value for the large scaled companies as there are huge number of assets in such companies.
The convergence cost was high in Australia because of the training and education of the professionals and as it was required in all the companies large number of cost was incurred in the training of the people that resulted in the increase of the convergence cost.
The transitional issues were faced in Pakistan because of the limited time given for the adoption of the IFRS approaches. The Pakistan faced the hug number of changes in the preparation of the financial statements and the ratios and the cost and the benefits of the transitions (Kang & Gray,2013). The IFRS created problem in the identification of the cost of the capital of various organisations. Various other transition issues faced in the Pakistan were in the treatment of the land leases, estimation method of the useful life of various assets and recognition of the gains and losses of the large companies.
Challenges faced by the reporting entities in the adoption of the IFRS.
Challenges faced by the Pakistan in adoption of the IFRS:
The first challenge faced by the Pakistan in implementation of the principles of IFRS was because of the International Accounting Standards 39. The execution of this accounting standard was not being able to done properly because of the lack of availability of the information and the quality of the data across the industries (Cotter et. al., 2012). The methods of forecasting the cash flow also not specified that resulted in the different ways adopted by the companies for the comparison of the financial data.
IFRIC (international financial reporting issue committee) 4 implementation was delayed because of the various reasons such as calculations of discount rates and lease payments, evaluation of the discounted rates of the cash flow and various other legal constraints.
There is various contradiction in the regulation of IFRS and the company’s ordinance 1984. For example, it can be seen in the treatment of the revaluation of the surplus of the financial statements and the time period of the preparation of the consolidated financial statements.
The international accounting standards 1, continuously entails that the terminologies and the content of the financial statements should be updated under the IFRS that made confusion in the adoption of the principles.
Challenges faced by the Australia in the adoption of the IFRS
The adoption of the principles of the principles of the IFRS was challenging for the Australia because it includes various difficulties in ascertaining the importance, time and the reasons for the use of the standards (Daske et. al., 2013). The use of standards was not clear that lead into the confusion in the preparation of the financial statements. The professional also lack the technical knowledge that is required in adoption of the IFRS tools. The main challenged faced by the Australia in the adoption of the IFRS rule was because of the lack of training and the education of the people (Ahmed et. al., 2013). The people of Australia had the prior knowledge of the other system of accounting and the adoption of the new system was becoming the crucial part for the entities and the auditors. The financial results preparation under the IFRS was also different as the IFRs take into consideration the domestic standards and the business contracts needs to be valued exactly under the IFRS that was becoming the crucial activity for the people of Australia in adoption of the new system in comparison to the older one. IFRS requires the integration of the one or more principles of the accounting approaches that needed the professional judgements by the organisation as well as the interested parties that creates the hindrance in the adoption.
Benefits of adopting IFRS in the entities of the two countries
Benefits in Pakistan
The adoption of the IFRS in Pakistan gave the huge benefits to the country. The adoption of these principles helped in the comparison of the financial statements. It also the helps in the perfect allocation of the capital of the company. many researchers have found that the importance to IFRS has resulted in the increase of the economic status of the various firms in the Pakistan (Horton et. al., 2013). The system helps in the preparation of the reliable financial statements that made the investors more secured about the investment made by them. the country got the various benefits such as the comparative attributes, helpful in resource allocation and improvement in the preparation of the financial statements. The three things are fully fulfilled by the Pakistan with the adoption of the rules of the IFRS such as implementation, regulatory framework and the quality assurance.
Benefits in Australia
The Australia gain the huge benefit from the adoption of the IFRS principles in the financial accounting system. The use of the IFRS resulted in the smother functioning of the preparation of the financial statements, reduction in the cost of the preparation of the financial statements. The various reports say that the quality and the comparability features of the financial accounting statements of the Australia has improved to the large extent. The use of this system had the positive impact on the economy of Australia. It is the country of capital importer and the adoption of the IFRS has resulted in gaining the faith of the people on the preparation of the financial statement of the companies.
Similarities and differences in the adoption of the IFRS
The various similarities found in the adoption of the IFRS in the two countries that is, Australia and Pakistan is that the adoption of this system led to increase the economic status of both the countries (Cheng et. al., 2014). The adoption of the financial accounting system had the straightforward impact on the increase in improvement of the economic status of both the countries. At the earlier both the countries faced problem in the adoption of the financial system because of the old financial system adopted in the country that led to confusion in entities and the professionals. Both the countries have the strict rule and regulation for the adoption of the accounting standards in the preparation of the financial statements.
The various difference found in the adoption of the IFRS in Pakistan and Australia are the adoption in Australia was mainly focused by the Australian accounting standard boards and the adoption in Pakistan was focused by the Institute of the chartered accountants of the Pakistan (Abeysekera, 2013). The Pakistan differs from the Australia because of the adoption of the accounting standards, Pakistan has not adopted all the standards of the accounting in comparison to Australia. The difficulties faced by the Australia was much more less than the difficulties faced by the Pakistan. The main reason for the difference in the adoption of the accounting standards in both the countries was because of the difference in the social, economic, cultural and the legal differences prevailing in the countries.
The various other differences in the adoption of both the countries are;
IFRS 1 was not adopted by the Pakistan as all the principles was not adopted by the Pakistan.
IFRS 14 and 17 are still not adopted by the Pakistan.
3. Adoption of IFRS was successful or not
The adoption of the IFRS is successful for both the countries that can be seen through the various benefits they have gain and the improvement occurred in the process of both the countries. Through adoption of this system investors got secured as they can rely on the financial statements (Elias, 2012). It can be said that this system is important for all the countries so that the business language is common in all the countries that will help the parties in understanding the accounting data easily. The adoption of the IFRS in Pakistan gave the huge benefits to the country. The adoption of these principles helped in the comparison of the financial statements. It also the helps in the perfect allocation of the capital of the company (Baig & Khan,2016). many researchers have found that the importance to IFRS has resulted in the increase of the economic status of the various firms in the Pakistan. The system helps in the preparation of the reliable financial statements that made the investors more secured about the investment made by them. the country got the various benefits such as the comparative attributes, helpful in resource allocation and improvement in the preparation of the financial statements. The Australia gain the huge benefit from the adoption of the IFRS principles in the financial accounting system. The use of the IFRS resulted in the smother functioning of the preparation of the financial statements, reduction in the cost of the preparation of the financial statements. The various reports say that the quality and the comparability features of the financial accounting statements of the Australia has improved to the large extent. The use of this system had the positive impact on the economy of Australia. Thus, through it can be said that the adoption of the IFRS was beneficial and successful in both the countries.
On the basis of study of the study done on the adoption of IFRS in Pakistan and Australia, the recommendation that can be given for both the companies are:
- The national accounting setting bodies of Australia should conduct various seminars, conferences and various short programs that makes the different users of the financial statements aware about the IFRS and the helpline should be started that can help to gain the knowledge when required.
- The ICAP should make their role important in the IASB so that if any issue can be found that can also be given recognition in the accounts.
- The professional accounting body should ensure the professional education and training according to the IFRS guidelines (Houqe et. al., 2012). The university courses should be revised for accounts that must include the IFRS approaches.
- The government should bring in all the accounting bodies that affects the decision in Australia to find solutions to all the problems that are faced in the adoption of the IFRS approaches.
Through this assignment it can be concluded that the adoption of the IFRs is beneficial for every country and it increases the economic status of the company in the long run. Through adoption of this system investors got secured as they can rely on the financial statements. It can be said that this system is important for all the countries so that the business language is common in all the countries that will help the parties in understanding the accounting data easily.
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