History of accounting standards in AustraliaSummary
When it comes deliberating whether Corporation Law or Conceptual Framework is reliable accounting standard, one should note that neither of the accounting standards meets reliable requirements to qualify as professional and responsive approach. In corporate Australia, there has been a constant evolution of standard after standard all geared towards achieving a responsive mechanism to apprehend wastages in financial information. Researchers on the other hand have endeavored to produce standards that will seek to respond to different situation. The problems are the theoretical approaches applied to examine different accounting situations are not responsive on aggregate accounting problems.
In light with this paradox, this research explores a four-sided student’s approach that debates corporation law or conceptual framework cannot be applied effectively to justify a given accounting standard. The four panel research will examine in detail one; a comprehensive history of accounting standards in Australia. The second section; covered by our second colleague will debate in detail why conceptual law seems decisive to accountants and not authorities or investors. Our third section; covered by our third colleague will explore accounting alternatives that can be applied accounts to minimize the paradox. The fourth section will explore standardization aspect and how it is applied to enable an individual based standard model.
Student One: History of accounting standards in Australia
The Australian Accounting Standards Boards was published as a government agency overview body formed in 1991, as a standards board. Its parent department of treasury fostered the board and it works closely with the Australian securities and investments commission of 2001. However, it should be recalled that the accounting history dates back to the 19th century. By that time, state laws initially governed companies and the differences in laws were primarily responsible for elevating companies to different status.
In 1931, significant rationalization in relation to accounting principle began taking effect (CITE). States agreed to have a unified approach in relation to company law and this was achieved by harmonizing national standards to commonwealth standards a decisive 1991 strategy. In the 21st century, it was important for the law began getting conscious with prevailing accounting standards. In the accounting profession, it became necessary to develop the concept of best practice (CITE). For this reason, these statements required accounting professional bodies to institute a mandatory for all their members and agreed to constitute best practice on how compliance could be achieved. At the same time, there was a belief that theoretical justification for statement for best accounting practices. Additionally, there was belief of theoretical justification in favor of conceptual framework against the corporation law approach. Since then, various names have been applied to define statement for their foundation and reliable accounting standards.
During the same time, it was necessary to harmonize requirement specified by the professional accounting bodies in Australia. These are; CPA Australia and the Chartered Accounts in Australia. These two bodies attempted to issue accounting standards but compliance with them was to be defined in broad terms. Still in the 20th century, Australian Accounting Research Foundation (AARF) carried research of two bodies jointly. This approach was decisive since it avoided government intervention in the accounting standard process. It is at this time that there were several corporate clashes because of unreliable accounting standards. Professional bodies claimed that accounting was legislated for professional self-regulation. In particular, Accounting Standards Board (AcSB) was instrumental in developing the final form of accounting standards. This form specified self-government structures. However, as late as 1984, accounting professional bodies had lost the argument for self-regulation. Most companies were already breaching the code of ethics being specified by professional accounting bodies. As a result, there was a decisive calling legislation to control accounting standards. For this reason, by 1988, ASRB merged with AcSB and this was imperative in instituting accounting standards to a legal set up. That is, the merging of conceptual framework to corporate law standards.
The emergence of conceptual framework in Australian accounting standards can be seen as a revolutionary measure since this approach formed the theoretical and analytical foundation of accounting strategies. CITE The conceptual framework consisted of four statement of accounting standards. SAC 1 Definition of the Reporting Entity, SAC 2 Objective of General Purpose Financial Reporting, SAC Qualitative Characteristics of financial information and SAC 4 which encompassed the definition and Recognition of the Elements of financial statement.
Following the contention on the development of SAC 5, it became mature to develop the legal framework to govern conceptual framework. The CLERP Act established the AASB. It is through much of covered SACs contribution that possible definitions were developed. The definition contained SAC and these were instrumental in specifying the required standards in pursuing accounting standards. It should be recalled that it is CLERP act that resolved that conflicts created in the conceptual framework policy by establishing a Financial Reporting Council (FRC). This empowered the AASB to have control standards to control financial reporting standards.
Student two: why an individual can choose corporation law or conceptual framework
After going through the report, one will note that the two accounting standards can only be applied feasibly in different situations. Each individual will naturally different method of choosing an accounting standards of choice. When an individual is attending a company which does not have external investors, but has decisive financial information conceptual framework seems an ideal strategy. Conceptual framework establishes features of financial information that enhances the ability of the information to meet required financial reporting standards.
Conceptual is analytical tool that applies several variations and contexts. When using this approach, the individual will be in better position to organize ideas into a coherent conceptual framework with intent of capturing real information. Lamberton (2005, pp. 8) supplements that conceptual framework can be applied at the primary level of accounting standards development. Firstly, when applying conceptual framework, the individual will be in a better position to access comparability between different firms engaged in a given business. Secondly, conceptual framework enrolls timeliness and understandability. Decision are well allocated to ensure that they meet required accounting standards through financial reports and largely they are applied on relevant business knowledge. Thirdly, conceptual framework ensures that information is verifiable and that independent observers of information will meet consensus of the specified depiction.
Additionally, in the financial statement, (CITE) conceptual framework defines assets, revenues, liabilities, expenses and other items independently. In fact, according to through this method, an item appears in the financial statement only if’ it meets the appropriate definitions. Items, which do not meet the relevant definitions, may be disclosed in the notes. Second, conceptual framework applies recognition and measurement principles. Technically, conceptual framework defines recognition as the depiction of an item in words and numbers in the financial statement with the amount included in the totals. It is also good to mention that items in financial reports are not recognized in the financial reports; however, if significant, they appear as disclosures in the notes of financial statements. Hence, in summary, an individual will choose a given accounting method based on the nature of the organization and this will enroll a given accounting standard.
On the other hand, corporation law is a widely accepted accounting standard. (CITE) argues that the corporation law approach is decisive since it summarizes the profits and loss statement in the operation over the whole of the financial period. In fact, through this period, an individual has the ability to the set the type of all incomes versus expenses then provides results in terms of profits or losses. By using the corporation law, the period covered in the financial law is subsequent in financial years by each successive 12-month period from previous financial years.
In this country, the Australian Accounting Standards Board (AASB) institutes the relevant accounting standards. This standards covers concerns; for instance, balance data, accounting for goodwill, and the preparation and the presentation of profit and loss account. Accounting for goodwill ensures that preparation and presentation of profit and loss accounts, depreciation of non-current assets and the preparation of consolidated accounts. Accordingly, an individual may apply given accounting standards to respond to earlier accounting period. Those objects are directed amongst other things to allow the audience of financial information to make and evaluate decisions on allocating scarce resources, assist directors to discharge their various roles.
In summary, each individual has different way of choosing an accounting methodology for accounting based on the nature of organizational policy. In this case, one will notice that there is a contest between true and fair view. For this reason, CITE argues there are tensions that exist between formalistic methods of thinking and those, which emphasize the usage of formal rules, and those which enhance the predictability of certainty in the overall financial reporting requirements. Additionally, there is purposive and flexible interpretation in these requirements.
Student Three: Choice in accounting method (Accounting alternatives)
In contemplating whether, Corporation Law or Conceptual Framework reduces different choice of Accounting method, it is positive to assess the quality of accounting standards currently in this country. CITE argues that the AASB has published accounting standards, which largely depicts professionalism in how they are oriented. The AASB empowered by ASIC Act functions in a number of ways. Through this, accounting standard have achieved professionalism in how they are oriented. Firstly, through these standards, it was possible to enroll a conceptual framework for the purpose evaluation standards. Secondly, the ASIC act was instrumental in orienting accounting standards under a 334 corporations act. Thirdly, through this ASIC it was possible to develop a single national standard, which could be implemented in all states. However, this section will seek pursue the imperativeness of accounting alternatives at an individual level.
According to (CITE JOURNAL: 6) it is clear that there is no standardized accounting methodology. However, through the elucidation of the Accounting Standards Board, it is coherent to note that individuals were at free well to pursue an accounting standard that met goals. In fact, it is understandable that a variety of individuals would apply given accounting information, which is widely accepted nationally. At this point, it is good to note that companies could be having international shares or some sought of international presentation. Most of Australian companies have interests in New Zealand, Fiji, United Kingdom, United States and South East Asia. Hence, in this regard, having neutral accounting standards is in line with achieving corporate goals. However, as stated, it is inopportune attempting to achieve neutral accounting standards. There is no theory that can be applied to achieve a neutral accounting standard whatsoever.
For this reason, applying a bilateral approach to harmonization of member countries and member states is appropriate. Of course, setting standards seems a monumental task; however, it is still achievable by enrolling an accounting alternatives option. Alternatively, from AASB is the International Accounting Standards Board (IASB), which provides accounting standard setting body. The board cooperates with national accounting standard setting to achieve convergence in accounting standards in this country. Hence, the ultimate goal is to hybrid approach one that seeks to integrate individual opinion in the statement development. Through this approach can be applied in the current Australian situation (CITE).
In this regard, there was non-cultural factors have been affected in judgments of professional accountants in an audit context. The issue has not been addressed in accounting judgment and the overall decision-making process. This research desires to adopt a holistic approach in examining the effects of the relevant are cultural on non-cultural factors on the judgments of professional accounting standards. This is based on their level of familiarity with the accounting standards and their perceived level of complexity associated in various judgment tasks. In this case, uncertainty expression is defined as a measure on the confidence of a particular individual on the truth of a particular proposition to apply a given accounting standard. As a result, this research proposes the usage of judgmental theory in accounting.
To test whether this theory is possible, I applied a generalized hypotheses approach to provide a basis to examine the influence of national culture and interpretation of uncertainty expression that are contained in accounting standards. The first hypothesis considers the judgments of professional accountants conceptually of expressions, which are contained in selected in excerpts from IFRS. A fourth hypothesis examines the interactive effects of individual, organizational and national culture in applying the two conceptual framework or corporate law. Hence, a national culture and organizational culture is possible to pass judgments independently at professional level.
These hypotheses are based on ethics culture in achieving decisive goals. Based on perennial accounting issues, which ought to respond to selecting, specifying alternatives that should be used. Accounting alternatives are vital since they respond to practical and conceptual situations. The standards are responsive to enhance the process of interaction of among variables of national culture and organizational culture. In fact, this approach argues that non-cultural variables may also influence the judgment of professional accounts. Hence, in summary, accounting judgments and decision making are proper to achieve a wider spectrum of variables than has been considered as appropriate to explain the differences in professional accountant and as well, interpreting and applying reliable accounting standards.
Student Four: The aspect of standardization
In this country, determining the choice of accounting standard is an uphill for many individuals and corporations. CITE argues that modern day Australian firms have complex organizational frameworks. For this reason, there is a decisive need to ensure that accounting standards are achieved proactively. Both the conceptual approach and corporate law do have different meanings. While the conceptual approach applies the analytical methods to achieve goals, on the other hand, the corporate law attempts to achieve given framework, which are stipulated by the wider corporate social responsibility requirements. Both of these approaches have discussed by my previous teammate as decisive and that they seek to respond to given situation proactively.
In my assessment for standardization, I will explore in detail the objectives of accounting standards. This will be vital in determining the individual choice accounting standards to apply. Firstly, it is good to note that the spine objective of accounting standards is to remove variation in the assessment of several accounting aspects. Secondly, accounting standards are vital in bringing transparency; in relation to accountability, reliability and transparency and how this is portrayed of fair view financial statement. Thirdly, accounting standards harmonize the diverse accounting policies, which intend to harmonize diverse accounting policies followed in the preparation and presentation of financial statement in different organization. Fourthly, accounting standards provide guidance and direction for maintaining accounting records. Fifthly, accounting standards provide meaningful information to users and eventually reduce the accounting alternative in the preparation of financial statement. In this case, the different enterprises with intent of providing meaningful information to various users of the published financial statement and enable them process sound organizational or investment objectives.
According to AASB (CITE), when it comes to standardization, the obstacle of harmonization is ongoing debate about rules-based versus principles-based accounting standards. AASB can be regarded as the chief body that provides national standards, which are principle based. Currently, ranging debate is centered in developing proponents of each approach. In this case, proponents of rules-based standards argue that an individual need all guidance to understand a given implementation of the standards. For instance, Individuals who favor corporate law argues that rules based on standards allow the organization to dwell on the letter for the law and find how to get around with it. In this case, the law becomes the chief approach and not scientific methodology. However, for proper results, it is appropriate to apply standardization when it comes to enrollment of accounting standards. There is a decisive need to enroll standardization since neither conceptual framework nor corporate law will offer comprehensive answers in favor of a given accounting standard. In fact, CITE JOURNAL (YEAR: 5) argues that we cannot rely on standards to provide a normative theory of accounting. The journal further ascertains that there are no set of standards that exist and can be applied nationally in accounting.
Another term widely used is Harmonization. This approach is flexible as compared to standardization since to a greater extent standardization provide a set of rules; while harmonization process increasing compatibility of accounting practices by setting limits on how they vary. Harmonization requires an individual or the team involved in developing financial statements to keep differences at minimal grounds. CITE supports this approach in what he refers, as reconciliation of the differences is acceptable. This approach is appropriate in the accounting situation of Australia since it allows different individuals to develop customized financial statements.
Largely, standardization will resolve accounting issues since developers will be in a better position to provide financial reports, creditors, potential investors and shareholders a detailed and comprehensive situation of the firm. CITE quotes Ijiri aggregation theory as distance to the typically set accounting standards. Through this approach, it is possible to achieve managerial and financial reporting areas. For this reason, this strategy is inspired by the knowledge that management may incur unnecessarily higher cost of preparing different financial reports for different situations. Take for example a company with seven subsidiaries all located in different states. It is prohibitive attempting to pursue either conceptual framework or corporate law only where as it is common knowledge that the two will naturally rely on each other. Standardization and harmonization becomes an important issue especially when there is vicious competition for capital market visibility. Investors will want to have a desirable knowledge why a given company C’ should prove viable for investment.
Conclusion
After meditating with the group members, we concluded that the individual approach based on alternative accounting is a warranted strategy in establishing a desirable accounting standard. The group also established that judgmental theory pursued by one of our colleagues is responsive enough to develop a given accounting standard one that seek to respond to required accounting standards. Additionally, group members learned that applying a hybridism approach one that seeks to merge conceptual framework and corporate law is decisive enough to provide reliable accounting standards. This approach further illuminates on the individual approach of establishing accounting standards.
