Adoption of IFRS in Australia
Under paragraphs (1) (a) and (d) of s. 227(1), (the functions of the AASB), we see two of the AASB’s main functions – • “To make accounting standards under section 334 of the Corporations Act for the purposes of the corporations legislation; and • To participate in and contribute to the development of a single set of accounting standards for world-wide use.” Picker et al. 2011, p8
It was the latter of these two points which was the deciding factor for the future of Australian accounting standards. Investors from around the world were craving a single set of accounting standards, making it easy to study the financial reports of companies where they wish to invest their money, from all over the world. As well as this, the information in these reports should be relevant, reliable, and understandable.
There were 3 main phases that took place during the implementation process of IFRS in Australia. Firstly, in 2002, The Financial Reporting Council (FRC) followed the rest of the western world by directing the Australian Accounting Standards Board (AASB) to implement IFRS from the 1st January 2005. Secondly, in 2004, The AASB prepared their own accounting standards which would mirror that of the IFRS. Finally, in 2005/06, the IFRS were finally introduced throughout Australian companies.(Commonwealth of Australia 2005) The introduction of IFRS in Australia would change the existing accounting standards in relation to the recognition and measurement of assets, liabilities, equity, revenue and expenses. There were many factors that both encouraged, and discouraged the adoption of these standards. Groups within society had differing opinions regarding the adoption of the IFRS’s. In 2006, “51% of companies in Australia stated they were not ready nor had started to incorporate IFRS, with 18% saying they didn’t know when they’d start to introduce them and 2/3’s of these businesses shared the view that they couldn’t gain anything from IFRS” (Caldwell, P, 2004, “Australia’s IFRS”). The adoption of IFRS would affect many areas of financial reporting, although these affects differed depending on factors such as, the nature of business activities, balance sheets and capital structures. Some companies would be hardly affected, with the only changes being that of how they present their financial statements. (Australian Prudential Regulation Authority 2004) It was obvious that it would initially be a difficult task to encourage Australian companies to use the IFRS’s. It was at this stage when governing bodies such as the Financial Reporting Council (FRC), the Australian Accounting Standards Board (AASB), and the IASB, began to force Australian companies to embrace these new standards. To do this, they started on phase two of the implementation process, creating an equivalent to the IFRS, known as the Australian-International Financial Reporting Standards (A-IFRS). The A-IFRS would introduce 41 new accounting standards. Most existing standards would cease to apply, while some existing standards will...