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International accounting standards--By Akshay Samant

International accounting standards--By Akshay Samant






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    International accounting standards--By Akshay Samant International accounting standards--By Akshay Samant Presentation Transcript

    • CHANGES AND TRENDS IN INTERNATIONAL ACCOUNTING STANDARDS John Hoggett School of Accounting Curtin University
    • Australia’s road to adopting international standards
      • Europe’s decision
        • EU companies listed on stock exchanges to follow IASB standards in consolidated financial reports on or after 1 January 2005
      • Australia
        • FRC in July 2002, direction to the AASB to adopt IASB standards as from 1 January 2005
      • New Zealand
        • By 2007
    • Australian Equivalents to IASB Standards
      • See AASB website: www.aasb.com.au
      • AASB and IASB standards exactly the same except for the following:
      • IASB Framework + SAC 1 and SAC 2 (SACs 3 and 4 deleted)
      • Numbering system:
        • IFRS 1 = AASB 1
        • IAS 1 = AASB 101 (three digits)
        • AASB 1031 (four digits) etc for no equivalent IASB standard
    • Differences between AASB and IASB standards
      • Addition of NFP paragraphs
      • Additional “Aus” paragraphs for disclosure
      • Wording differences eg entity v enterprise
      • Deletion of some options eg delete indirect method in cash flow statements
    • AASB’s influence on the IASB
      • Minimal for most standards – AASB little more than a lobbyist
      • Representation on the IASB
      • Special projects eg business combinations
      • Analysis of exclusively Australian problems, based on Australian law eg treatment of GST
    • Syllabus changes – the Framework
      • Qualitative characteristics
        • understandability, relevance, reliability, comparability
        • Substance over form now part of “reliability”
        • Materiality part of “relevance”
      • Accounting assumptions
        • Addition of “accrual basis”
      • Elements are
        • Assets (different wording from SAC 4 but meaning is essentially the same)
        • Liabilities (minor change in nature)
        • Equity (same)
        • Income (same as the definition of “revenue” in SAC 4)
        • Expenses (similar wording to SAC 4)
        • Major change is with revenues, gains and losses. Revenues and Gains are subcategories of “income”
      Syllabus changes – the Framework
      • Revenues are from “ordinary activities of an entity” – sales, fees, interest, dividends, royalties, rent.
      • Gains are other items that meet the definition of income and “may or may not arise in the course of ordinary activities”
      • Losses are a subcategory of expenses
      • Gains/losses are reported eg on the sale of non-current assets
      Syllabus changes – the Framework
    • External reporting
      • 4 statements required by AASB 101, as named –
        • Income statement (not profit and loss statement or statement of financial performance)
        • Balance sheet (not statement of financial position)
        • Statement of changes in equity
        • Cash flow statement (not statement of cash flows)
    • Income Statement
      • Revenues , as defined in the Framework and AASB 118 – AASB 118 tends to restrict revenues to (i) sale of goods (ii) rendering of services (iii) use by others of the entity’s assets yielding interest, royalties and dividends.
      • Expenses , classified either by nature or by function. If by function, then you may disclose gross profit if desired. See AASB 101 paras. 88-92.
      • Gains and losses
        • Only disclose gain/loss on sale of a non-current asset as an item of profit
        • For the purpose of Accounting syllabus, will continue to use Gross Calculation Method in the accounts
    • Balance Sheet
      • Current/non-current classification, or liquidity
        • Assets
        • Liabilities - major categories for TEE purposes are
          • Payables
          • Borrowings
          • Current tax liability
        • Note: Final dividends – liability when declared
          • Not a liability at end of financial year (in most cases)
          • See AASB 110 paras. 12-13
        • Equity section – share capital, retained earnings, other reserves
    • Statement of Changes in Equity
      • Purpose –to show movements in each equity item and total income from all sources
        • Profit or loss + any income or expense recognised directly in equity e.g. revaluation surplus (not really a problem at TEE level)
        • Movements in share capital, in retained earnings, in each other reserve account
    • Cash Flow Statements
      • Cash and cash equivalents – new definition AASB 107
        • See: www.aasb.com.au
        • Overdrafts may still be included as part of cash in Australia in certain circumstances
      • Interest paid – an operating activity
      • Interest and dividends received – may be an investing activity. See illustrative example in AASB 107
      • Dividends paid – a financing activity
    • Changes in terminology
      • Profit, not “net profit”
      • Loss, not “net loss”
      • Equity, not “shareholders’ equity”
      • Cost of sales, not “cost of goods sold”
      • Retained earnings, not “retained profits”
      • Minor changes to headings in cash flow statement eg cash paid to suppliers and employees
    • Some other thoughts
      • Re Farm accounting consider AASB 141 “Agriculture” – move toward fair value accounting
      • The concept of “matching” is finally buried
      • Preliminary expenses now an expense, not an asset under AASB 138
    • Future trends at the IASB
      • Cooperation (!) with the FASB
      • CF to be amended (overhauled)
      • Adoption of fair value measurement
      • Performance measurement using a “statement of comprehensive income”
      • Liabilities, provisions and contingent liabilities – the term “provision” to be dropped
    • The end