CHANGES AND TRENDS IN INTERNATIONAL ACCOUNTING STANDARDS

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CHANGES AND TRENDS IN INTERNATIONAL ACCOUNTING STANDARDS

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

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