- International accounting standards have been adopted in several countries including Australia, Europe, and New Zealand to standardize financial reporting across borders. - The Australian equivalents to IASB standards are nearly identical, except for some additional paragraphs and numbering differences. - The IASB framework has influenced accounting syllabus changes, including updated definitions of key elements like assets, liabilities, equity, income, and expenses. Four required financial statements are the income statement, balance sheet, statement of changes in equity, and cash flow statement.

1. CHANGES AND TRENDS IN INTERNATIONAL ACCOUNTING STANDARDS John Hoggett School of Accounting Curtin University

2. 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

3. 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

4. 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

5. 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

6. 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”

7. 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

8. 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

9. 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)

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. The end