Analysing the process of adopting International Financial Reporting...

Published:

Although people thought accounting standard setting process should and must be insulated from politics, many evidence proved the setting process is a political process. The process of adopting International Financial Reporting Standards ("IFRS") in Australia from 1 January 2005 also witnessed this point. This essay will firstly describe how the governments impact the setting of accounting standard. Then it will explain that the CPA industry, investors and managers influence the accounting standard setting process. Following these, it will describe the impact the resulting standards have on a wide variety of interest groups.

Although many stakeholders argued that the accounting standards setting process should and must be separated from politics. For example, IASB claimed itself to be: The International Accounting Standards Board is an independent, privately-funded accounting standard setter. But the fact is that the accounting standards setting process is a politic process. With the economic consequences of accounting standards, it affects the economic interests of the relevant interest groups. So the setting process would inevitably lead to concerns and participation by various interest groups and participation. Those interest groups, especially these may bear the adverse economic consequences of accounting standards, will certainly try to influence the development or revision of the guidelines (Core, 200l). They will try to force standard-setting bodies to change provisions of the guidelines may be against them. In the process of accounting standard-setting, political behaviors are the various actions that the government, the accounting profession, corporate management, investors, creditors and other stakeholders ,based on their own interests, impact the accounting standard-setting bodies to develop guidelines( Brown,2005) .From 1 January 2005, the Australia adopt international financial reporting standards as domestic reporting standards. From the proposal to adopting IFRS, all this process is to prove the setting of accounting standards is a political process. The establishment of accounting standard is a result as the interests of many different bodies work together.

The government impacts the setting of accounting standards

Lady using a tablet
Lady using a tablet

Professional

Essay Writers

Lady Using Tablet

Get your grade
or your money back

using our Essay Writing Service!

Essay Writing Service

In the process of the introducing IFRS, the Australian Government has impacted the process and took a main role in the setting of the accounting standard. Since 1984, the government began to intervene in the development and implementation of accounting standards, and provided legal protection, help to improve the depth and breathe in the development and implementation of accounting standards. The government also used the power of legislation to help the implementation of accounting standard. As a result, the government's intervention became gradually deep in the field of accounting and laid a foundation for introducing the international financial accounting standards. Financial Reporting Council (FRC) and Australian Accounting Standards Board (AASB) are two parts of government agencies. The key functions of the FRC are to determine strategic direction of the AASB and propose appropriate guidelines to the federal government to promote the formation of high-quality accounting standards, to maintain investor confidence and contribute to the economic development of Australia. In 2001, Australian Securities and Investments Commission Act (ASIC Act) also pointed out that FRC is responsible for overseeing the development of international accounting standards and the main application of financial accounting standards, as well as the further development of the formation of a unified set of accounting standards around the world Visibly(ASIC,2006). Securities and Investment Commission Act essentially gives the FRC statutory oversight authority, thus ensuring the implementation of accounting internationalization process, strong government support and enforce the legal efforts. Apart from supervising,evaluating and publishing the accounting standards, AASB also try to improve the setting process of accounting standards, and begin to develop AASB Guidelines controlled by the Company Law. With the properties of public goods and externalities the accounting standards, it makes the development and implementation of accounting standards can not spontaneously achieve a balanced state by the market allocation of resources and result as the so-called market failure. Based on this, government intervention becomes inevitable and the governments will represent the main interests of the majority in collective choice. During International Financial Reporting Standards setting process, people do not know this process will bring what practical impact to them; they tend to rely on government decision-making. Therefore, the Government will be duty-bound to bear the responsibility for advancing this process (Wong,2004).

The CPA industry, investors and managers impact the accounting standard

Lady using a tablet
Lady using a tablet

Comprehensive

Writing Services

Lady Using Tablet

Plagiarism-free
Always on Time

Marked to Standard

Order Now

Various interest groups will compete based on their own interest's criteria for making power. Even without the right to obtain standard-setting power, in the standard-setting process, they will also lobby to the standard-setting bodies in order to safeguard their own interests. CPA industry, investors, creditors and other accounting standards are the stakeholders affected by the accounting standard and they must also be involved in the standard-setting process. From the perspective of historical development and the practice of States, Association of Certified Public Accountants usually concern about the setting of accounting standards mostly. Many private standard-setting bodies organized by the leading CPA profession, so most of them represent the interests of the CPA profession. The new standard can reduce the transaction costs of the CPA profession - the established accounting standards influence CPA's practice efficient cost reduction, and can reduce risk and provide legal protection for the industry itself. In this sense, the CPA will actively affect the professional organizations of civil institutions for higher supply of standards. For the non-government organizations, the standard-setting powers means that the public's attention. Adequate funding, high prestige, which makes the non-government organizations have the impulse to maintain and develop the accounting standard, thus influence of setting accounting standards (Carroll, 2004).

As sponsor of corporations, investors provide the basis for the operation of enterprise. Investors are not only the rights holders of the company's existing net assets, but also the right holder companies added value assets. Investors to safeguard their property rights, they must ensure the safety of their invested capital. So they argued the choice of accounting measurement methods should help capital preservation. In addition, investors also want to retain the proceeds as assets. As long as companies have earnings, the relevant stakeholders should be involved in segmentation. The result is that it reduces the number of existing enterprise assets (Al-Shammarietal,2007).

As business operators, enterprise managers provide management to ensure the operation of the operations and become the key to preservation and appreciation. Under the modern enterprise system, the separation of ownership and management lead to potential conflict between the owner and managers. Coupled with incomplete competition of the accounting information market, managers become actual controller, who controls all business activities the enterprise. They want to use accounting information disclosure to establish a sound financial image. Then the enterprises can obtain the necessary funds from the capital markets at a lower cost. Therefore, enterprise managers often influence the setting of accounting standard by the choice of accounting policies to show business, "steadily" image (Gerhardy,2005).

The impact the resulting standards have on a wide variety of interest groups.

With the different of various interests, attitude of IFRS is varied and can not be exactly the same. Many people believed that IFRS would bring many benefits to Australia. Wong (2004), the former member of the International Federation of Accountants (IFAC), argued that there are many benefits using global financial reporting framework, including more comparable financial information, better expected, lower cost of capital, more efficient allocation of resources and higher economic growth for international investors. However, before these benefits can be reflected, the need is global convergence of accounting standards. Carroll (2003) said that the benefits of using IFRS are obvious. Alfredson (2003) viewed the current setting of global accounting standards can produce high quality, transparent and comparable accounting information, so using IFRS can improve the efficiency of capital markets. Haswell and McKinnon (2003) also agreed it help to reduce the information costs within the worldwide capital flow (Croft.B,2006).

Knapp (2003) pointed out that the benefits of the implementation of IFRS are conducive to cross-market, improving the comparability of service reports, reducing the cost of capital in Australia and improving enterprises in Australia access to foreign capital. Pound (2004), the Chief Accountant of Australian Investment and Accounting Committee, thought that generating consistent and comparable financial reports according to International Financial Reporting Standards is very important to investors and the market for enhancing the confidence. Gerhardy (2005) argued that IFRS is good for Australian businesses, the accounting profession and the Government and standard-setting cost savings makes the Australian Government to focus on the operation of the Commission. Croft (2005) pointed out that this transformation is far from an accounting problem. The CFRS involves not only business, but also the accounting profession and educational institutions responsible for education and career development (Bader,2007).

Lady using a tablet
Lady using a tablet

This Essay is

a Student's Work

Lady Using Tablet

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Examples of our work

Although many people hold a positive view the adoption of IFRS, the IFRS also might bring bad impaction to the Australia. Williamson (2003) viewed that such change requires "a lot of time and effort," while Dodd and Sheehan (2004) pointed out that this "collection of new, more data" needs to change not only on the external financial reporting system requirements, but also changed the internal management of the budget and reporting requirements, and it need extends to the new data. Gerhardy also argued that, for Australian companies, the cost of educating users or shareholders, the cost of seeking external expert support, and the revised guidelines on corporate effects; for the accounting profession, the re-education, the weakening of existing standards, AASB lower status, as well as the loss of the Australian accounting innovations, are the costs can not be overlooked (Hope,2006).

Conclusion

From the above analysis,it can be seed that the setting process of accounting standards are impacted by many interest groups so it can not be divorced from politics. Government, CPA industry, investors and managers will influence the setting of accounting standards. In the process of introducing international accounting standards and deciding to adopt IFRS, the Australian Government should be based on multiple considerations, such as capital market development, economic integration with the world, as well as the strong international dialogue between economic agents. Therefore, the adoption of IFRS is not a simple process of setting a standard, from more macro level, it is a political process.