Importance Of Financial Accounting And The Role Of AASB

Introduction to Financial Accounting

The concept of financial accounting means the process wherein the financial statements are prepared so that these companies are bale to show in their financial performance to the outside world.it is very much beneficial to the shareholders, internal team or the management etc and hence, their appropriateness, relevance is of an utmost importance.

Financial accounting is the process of preparing financial statements that companies’ use to show their financial performance and position to people outside the company, Including investors, creditors, suppliers, and customers. It is further used by the taxation authorities to test as to whether the incomes have been reported correctly and whether the taxes have been paid as per the revenue earned by the company (Proquest, 2018).

It is very important for the government to know financial affairs of the company since it is their duty to ensure fair reporting and accounting.

For the other company’s investors, this information is important since it helps them in benchmarking and knowing and understand their exact nature. Form the point of view of an investor, it is very much important to know and understand the financial reporting since that would help them in making the decision as to whether to make an investment into the company or not.

For the purposes of the internal decision making too, it is important since it would help the management in understanding the exact position of the company (Accounting edu, 2018).

There are many of the bodies such as AASB that are entrusted with the responsibility of developing the accounting standards. The companies should be able to match up their financial results and benchmark their business activities. Each company could be able to compare its results as against the other companies.

If the financial reporting is left at the discretion of the management, then it might go for financial reporting or not or it might go for different reporting.

So, in order to have uniformity, the financial accounting and reporting should be and is regulated.

AASB is the body which is the agency of the government of the country of Australia. The body is known as the Australian Accounting standards and also includes in some of the IFRS’s. When it first began its operations, it recommended some of the modifications to the IFRS’s and some new disclosure to them. In the year 2007, it went on to modify in the requirements that have been laid down in the IFRS’s which are to be issued by the IASB. There were certain disclosures that were asked to be retained and then there were few of the non-IFRS compliant requirements that applied for the not for profit entities and the public sector companies (IAS plus, 2018).

Importance of Financial Accounting

The AASB body is the body which helps in the development and the maintenance of the high quality of the financial reporting standards all across the global financial reporting of all of the companies. The main contribution of the body is the issuance of the different versions of the International Accounting standards of the country of Australia, the production of the standards that are more like the transactions on some consistent basis, influencing the development of all of the International Financial reporting standards, identification of the different areas that require in the review and the introduction of the different relevant standards for the purposes of covering in those areas, promotion of all of the consistent application along with the interpretation of the various standards on accounting (AASB, 2018).

The board comprises of some of the independent group of thee experts that have the mix of practical experience and also the mix of the preparation, auditing, or the using of the financial reports along with the education of accounting. For this, a high diversity of the geographical locations are required.

The foundation of IFRS helps in fulfilling in the criteria of the composition of the board and also of the geographical allocation that could be seen from the individual profiles. The members of the board are somewhat responsible for the development and the publication of the standards of the IFRS’s. The board is responsible for the approving of the interpretations of the standards of IFRS that have bene developed by the Interpretations committee of the IFRS (IFRS, 2018).

So, the AASB plays a very important when It comes to the preparation of the accounting standards.

The IASB on the other hand comprises of about 15 members from 9 different countries which includes in the United States. The body received funds from the major firms that are engaged in the services of providing accounting, from the private financial institutions and the industrial companies. AICPA was the founding member of the IASB. The IASB does not sponsor nor endorses the IFRS resources (IFRS, 2018).

under the foundation of the IFRS, IASB though has the several responsibilities but the standards set in by the body are not compulsory since it has a very few limited number of countries as its members and if the standards developed by this committee are made compulsory, then the different companies would be following in different accounting standards for the preparation of the financial statements which would defeat the purpose of introducing uniform AS (IAS plus, 2018).

The Role of AASB

The IASB is just an oversight board for the IFRS’s. It is not compulsory that its accounting standards be enforceable. It does not provide a solution for the exact solution for the requirements of the companies.

The following table shows in the debt to equity ratio of the companies:

The debt to equity ratio is also termed as the risk ratio which is the ration that calculates in the weight of the total debt of the company as against the total equity of the company. The debt to assets ratio uses the total assets as its denominator whereas the debt to equity ratio uses the total amount of the equity. This ratio shows in the capital structure of the company and the policy of the company towards its debt to equity financing.

The higher this ratio, the better it is for the company and more preferable it is for the company. It shows the stability of the company when it comes to the generation of the cash flow for the company but then it is also true that such a company is set to decline in the future. Further, when this ratio is low, then it merely means that the firm is less levered and that is whole financed through the investment made in by the shareholders (Corporate finance institute, 2018).

In the given case, the debt equity ratio of AFT Pharmaceuticals seems to be the best and that of Alchemia limited seems to be the worst.

Conclusion:

From the above discussion, it could be stated that the financial reporting should be regulated and it should be in some responsible hands. Further, the main role of the AASB is the development of the accounting standards.

Also, the statement of equity helps in understanding the amount of money that the outsiders have invested into the company. The debt equity ratio of Alchemia is the best which means that it is the most preferable company to make an investment into.

References:

Aasb.gov.au. (2018). Frequently asked questions. [online] Available at: https://www.aasb.gov.au/About-the-AASB/Frequently-asked-questions.aspx#qa1522 [Accessed 17 Sep. 2018].

Accountingedu.org. (2018). What is Financial Accounting?. [online] Available at: https://www.accountingedu.org/what-is-financial-accounting.html [Accessed 17 Sep. 2018].

Corporate Finance Institute. (2018). Debt to Equity Ratio – How to Calculate Leverage, Formula, Examples. [online] Available at: https://corporatefinanceinstitute.com/resources/knowledge/finance/debt-to-equity-ratio-formula/ [Accessed 17 Sep. 2018].

Iasplus.com. (2018). Australia. [online] Available at: https://www.iasplus.com/en/jurisdictions/oceania/australia [Accessed 17 Sep. 2018].

Iasplus.com. (2018). International Accounting Standards Board (IASB). [online] Available at: https://www.iasplus.com/en/resources/ifrsf/iasb-ifrs-ic/iasb [Accessed 17 Sep. 2018].

Ifrs.com. (2018). International Financial Reporting Standards – Questions and Answers. [online] Available at: https://www.ifrs.com/updates/aicpa/ifrs_faq.html#q2 [Accessed 17 Sep. 2018].

Ifrs.org. (2018). IFRS. [online] Available at: https://www.ifrs.org/groups/international-accounting-standards-board/ [Accessed 17 Sep. 2018].

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www.acrux.au. (2018). annual report 2017. [online] Available at: https://www.annualreports.com/HostedData/AnnualReportArchive/a/ASX_ACR_2015.pdf [Accessed 17 Sep. 2018].

www.adalta.au. (2018). annual report2017. [online] Available at: https://1ad.live.irmau.com/irm/PDF/1180_0/AnnualReporttoshareholders [Accessed 17 Sep. 2018].

www.adalta.au. (2018). annual report 2015. [online] Available at: https://1ad.live.irmau.com/irm/PDF/1012_0/2015AnnualReport [Accessed 17 Sep. 2018].

www.aft.com. (2018). Annual report 2015. [online] Available at: https://investors.aftpharm.com/FormBuilder/_Resource/_module/p2XGBX4eEUuPk0R-Ti1BoQ/docs/annual-reports/AFT-FY15-Annual-Report.pdf [Accessed 17 Sep. 2018].

www.alchemia.com. (2018). Annual report 2017. [online] Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_ACL_2016.pdf [Accessed 17 Sep. 2018].

www.annualreports.com. (2018). annual report 2017. [online] Available at: https://www.annualreports.com/HostedData/AnnualReportArchive/a/ASX_ACL_2014.pdf [Accessed 17 Sep. 2018].

www.proquest.com. (2018). Financial reporting. [online] Available at: https://search.proquest.com/business/docview/222438006/5325AA610661488FPQ/6?accountid=30552 [Accessed 17 Sep. 2018]

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