Harmonisation of Accounting Standards
Harmonisation defined as constant process of making compatibility in accounting practises which are reported differently in different countries. Thus, its aim to formulate, update and align domestic accounting practises with international accounting practises issued by IASB (Wong, 2004).
The biggest reason for harmonisation is bringing globalisation in capital marketsin different countries (Deng, 2013).
- The basic reason for harmonising accounting standards globally was to make financial statements of one company comparable with the financial statements of other company in different countries (Ali, 2005).
- The use of single accounting standards globally will integrate the quality, efficiency, liquidity, increases competition and transparency of financial reporting and also promote the development of international capital markets (Daske et al. 2008).
- It will assist the companies to raise capital from market, list their securities in stock exchanges and also to attract investors from diversified countries.
- It will reduce the costs for preparing financial statements through the adoption of integrated accounting standards.
- Harmonising the accounting practises will help the investors to seek investment opportunities across borders.
IASB was formed in 1973 and was the first body who tried to bring harmonisation in accounting practises throughout the world (Franklin, 2012) including European Union who was also played major role in harmonising accounting standards in all European States from 2005.
IASB’s main objective was to increase the company’s market and lucidity efficiency through the adoption of integrated standards. IASB intention was to improve the accountability by bridging the information gap between market and peopleand it also help the general public throughout the world to compare and encourage them to invest across borders (Ball, 2006).
- There are many factors which affect harmonisation such as economy, political influences, laws and regulations, tax systems, religion and cultural issues etc. of diversified countries across borders (Tarca, 2017).
- There are many countries which considered that integrated standards are complex and they follow rule based approach so their adoption and implementation is critical.
- Adoption of fair value model is also a barrier to a harmonisation.
- Many complications faced by many countries in terms of tax reforms system, financial system etc.
- Main challenges are: making continuous interpretations and amendments in standards.
- Adoption of IAS in many countries faced uneven versions which are not in consistent with IASB framework.
- Another challenge faced by IASB was compliance issues and their enforcement mechanisms.
- Another requirement was to give training to auditors, investors, stakeholders etc. for the adoption and implementation of international accounting standards which was also a big challenge to IASB.
- Regulatory and legal requirements of different countries are also a significant challenge to be faced by IASB for financial reporting.
However, these challenges can be overcome with time and by taking appropriate measures.
- Institutions who have adopted single set of International accounting standards are: The World Bank, The International monetary fund, the United nations etc.
- There are more than 140 countries transited from national accounting standards to international accounting standards including European Union countries, Australia, New Zealand, China, Hong Kong, Brazil, Canada, Korea, Mexico, Russia etc. (IASB, 2010).
- There are some countries who has adopted Integrated accounting standards covers more than fifty percent of the world’s GDP (Nobes, 2011).
Israel is one of the countries where IFRS is fully adopted. Yet there are some reasons because of which some countries could not fully accept IFRS. But however, in future there will be increase in acceptance of fully Integrated accounting standards.
Finance ministers and Central Bank Governors of G20 countries have always supported for acceptance of single set of high quality Accounting Standards. They believe acceptance of IFRS also enhance resilience of Financial Markets. Financial Stability Boards (FSB) confirms the continuing relevance of the acceptance of high quality international accounting standards. International Organization of Securities Commissions (IOSCO) also supports for the development and use of internationally accepted financial standards and therefore IOSCO strongly shore up IFRS developed by International Accounting Standard Board (Anand, 2016). The World Bank and the International Monetary Fund (IMF) have also acknowledged international standards in many areas like for accounting and Auditing.
Conclusion
It is concluded that harmonisation of international accounting standards will improve the efficiency and liquidity of capital market and also benefit to the wide variety of users to compare and understand financial statements throughout the world. Further, it can be concluded that there is huge acceptance of integrated accounting standards globally in recent years thus by making economic progress possible.
IFRS can be considered as an important tool to bridge the differences in the reporting of financial statement and making it easy. Hence, it can be said that acceptance of harmonisation in standardswill increase in the coming time.
Importance of Harmonisation
IFRS is now becoming the de facto global standard for financial reporting.
|
S. No. |
Particulars |
J.F. |
Amount (AUD $) |
|
(1) |
Salaries A/c Dr. To Outstanding Salaries A/c |
8,000 8,000 |
|
|
(2) |
Power A/c Dr. To Outstanding Power A/c |
4,000 4,000 |
|
|
(3) |
Prepaid Insurance A/c Dr. To Insurance A/c |
10,000 10,000 |
|
|
(4) |
Closing Inventory A/c Dr. To Trading A/c |
110,000 110,000 |
|
|
(5) |
Interest Expense A/c Dr. To Interest Payable A/c [$ 150,000 × 10% × 6 ] 12 |
7,500 7,500 |
|
|
Interest Payable A/cDr. To Cash A/c |
7,500 7,500 |
||
|
(6) |
Profit & Loss A/c Dr. To Depreciation A/c |
21,250 21,250 |
|
|
Depreciation A/c Dr. To Plant & machinery A/c To Furniture & fittings A/c To Buildings A/c [P & M = 90,000 × 10%] [ F& F = 100,000 × 5%] [Buildings = 145,000 × 5%] |
21,250 9,000 5,000 7,250 |
||
|
(7) |
Investments A/c Dr. To Cash A/c |
42,000 42,000 |
|
|
(8) |
Profit & Loss A/c Dr. To Provision for legal Suit A/c |
25,000 25,000 |
|
|
Provision for legal Suit A/cDr. To Legal Suit Expense A/c |
25,000 25,000 |
||
|
(9) |
Tax Expense A/c Dr. To Cash A/c |
40,000 40,000 |
|
|
Profit & Loss A/c Dr. To Dividend Payable A/c |
12,500 12,500 |
||
|
Dividend Payable A/cDr. To Cash A/c [ 250,000 × 5%] |
12,500 12,500 |
||
|
(10) |
No Entry [At 30 June, 2017 Robert Ltd. Owed no amount to star ltd.] |
– – |
Describes the information to be presented in the Profit or loss Section or the statement of profit or loss
- Statement of Comprehensive Income
For the year ended 30th June 2017
|
Particulars |
Schedule |
Amount (AUD $) |
|
INCOMES |
||
|
Sales Revenue |
700000.00 |
|
|
Other Income: |
||
|
Interest Revenue |
16500.00 |
|
|
Total (a) |
716500.00 |
|
|
EXPENDITURES |
||
|
Cost of Goods Sold |
250000.00 |
|
|
Operating and other expenses: |
||
|
Light, power and fuel (incl. outstanding) |
29000.00 |
|
|
Audit Fees |
10000.00 |
|
|
Damage due to fire |
33000.00 |
|
|
Dividend: Final & Interim |
20500.00 |
|
|
To provision of doubtful debts & legal suit |
35000.00 |
|
|
Salaries (incl. outstanding) |
88000.00 |
|
|
To depreciation on P & M |
9000.00 |
|
|
To depreciation on F & F |
5000.00 |
|
|
To depreciation on Buildings |
7250.00 |
|
|
Total (b) |
486750.00 |
|
|
Profit Before Interest And Tax (PBIT) [a -b] |
229750.00 |
|
|
Less: Interest Expense |
8000.00 |
|
|
Profit Before Tax (PBT) |
221750.00 |
|
|
Less: Tax Expense |
40000.00 |
|
|
Profit After Tax |
181750.00 |
- Statement of Financial Position
Star Ltd.
As at 30thJune 2017
|
Particulars |
Amount (AUD $) |
|
Current Assets: |
|
|
Cash at bank |
76000.00 |
|
Accounts Receivable |
85500.00 |
|
Inventory |
110000.00 |
|
Short term Investments |
42000.00 |
|
Other Current Assets |
10000.00 |
|
Total Current Assets |
323500.00 |
|
Long term Investments |
40000.00 |
|
Plant and Machinery |
36000.00 |
|
Furniture and Fittings |
65000.00 |
|
Buildings |
108750.00 |
|
Term Deposits |
166000.00 |
|
TOTAL ASSETS |
739250.00 |
|
Current Liabilities: |
|
|
Accounts Payable |
60000.00 |
|
Other Current Liabilities |
47000.00 |
|
Total Current Liabilities |
107000.00 |
|
Bank Mortgage |
150000.00 |
|
TOTAL LIABILITIES |
257000.00 |
|
Stockholder’s Equity |
|
|
Equity |
411250.00 |
|
Retained Earnings |
31000.00 |
|
General reserve |
40000.00 |
|
Total Stockholder’s Equity |
482250.00 |
|
Net Tangible Assets |
482250.00 |
- Statement of Changes in Equity
Star Ltd.
For the year ended 30th June 2017
|
Particulars |
Amount (AUD $) |
|
Balance at 1st July 2016 |
250000.00 |
|
Changes in equity of the year: |
|
|
Issue of share capital |
0 |
|
Profit of the year |
181750.00 |
|
Dividends |
-20500.00 |
|
Balance at 30th June 2017 |
411250.00 |
(a). As per AASB 102 (2015), Inventories shall be measured as cost or net realisable value, whichever is lower.
Thus, in the given question Star Ltd. measured inventory of AUD $ 110,000 as per AASB 102.
(b) AASB 112 (2015), requires for accounting for income taxes including both domestic and foreign taxes.
Thus, in this question Star Ltd. Recorded tax expenses of AUD $ 40,000 as per AASB 112.
(c ). AASB 116 (2015), describes about the accounting of property, plant and equipment in Statement of financial position so that users can get information about the company’s investment in plant and property and the changes in investment during the year.
Thus, in the given question Star Ltd. recorded Plant and Machinery at cost less accumulated depreciation as per AASB 116.
(d). AASB 118 (2014), describes the accounting treatment of the revenue.
Thus, in the given question Star Ltd. recognized revenue of AUD $ 700,000 as per AASB 118.
(e). AASB 1021 (1997), describes the reporting of depreciable non-current assets along with their depreciable amount.
In this Question, Star Ltd. recognized Depreciation amount of AUD $ 21,250 in the statement of profit or loss as per prescribed criteria of AASB 1021.
(f). AASB 132 (2015), requires disclosure of dividends in profit or loss statement.
In this Question, Star Ltd. recognized dividend (both final and interim) amount of AUD $ 20,500 in the statement of profit or loss as per prescribed criteria of AASB 1021.
(g). AASB 132 (2015), requires disclosure of interest amount in profit or loss statement.
In this Question, Star Ltd. recognized interest amount of AUD $ 8,000 in the statement of profit or loss as per prescribed criteria of AASB 1021.
(h). AASB 13 (2015), requires disclosures of investments as per cost or market value whichever is lower in statement of financial position.
In this question of Star Ltd. Current market value of securities of AUD $ 42,000 are correctly recorded as per AASB 13.
(i). AASB 137 (2015), provides for the accounting of Provisions in Statement of financial position.
Benefits of Harmonisation
Thus, in this question of Star Ltd. provisions are recorded of AUD $ 35,000 in statement of financial position as per AASB 137.
(j). AASB 132 (2015), requires the reporting of Equity in Statement of financial position.
In this question, Star Ltd. disclosed equity of AUD $ 411,250 in statement of changes in equity which is as per AASB 132.
(k). As per AASB 101 (2012), it describes the framework for presentation of financial statements.
Thus, in this question, Star Ltd. is fully complied with the disclosure requirements of AASB.
(l). As per AASB 101 (2012), Accounts payable and accounts receivable are recorded under Current assets and current liabilities respectively.
Thus, Star Ltd. has recorded Accounts payable and accounts receivable amounts under its respective accounts as per AASB 101.
References
AASB 101, 2012, Presentation of financial statements, Australian Accounting Standards Board, Australia.
AASB 102, 2015, Inventories, Australian Accounting Standards Board, Australia.
AASB 1021, 1997, Depreciation, Australian Accounting Standards Board, Australia.
AASB 112, 2015, Income taxes, Australian Accounting Standards Board, Australia.
AASB 116, 2015, Property, plant and equipment, Australian Accounting Standards Board, Australia.
AASB 118, 2014, Revenues, Australian Accounting Standards Board, Australia.
AASB 13, 2015, Fair value measurement, Australian Accounting Standards Board, Australia.
AASB 132, 2015, financial instruments: Presentation, Australian Accounting Standards Board, Australia.
AASB 137, 2015, Provisions, contingent liabilities and contingent assets, Australian Accounting Standards Board, Australia.
Ali, M. J 2005, A synthesis of empirical research on international accounting harmonization and compliance with international financial reporting standards, Journal of Accounting Literature, Vol. 24, pp. 1-52.
Anand, A 2016, Systemic Risk, Institutional Design, and the Regulation of Financial Markets, Oxford University Press, New York.
ASB 2010, The move towards global standards, International Accounting Standard Board.
Ball, R 2006,IFRS: Pros and cons for investors, Accounting and Business Research, International Accounting Policy Forum.
Daske, H, Hail, L, Leuz, C & Verdi, R 2008, ‘Mandatory IFRS reporting around the world: Early evidence on the economic consequences,’, Journal of Accounting Research, vol 46, no. 5, pp. 1085-1142.
Deng, S 2013, The EU’s Adoption of IFRS and the implication for China: In the perspective of accounting quality and information comparability, Karlstad business school, Sweden.
Franklin, L 2012, Harmonsation – The desire by the IASB to harmonise accounting is the triumph of hope over experience, Munich.
Nobes, C 2011, International Variations in IFRS Adoption and Practices, The Association of Chartered Certified Accountants, London.
Tarca, A 2017, The case for global accounting standards: Arguments and evidence, viewed on 19 April 2017 from <file:///C:/Users/Tanvi%20Jain/Downloads/TARCA%20global%20standards%2020130122.pdf>.
Wong, P 2004, Challenges and successes in implementing international standards:Achieving convergence to IFRSs and ISAs, viewed on 19 April 2017 from<https://www.cimaglobal.com/Documents/ImportedDocuments/ifac_report_challengesuccess_111004.pdf>.
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