Background
Australia has had set up for a long time an Accounting Standard only for the Extractive Industry known as AASB 1022. This Standard has two key option ways to deal with the treatment of capital uses brought about pre-generation and takes into account a more adaptable impression of the consequences of an announcing elements endeavours. As it were one of these methodologies has support with the IASB (Boccia & Leonardi, 2016).
The International Accounting Standards Board (IASB) is set up with central station in the United Kingdom. Australia has agents on that Board. Those Australian delegates have been allotted the undertaking of driving the IASB to finish up a last bookkeeping standard (an IFRS) that will be relevant to the extractive enterprises. Australia is one of only a handful couple of nations that have had the advantage of an official bookkeeping standard to suit the prerequisites of its mining and oil and gas businesses (Belton, 2017). This has been in presence for a long time with late assignments being AAS7 (when the standard was built up by the joint bookkeeping collections of the Institute of Chartered Accountants in Australia and the Australian Society of Certified Public Accountants) and later in a required mode as AASB1022 “Representing the Extractive Industries” by means of the Australian Bookkeeping Standards Board (AASB).
AASB1022 Accounting for the Extractive Industries, progressed toward becoming obligatory in 1989 and was an immediate successor to the non-compulsory AAS7. AASB 1022 secured exchanges impossible to miss to the mining and oil and gas enterprises.
These included:
- Exploration and evaluation expenditures;
- Site advancement uses including lodging and welfare;
- Inventories and the allocable part of pre-creation capital consumption in the cost of stock; and
- The planning of the deduction of offers income over items created from the extraction of the metal, mineral oil or gas(Heminway, 2017).
Australian announcing substances including those recorded on the ASX have by and large set up their money related explanations including every single required report and proclamations for the year finished 30 June 2004 in light of AASB1022 and by “region of intrigue “approach. A portion of the bigger organizations sourcing significant sums of value and obligation capital on the worldwide markets will embrace the “fruitful endeavours” approach example, Woodside Petroleum Limited (Dichev, 2017).
Under IAS36 specifically, an advantage is surveyed for impedance if a ‘’Impairment trigger” emerges. In the event that an advantage is impeded, it is composed down to a sum alluded to as a “Recoverable sum”. The computation of the “Value in Use” is controlled by the net present Value (NPV) of the normal future money streams of that specific resource, reduced at a “Current Market Risk free” rate. Either the money streams or the markdown rate are to be balanced for foreordained dangers (Chron, 2017). Essentially, organizations will be required to do NPV figuring and markdown their trade streams out surveying the conveyed estimation of benefits on their accounting report.
AASB 1022 Accounting for the Extractive Industries
IAS 36 looks to distinguish inadequately performing resources as against unequivocally performing resources. When this has been accomplished and record the conveying estimation of these inadequately performing advantages for an esteem more predictable with their money age execution.
IAS 36 requires the impairment test to be conducted before any amount is carried to the Balance Sheet, which makes the Capitalisation of Exploration Expenditure difficult because of the inherent uncertainty associated with such costs. ED 6 suggests that the entities who have already recognised such expenditures may carry forward such expenditures until written off fully while others to be dealt as per the normal Impairment rules (Dumay & Baard, 2017).
Under AASB 1022 authorizing costs for new real plant things or mines are promoted through the improvement and development stages and up to the date of beginning of business generation. Under the proposed IFRS, costs caused to convey a handling office to its typical working state can be promoted to the cost of that advantage; in any case, working misfortunes acquired before a benefit accomplishing arranged execution must be quickly composed off. Appropriately, there will be barely recognizable differences that revealing substances and examiners should address (Werner, 2017).
An arrangement for restoring the site is made in the books of the detailing substance at a similar value which builds the estimation of the benefit. It gives the idea that when the assessed restoration costs are promoted to the value advantage, if this value surpasses the recoverable incentive for disability testing purposes the overabundance must be quickly composed off to the benefit and misfortune account (Saeidi, 2012).
When the IFRS was being introduced in Australia, it was applicable to almost all the entities, be it profit making or not for profit organizations, public or private. Due to the adoption of IRFS, there were numerous benefits which have been enlisted below:
- It helped the Australian companies to attract the foreign investments in the country due to uniformity in the accounting practices. Thereby, the companies operated with the lower cost of capital and higher profits.
- It also resulted in lower cost for the management as the accounting practices were uniformly driven as across the globe and thus the efficiency also increased for the companies. There was no need of preparing the separate financial statements as per IFRS and local GAAP(Kuhn & Morris, 2016).
- All the shortcoming which were there in the Australian GAAP has been sorted out and there were no more anomalies for the stakeholders.
- It also contributed to increasing the transparency of the accounts and satisfying the needs of the conceptual framework of accounting. The IFRS adoption has also helped in improving the qualitative characteristics of the financial statements and meeting most of them including the timeliness, the reliability, the understandability and the verifiability of the financials.
However, along with the positives, IFRS also had some shortcomings as well as disadvantages which have been mentioned below:
- It was not easy for the companies to accept and practice the IFRS accounting for the first time as it was completely different from the local GAAP.
- It had huge implementation cost in the form of systems and the experts, upfront during first time implementation(Raiborn, Butler, & Martin, 2016).
- The Australian GAAP lost its relevance in many major topics like those dealing with employee benefit accounting.
- It had also compromised with one of the important aspects of the enhancing qualitative characteristics of the financial statements namely comparability.
Some of the major differences in the AGGAP and the IRFS are mentioned below:
- There are many aspects in which the IFRS is much more comprehensive and conclusive as compared to the AGAAP. Some of the major areas include financial instruments, its recognition and its measurement cum disclosures. The post-employment benefits is another such area of difference. The adoption of IFRS will keep Australia on the world map with other countries following IFRS norms.
- It is also more defining for few of the specific industries in terms of comprehensive accounting practices like mining industry, intangible assets accounting and insurance company accounting(Kangarluie & Aalizadeh, 2017).
- IFRS made a complete shift in the accounting perspective and the quality of reporting with respect to value relevance, the earnings management and recognition of loss on time.
All of the above changes will substantially affect the following Monetary Items:
- Stakeholder’s value;
- Provision for Exploration of restoring and decommissioning cost;
- Inventory at year end;
- Mining apartments as resources;
- Plant and equipment as Assets.
The company which has been chosen for impact of IFRS on the financial statements is Wesfarmers Limited which is one of the biggest company in terms of revenue and employment in Australia. It is in the business of chemicals, fertilisers, and mining, industrial and safety products. In case the changes in financial statements are being analysed we see that post IFRS, the statement of changes in equity was also given along with the balance sheet, cash flow statement and the profit and loss account which was earlier not given and shown just as notes to accounts.
The International Accounting Standards Board (IASB) and the IFRS
Post introduction of IFRS, the companies has also started to disclose the significant accounting policies and the compliance measures which the companies are adhering to like the laws and the international standards (Trieu, 2017). The company also did disclose in its financial statements in 2006 that it has been restated to make it comparable for AASB standards 139, 1023 and 132. The company also adopted few of things for the first time like measurement of the financial assets held till maturity, the derivative assets, loans and receivables, hedging gains and losses, etc. The company also restated the retained earnings so as to comply with the requirements of the latest standards of IFRS but the calculation or the workings for the same has been ignored in the financial statements since it is practically impossible to reflect the same.
The company applied IFRS standards for the first time for measurement of derivative financial instruments and hedges. The disclosure also mentioned that the company used the interest rate swap and the forward currency contracts to hedge the currency risk of the company. These were being valued by the company for the first time at fair value and the same was recognised as asset in case of positive result and liability in case of negative result. Any gain or loss on account of the fair value adjustment was being reported in the profit and loss account directly. For the purpose of hedge accounting, the company classified the hedges into 3 major categories namely fair value hedges, the net investment hedge and the cash flow hedge based on the given criteria (Choy, 2018). With adoption of IFRS, the company also assessed all the financial assets for impairment on each of the balance sheet date. The company also made major change in the policy w.r.t. trade payables. Before IFRS the same was valued at cost whereas after IFRS, it began to be valued at amortized cost. These were the major changes witnessed in the annual reports of the company.
Conclusion
There will be numerous detailing elements that will be contrarily affected by the progressions, especially from a capital raising point of view. Inquiries will emerge regarding whether the adventure in getting the chance to full harmonization has been justified regardless of the exertion. Administration will raise the issue of where is the advantage in this change for us, or is this another technique by which the reviewers can expand their review charges. Retail investors will accomplish minimal identifiable advantage and the new norms may give the bigger organizations the chance to increment discounts as opposed to proclaim expanded profits. This is clearer in the credit documentation region. There will be inquiries in the matter of whether it is intelligent for the money related execution of elements in a single industry to be.
References
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