Identification Area of Research
The present research report is developed for presenting extensive evidence of research in relation to a topic of interest selected. The research topic selected as such is to gain an understanding of the effectiveness and significance of Australian as well as international accounting standards. In this context, the report presents a short description regarding the reason for the selection of the research area, presents a research question and review of the academic journal articles in relation to the area of research interest. This is followed by providing a discussion of the research findings and addressing the research questions developed in relation with the accounting theories.
This research report is developed for gaining an understanding of the importance and effectiveness of the Australian and international accounting standards to improve the quality of financial reporting process. The research area is important as it will lead to improve the knowledge of the readers regarding the adoption of international accounting standards among the Australian business entities. The benefits and the potential issues that can result in convergence of IFRS into the Australian accounting standards will significantly help in developing an effective framework for promoting the IFRS adoption to improving the financial reporting quality. The implementation of high quality accounting standards is highly essential for improved functioning of the capital markets. In this context, IASB is currently placed increased emphasis on mandatory IFRS adoption among the countries worldwide for increasing transparency in the business operations. The compliance with the international accounting standards will help the Australian business entities in providing superior information to the market participants. This is essential for promoting their growth and development by gaining capital funds easily for meeting their different needs and requirement. As such, the harmonization achieved in the financial reporting process through the development of international accounting standards can be analyzed through the selected research area.
This is important to be understood adequately by the stakeholders for taking adequate decisions regarding their investment within a business entity. The research area has specifically addressed the impact of international accounting standards on the financial performance of Australian business entities. The detailed analysis of the research area has been undertaken in this report by presenting a critical review of the academic articles selected. The academic articles are selected in relation to the research area that is effectiveness and importance of Australian accounting standards as well as international accounting standards. The overall findings gathered through review of the articles selected have also been discussed in the research report.
Research Question
This research report seeks to address the following research question:
“What is the significance and effectiveness of Australian Accounting Standard as well as International accounting standard for quality financial reporting?”
The article developed by the author Jones and Higgins (2006), has carried out a survey on the adoption of international financial reporting standards (IFRS) across selected 60 top-listed 200 Australia’s corporations. The survey has depicted that factors impacting the IFRS adoption within Australian firms are size, industry background, financial performance and governmental laws. The survey has been taken in relation to examining the compliance of Australian entities with IFRS as Australia and European Union (EU) are placing large importance on reporting the financial information as per the international accounting standards of IFRS. The Financial Reporting Council has directed the business entities within Australia to adopt IFRS for overcoming the issues related to legitimacy and lower quality of financial information disclosed. It has been found out from the survey conducted in the research in this context that there exists some uncertainty among the Australian entities regarding the impact of IFRS adoption on their business operations. The article selected as such is important as it has facilitated in identifying the factors that are influencing the adoption of IFRS among the Australian business entities. It has provided useful information for examining the effectiveness of International accounting standards in improving the quality of financial reporting among the Australian firms (Jones and Higgins, 2006).
Similarly, the article written by Pawsey (2006) has emphasized on the issues that Australian firms are facing in context of the adoption of International Financial Reporting Standards (IFRS).IASB is currently placing importance on attaining uniformity across the financial reporting system through implementation of IFRS standards for improving reliability and comparability of information disclosed to the end-users. It has also adopted the use of survey for identifying the potential issues and benefits that top 400 ASX listed companies are facing for complying effectively with IFRS. Besides this, the benefits received by the companies with complying with IFRS are also discussed in the article. It has been illustrated by comparison of the two that benefits outweigh costs and as such international accounting standards need to be implemented within Australian firms to improve the quality of financial information. This is because IFRS standards will prove to be helpful for Australian firms to attract foreign investors by reducing ambiguousness among their financial statements and improving the understandability and relevancy of their financial reporting system (Pawsey, 2006).
Critical Review of Selected Journal Articles in Relation to the Research Question
Saidin, Badara and Danrimi (2014) in their article have discussed the importance of international accounting standards for attaining convergence in the global accounting standards. It has been stated in the article that IFRS adoption among the various jurisdictions such as Australia and European Union (EU) will help in attaining uniformity across the financial reporting process. This is because it will help in globalization of markets, standardization the accounting policies and improving transparency and comparability among the financial statement. In this context, it has discussed the impact of two variables that is IFRS acceptability and IFRS enforceability on the global accounting convergence process. As such, IFRS acceptability indicates that IFRS standards need to be acceptable by various jurisdictions and enforceability indicates the potential issues that they are facing while adopting it. The article is important in context of the present research issue as it has discussed the importance of international accounting standards in detail (Saidin, Badara and Danrimi, 2014).
The article developed by Alam (2012) has presented the significant changes that have occurred in the Australian financial reporting history after the adoption of IFRS. The research has discussed that adoption of IFRS has caused material effects on the quality of accounts developed by the business entities within Australia. The changes caused in the key financial items reporting such as equity, loss, depreciation, amortization and others due to compliance with IFRS within the Australian business entities have depicted within the article by examining the changes occurred specifically in the local government entities. The article is highly relevant for addressing the selected research issue as it has facilitated the changes that have occurred within Australian accounting standards after the implementation of the international accounting standards (Alam, 2012).
As per the views of Barth, Landsman and Lang (2007), the adoption and effective application of International Accounting Standards by the companies in Australia has increased overall quality of financial reporting. This journal article is very important from point of research area selected for this research. The research study conducted by Barth, et al., concluded that there is some differences that companies has found before and after adoption of international accounting standard and its convergence with the Australian accounting standard. After the adoption of International Accounting Standards in Australia, the companies in Australia have found greater comparability of financial reporting data as compared previous financial reporting. The major finding of this research is the firms that have applied the IAS shows less management of earnings towards a target, timely recognition of losses and higher association of accounting results in more accurate returns and increase in market returns (Barth, landsman and Land, 2007).
According to Jeanjean and Stolowy (2008), adoption of IFRS by the accounting firms in Australia has really improved the quality of financial reporting. The convergence of Australian Accounting Standards with the IAS has resulted in improved financial report. This indicates importance of adoption of IFRS in financial reporting requirements in Australia as it improves the effectiveness of accountability within the companies within the Australia. This research journal article is highly relevant to our study as it helps to provide literature on how the mandatory adoption of IFRS by Australia has resulted in improvement of quality of accounting standards. The research finding of this research is that there is no such condition required of sharing rules to create a common business language. It also provides that through implementation of Australian Accounting standards port merger with IFRS has redefined the financial reporting characteristics and also defines the management role in improving the financial reporting (Jeanjean and Stolowy, 2008).
Zehri and Chouaibi (2013), has clarified in his research paper that adoption of International Accounting Standards by the Australian Listed companies have resulted in high level of economic growth, increase in parlance with the legal system or laws and also the confidence of investors. This research is relevant to this proposed research in many ways as selected articles reveals information on significance of IAS adoption by Australian Companies and how they have successfully merged with the Australian Accounting Standards. The research findings shows that after the adoption of new Australian Accounting Standard they have sought increase in confidence of investors due to comparability of financial information at international level (Zehri and Chouaibi, 2013).
In the research study conducted by Yahaya, Fagbemi and Oyeniyi (2015), it was found that variances between International Financial Reporting Standards (IFRS) and local GAAP of Australia have been successfully removed that results in resolving the issues like comparability and objective of one set of accounting standards all over the world. This research study is related to the proposed research in various ways such as it provides information on how Australian entities find it easy to implement the IFRS and what success factors they achieved after the implementation of IFRS. It has been found that before the adoption of IFRS by AASB, it is not easy to rely in the prudence of comparability of accounting ratios as there are many differences in treatment of accounting items under IFRS and Australian GAAP (Yahaya, Fagbemi and Oyeniyi, 2015).
It has been examined from the overall discussion held in the critical review section of the research report that international accounting standards are developed by the IASB with the aim to promote quality of financial reporting mechanism adopted by different business entities across the world. The international accounting standards are providing to be largely important to cause convergence in the global financial reporting system. The globalization of markets and improved capital flows across the world are largely facilitated by the development of IFRS standards promotion global harmonization in the accounting policies. The Financial Reporting Council in the year 2005 has directed the business entities within Australia to comply with IFRS standards. This is done with the goals of seeking foreign investors support by improving the comparability and reliability of financial information and thus strengthening the Australia competitive position within the financial market. The adoption of IFRS has improved the earnings potential of Australian firms by seeking the funds from foreign investors and strengthening their competitive position within the financial market. The research has also identified that business firms within Australia are also facing some issues in context of the uncertainty and ambiguousness that it can cause in the business operations. The issues impacted by the Australian firms are influenced by its size, characteristics and financial performance to a large extent.
In regards to the selected research topic there are many accounting theories that explain the importance of taking the relevant research study. The importance of accounting standards can be better explained by the normative accounting theory and further it can be judged through applying stakeholder theory and legitimacy theory. The normative theory is not based on the various observations but it guides on how an accounting process should be performed. This theory is concerned with how one accounting system can be better than another. It means this theory tends to advocate not standardized system of accounting but also guides which system is better than the other (Brigham and Michael, 2013). The application of normative theory is very critical for viewpoint of importance of accounting standards. As our main purpose of the study is to provide how the international accounting standards and Australian accounting standards have helped in increasing the quality of financial reporting after their convergence. So it can be said that normative theory completely supports this research study.
Stakeholder’s theory provides the management should provide relevant information to the users of the financial statements through applying proper accounting standards and relevant guidelines provided by the conceptual framework (Brigham and Michael, 2013). So it can be said that stakeholder’s theory completely applies to the research topic as this research tends to explain the importance and effectiveness of IFRS and Australian Accounting Standard in achieving the quality financial reporting.
Conclusion
It can be stated from the overall discussion held in the research report that international accounting standards are increasingly gaining importance within the financial reporting system of Australian business entities. Australian Standard Board is complying with IFRS since the year 2005 as it has largely helped in improving the financial performance of business entities within the country. The firms are incurring significant costs for adopting IFRS but the potential benefits are outweighing the costs and thus they are increasingly placing focus on integrating IFRS within their financial reporting system.
References
Ahmed, K. And Alam, M. 2012. The Effect of IFRS Adoption on the Financial Reports of Local Government Entities. Australasian Accounting, Business and Finance Journal 6(3), pp. 109-120.
Barth, M.E., landsman, W.R. and Land, M.H. 2007. International Accounting Standard and Accounting Quality. Journal of Accounting research, 46(3), pp. 475-679.
Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage Learning.
Jeanjean, T. and Stolowy, H. 2008. Do accounting standards matter? An exploratory analysis of earnings management before and after IFRS adoption. Journal of accounting and public policy, pp. 1-25.
Jones, S. and Higgins, A. 2006. Australia’s switch to international financial reporting standards: a perspective from account preparers. Accounting and Finance 46, pp.629–652.
Pawsey, N. 2006. IFRS Adoption: Costs and Benefits for Large, Listed Australian Companies. School of Accounting and Law Research Forum, pp. 1-39.
Saidin, Z., Badara, S. and Danrimi, M. 2017. The Effect of Acceptability and Enforceability of International Financial Reporting Standard (IFRS) on Global Accounting Standard Convergence. Mediterranean Journal of Social Sciences 5(10), pp. 295-302.
Yahaya, K.A., Fagbemi, T.O. and Oyeniyi, K.K. 2015. Effect of International Financial Reporting Standards on the Financial Statements. Journal of Agricultural Economics, Environment and Social Sciences 1(1), pp. 18-29.
Zehri, F. and Chouaibi, J. 2013. Adoption determinants of the International Accounting Standards IAS/IFRS by the developing countries. Journal of Economics, Finance and Administrative Science 18, pp. pp. 56-62.
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