The Australian Accounting Standards and their evolution
The Australian accounting standards are evolving to suit the changing dimensions of the global financial standards. Over the past decade, these changes have been seen to have realizable impacts on the overall economy. These changes, as listed below affect the financial statements of the various companies, especially in the future when the changes will come out clearly into the various segments of the financial reports of the companies.
For instance, the amendments and the changes in the Revenue from a contract with customers as well as the AASB Financial Instruments number nine would soon instantly apply to the financial statements ending in the December 2018. However, the changes and amendments on the AASB 16 Leases is poised to apply to the December of the year 2019 financial statement for the first time (Hoque, et al. 2011).
The amendments in the above accounting standards will majorly have impacts on the amount and timing of the recognition of revenues, financial asset impairments on areas like trade and other receivables. They also have real impacts on some of the operating leases that are to be capitalized on the balance sheet. In summary, some of the technical issues in the new Australian accounting standards that will affect the companies and their various industries are as highlighted below:
- New standards on Revenue Recognition
- The financial instruments
- Leases
- Income of Not-for-Profit entities
- Amendments to Australian Accounting Standards arising from AASB 15 among others
The AASB 15 changes are poised to affect both small and large companies considering its effects on the timing on the recognition of the revenues. Some of the entities will be forced, under the new accounting standards; to recognize their revenues earlier than currently, while other companies will do so later on.
For this reason, it is prudent to realize that the requirements of the AASB 15 amendments may involve changing from one point in time recognition to overtime recognition of revenues compared to the current mode on areas like property sales, licensing arrangements, among others (Exchange, 2011). These requirements on the changes have a clear definition of the performance conditions those results in the revenues being altered. They also involve the modifications put in place for the additional supply of goods and services based on the discounted prices of the deferred revenues (Stoddart, 2010).
On their standards, the large companies will be affected by the AASB 16 changes and amendments through their operating leases like leases for offices, warehousing, manufacturing premises, as well as retail stores premises. Some of the industries that are likely to be affected by these changes include the small and regional airlines, multiple retail stores and extension options on store leases, manufactures with manufacturing facilities or warehousing, heavy equipment users, entities with large fleets of vehicles, among others.
Impact of the amendments on financial statements of companies
According to Ryan, et al. (2017), the new changes or standards on revenues will have extensive impacts on almost every industry and companies in Australia. For instance, the new revenue standard, also known as the AASB 15 revenue from Contracts with Customers, has had its implications on every industry and every business in Australia since January 2018. Based on experts and the findings of Chua & Sinclair (2014), these new standards were seemingly designed to deal with the customer contracts in the evolving models of business. These involve those that bundle goods and services, with the contingent arrangement on pricing. They also affect the goods and services that are delivered over time, the arrangements of licensing, as well as other complex arrangements in the financial reporting (O’Shea et al. 2014).
It is crucial, within this perspective, to realize the wide implications of the new standards beyond the accounting function since they underpin many critical businesses, control processes like budgeting, systems of compensation, IT, investor metrics, as well as the key performance indicators (Ryan et al. 2017). As pointed out by Brown & Tarca, (2011), some companies or industries may find it too late to adjust to the new changes if they fail to realize the need of assessing the impacts of the changes. For this reason, the basis of the new accounting standards requires the companies or industries to consider the following:
- The allocation of the price transacted on the industrial goods and services
- The payable transaction price to the customers
- The period of recognizing the revenues having considered the control over the goods and services transferred to the customers
- The existence of the contracts
- And the explicit and implicit promises in the contract to deliver goods and services to a customer
The above basics of impact assessments involve the concepts of controls that would replace the requirements that existed earlier and begs the need of understanding when the rewards and the risks can be passed on to the customer, thus triggering the revenue recognition.
On the political developments and implications of the accounting standards changes, it is important to note that the amendments to these standards and principles are political acts and motivation. The Australian political class, the NSW government has a real interest in the matters about the Australian Treasury. According to Goodwin et al. (2008), considering the strong relationship between the NSW economy and the treasury changes, the influence of the political.
class on the budget and financial management, treasury and media releases, as well as the financial progress of the industries are of major concern. The political influence involves their acts in parliament to lobbying by other groups that promote their own interest (Jones & Higgins, 2016). Thus, the new accounting standards are termed generally as the new accounting standards and amendments, each of which are effective from respective financial years, 2018 onwards. These changes will also monitor and regulate the financial reporting.
References
Alali, F., & Cao, L. (2010). International financial reporting standards—credible and reliable? An overview. Advances in Accounting, 26(1), 79-86.
Brown, P., & Tarca, A. (2011). Politics, processes and the future of Australian accounting standards. Abacus, 37(3), 267-296.
Chua, W. F., & Sinclair, A. (2014). Interests and the Profession?State Dynamic: Explaining the Emergence of the Australian Public Sector Accounting Standards Board. Journal of Business Finance & Accounting, 21(5), 669-705.
Exchange, A. S. (2011). Corporate governance principles and recommendations. Australian Stock Exchange accessed on, 7(4), 2011.
Goodwin, J., Ahmed, K., & Heaney, R. (2008). The effects of International Financial Reporting Standards on the accounts and accounting quality of Australian firms: A retrospective study. Journal of Contemporary Accounting & Economics, 4(2), 89-119.
He, W. P., & Lepone, A. (2014). Determinants of liquidity and execution probability in exchange operated dark pool: Evidence from the Australian Securities Exchange. Pacific-Basin Finance Journal, 30, 1-16.
Hoque, Z., Arends, S., & Alexander, R. (2014). Policing the police service: A case study of the rise of “new public management” within an Australian police service. Accounting, Auditing & Accountability Journal, 17(1), 59-84.
Jones, S., & Higgins, A. D. (2016). Australia’s switch to international financial reporting standards: a perspective from account preparers. Accounting & Finance, 46(4), 629-652.
O’Shea, P. D., Worthington, A. C., Griffiths, D. A., & Gerace, D. (2008). Patterns of disclosure and volatility effects in speculative industries: The case of small and mid-cap metals and mining entities on the Australian securities exchange. Journal of Financial Regulation and Compliance, 16(3), 261-273.
Ryan, C., Guthrie, J., & Day, R. (2017). Politics of financial reporting and the consequences for the public sector. Abacus, 43(4), 474-487.
Stoddart, E. K. (2010). Political influences in changes to setting Australian accounting standards. Critical Perspectives on Accounting, 11(6), 713-740.
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