Major International Accounting Implications from the Study
Discuss about the “The Effect of IFRS Adoption on the Financial Reports of Local Government Entities”.
This study explored the impacts and factors involving the use of IFRS in the Australia as a whole. The case study and evaluation mainly depicted on the local government and its entities. Thus, this analysis played a major role which had various implications for both the accounting sector at the local level and at the international level. First and foremost, the analogy assisted in the creation of a simplified accounting mode and thus, this can be used to run various multinational firms and business entities across the board. Therefore, different multinational firms will gain and record huge profit benefits if adopt this system. Although, the first benefits which Australia gained by adopting the system was not highlighted and appraised significantly, the subsequent utilization and audits indicate that huge benefits have been recorded since the adoption of the system. However, Deegan (2010) noted that there is need to adopt a decisive mechanisms and enforcement of accounting standards and implementations channel in line with the IFRS for various positive outputs and outcomes to be attained in the process. Thus, the various implications mainly discussed as follows
Chen et al., (2015), indicated that the use of the IFRS and its utilization for various aspects such as standard setters, regulators as well as accounting companies often offers high quality and effective information which obviously reduces all the asymmetries in line with the borrowers and the capital lenders. In this case, IFRS offers a more detailed and disclosure analogy which tends to enhance firms’ comparability, increasing the better measurement as well as recognition of more liabilities. Kim et al., (2011), however, concluded that IFRS use also assists in reducing all the related scopes as far as the earnings in the management is concerned. Also, news regarding the good and bad recognition are speculated and spread further through the use of the fair accounting value. Furthermore, most firms are currently enjoying the propensity more so for the debt contracts and this increases their loan limits and ratings.
The evaluation of the institutional financial incentives is on the fluctuating mode bearing in mind the evaluation of the mandatory IFRS adoption on the credit contracts. The adoption of the Australian government on the use of the IFRS basis in their accounting system has caused numerous changes, both to the local governments and the national government. It is understood that in reference to the government entities, the changes that have been envisaged due to the IFRS accounting standards have imposed some major modifications that are significant as far as the financial performance are concerned (Houqe, et al. 2008). Most of these modifications caught the various governments unaware citing the needs for analysis of the underlying methods and concepts concerning the accounting changes in the processes and new formats of presentations.
Effects of IFRS Adoption on Debt Financing
The expectation was that the various government entities were to prepare beforehand so that the adoption of the IFRS accounting principle would not find them in an awkward position in Australia. The fact is that after the adoption of this new accounting principles, most of the government entities found out that the implementation of the IFRS became costly as well as time consuming ordeal (Goodwin, et al. 2008). This led to the questioning whether there are any real benefits in the use of the IFRS accounting standards by all the sectors, especially the local institutions of the government, just as it had been claimed by the AASB.
The applicability of the IFRS to all the sector in Australia, being applicable to both the profit and non-profit making entities led to the analysis of these standards in Australia reporting by the local government, the governmental department as well as the government itself in a three tier financial reporting systems (Chua, & Taylor, 2008).
The findings from the article proved the necessary knowledge for conceptualization that as the equity increased under the AASB equity standards, there were increased accumulation of surplus, retained profit or loss, error correction prior year, as well as the interest of the council (Cascino, & Gassen, 2015). The finding also found out that the common item that made equity to go down such as the understanding of the assets as well as capital and savings that were never recognized before the use of the IFRS accounting standards. The analysis of the changes in elements such as assets, surplus, reserves, and capital are very significant in determining the real conceptual difference between the IFRS and the AASB (Ahmed, & Alam, 2012).
Some of the key concepts for a conceptualized emphasis on the contribution impacts of the use of the IFRS accounting standards on debt financing in international accounting involve reconciliation of the assets and liabilities concepts, the size effects, equity, and surplus effects. According to the findings in the article, it is found out that more than 135 companies that are listed in the Australian Stock Exchange did not influence their income and equity from their IFRS (Soderstrom, & Sun, 2007). In the same way, most of these firms registered an increasing certain modifications to their net income and equity in perfect response to their sizes. In general argument, the article shows that the use of IFRS in within the core operations of business in Australian economy has raised the net income businesses in Australia (Chua, et al. 2012). The equity of these firms increases or decreased under the IFRS for businesses while the small firms experienced higher surplus or deficient fluctuations, the same was lowly registered in the medium scale or large firms under the IFRS specifications in Australia.
Conceptualization and Focus Contribution Effects of IFRS Adoption
Based on the article, the differences that were shown in aggregation upon the use the case accounting standard on the balance sheet prepared under its principles and those of the AASB were important at 5% significant level. However, the countering alteration in total asset had no real significant (Ball, 2006). Concerning the effects of the IFRS adoption on the debt financing in international accounting, the given finding shows that implementation of the IFRS standards has induced some alterations in the government institutions in Australia (Chua, Cheong, & Gould, 2012).
Some factors in the analysis of the article come out in the IFRS accounting standards. The selected reasons that mostly frequented the impact of the IFRS adoption on the debt financing in global accounting included devaluation and amortization, employee rewards among others. The rating involved the changes in the average profit (loss) and equity. Most of these factors were found to either increasing the income or making the income to decline.
Brown (2011), indicated that the local accounting under the IFRS has positive impact on the economy of Australia. Investors and analysts of most of the publicly traded companies in Australia have improved their competitiveness and comparability against their peers in the globe (Akman, 2011). It is important significant to realize the important aspects of the IFRS are its effectiveness of the accounting practice to the economy of Australia. The subscription of the IFRS enables the economy to leverage the global market especially the accounting into true globalism whereby the accountants hare their skills across the various location (Soderstrom, & Sun, 2017).
The IFRS has improved the level of reporting finances in Australia and the similarities reporting financial records in businesses and institutions and in other countries in the world. The quality and comparability of financial information has improved since the adoption of IFRS, investors and analysts can be in a position to better predict the future performance of companies. The strategic direction of the Australian government overview of its accounting resources involved developing conceptual framework for purposes of the adopted IFRS accounting standards (Houqe, et al. 2008). These accounting standards were aimed at facilitating the Australian economy by making the cost of capital to go down in order to enable the firms within the economy to compete effectively from the global perspective.
In conclusion, the debate on the implications of the use the IFRS into the financial reports in Australia involves the impact of the use of the accounting standard on the Australian financial performance of the businesses and the quality of the accounts. These adoptions created various modifications of the financial performance reports of the various companies in Australia to their various stakeholders. The significant contributions made through the understanding of the influences of IFRS requires knowledge of the changes made in the accounting surplus and equity due to the accounting policy changes that has resulted in changing from AASB to IFRS.
References
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Ahmed, K., Chalmers, K. & Khlif, H. (2013). A meta-analysis of IFRS adoption effects. The International Journal of Accounting, 48(2), pp.173-217.
Akman, N.H. ( 2011). The Effect of IFRS Adoption on Financial Disclosure: Does Culture Still Play A Role?. American International Journal of Contemporary Research, 1(1), pp.6-17.
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Soderstrom, N.S. & Sun, K.J., (2017). IFRS adoption and accounting quality: a review. European Accounting Review, 16(4), pp.675-702.
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