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Analysis of Different Aspects of Financial Accounting Disclosure and Reporting

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This report focuses based on the concept of financial accounting disclosure and reporting. The study addresses different aspects of financial accounting disclosure and reporting such as methods of disclosure, adoption, and application of IASB by member states, and how owners’ equity is affected by respective items. First, the available literature and different opinions, regulated disclosure and reporting should be supported because it promotes sustainability and transparency in the financial accounting disclosure and reporting. Second, IASB was formed to ensure that there is universally accepted accounting standards that promote comparability and transparency. To achieve this objective IASB cooperates with nationally based accounting standards such as AASB for converging accounting standards. Third, IASB allows AASB and other member states to amend the international standards to converge with their national states. Fourth, changes in owners’ equity are impacted by the decrease and increase of respective items such as issued capital, Treasury stock, Reserves, Retained earnings, and Non-controlling interest as established in the analysis of four ASX listed companies.

Corporate Regulation

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Regulated versus Voluntary financial accounting disclosure and reporting

The new trend in the accounting practices require companies to focus their disclosure and reporting on factors such as corporate governance, social and environmental. Different stakeholders have interest in understanding the key core business and operation activities of a company. In other word, stakeholders are interested in the material definitions of an organization’s activities through financial statements and annual reports. While some stakeholders support regulated financial accounting reporting and disclosure others are for a voluntary financial reporting and disclosure option. Therefore, there is a question on which is the best financial disclosure and reporting option for corporate managers. Different merits and values are considered when choosing the better approach out of the two. Likewise, different stakeholders have different reasons to support either of the approaches. Corporations support the voluntary approach because it’s easier manipulate the reports in their favor. Generalist view states that managers can easily hide behind voluntary disclosure and reporting of their entities to present only positive information also known as selective presentation of information. On the other hand, external stakeholders such as the trade unions, NGOs, employees, suppliers and the government support regulated financial disclosure and reporting. Managers are under obligation to disclosure all information pertaining to an entity’s operations. Through regulated disclosure, external stakeholders are assured that a true and fair value of a company would be presented.

Based on the available literature and different opinions, regulated disclosure and reporting should be supported. The decision is based on several factors. First, the approach support innovation and a change in the organizational culture to incorporate interest of all the stakeholders. Second, regulated disclosure ensures completeness which is not available under voluntary disclosure and reporting. Third, regulated disclosure and reporting allow performance comparability. Fourth, the approach does not support non-disclosure and reporting of negative performance. Fifth, the approach complies with accounting and financial standards hence enjoys legal certainty. On the other hand, voluntary financial accounting disclosure and reporting is characterized by conflict of interest, and non-competitiveness and inefficiency.

Therefore, in promoting sustainability and transparency in the financial accounting disclosure and reporting, regulated approach should be full adopted. However, the debate on the topic is not going away any sooner. Merging of the two approaches is considered to be most appropriate.

Accounting Standard Setting

Contribution of AASB to IASB

The IFRS standards were first adopted in Australia in 2005. Companies that trade their securities publically are required to operate in line with IFRS standards which have been incorporated into the AASB. Therefore, it is important to establish the relationship between IFRS and AASB accounting standards. While AASB is an accounting agency formed by the Australian agency, the IASB is a component of IFRS which sought to establish a universal accounting system to guide the transactions between corporations situated in different countries. First, the Australian government, through the AASB offers monetary support annually to finance the activities of IASB. Second, IASB was formed to ensure that there are universally accepted accounting standards that promote comparability and transparency. To achieve this objective IASB cooperates with nationally based accounting standards such as AASB for converging accounting standards. Third, the International Public Sector Accounting Standards Board (IPSASB) facilitates the exchange of information between accounting agencies like AASB and IASB. Both IASB and AASB consider the information provided by IPSASB to develop generally accepted accounting standards.

Non-Compulsory adoption of IASB by members

The adoption of IFRS is not compulsory to the member states of IASB. It should be understood that different countries have different laws and regulations that guide their operations. Therefore a country can only adopt accounting standards that are in line with economic, political and cultural rules and regulations. Members of IASB are at liberty to amend IASB standards to meet their national specificities. For example, the AASB adopted the IASB standards after amending several provisions to accommodate Australian laws and regulations. For instance, AASB amended terminologies relating to the treatment of public and Private Corporations in line with the Australian regulations. Currently, the Australian version of IFRS is known as AIFRS. It is proper to say that IASB member states use IFRS for guidance when developing accounting standards that can fully meet their specific financial accounting requirements.

Another factor that hinders full adoption and convergence of the IASB standards are the nature of taxes in a country. IASB allowed its member states to amend IFRS to form tax-driven accounting standards that meet their specific needs. Therefore, members cannot be forced to fully adopt the IASB standards, without amendments, when they would not meet their specific needs.

CONCLUSION

First, the new trend in the accounting practices requires companies to focus their disclosure and reporting on factors such as corporate governance, social and environmental. While some stakeholders support regulated reporting and disclosure others are for a voluntary reporting and disclosure. Studies have shown that in promoting sustainability and transparency in the financial accounting disclosure and reporting, the regulated approach should be fully adopted.

Second, the IASB provides a universal accounting system to guide the transactions between corporations situated in different countries. Australia being a member state provides monetary support annually to finance the activities of IASB. AASB also cooperate with IASB for converging accounting standards. Last ASSB engages in the exchange of information and ideas with IASB via IPSASB to develop generally accepted accounting standards. However, IASB does not compel its members to adopt its standards compulsorily; members are at liberty to amend the international standard in line with their political, economic and social regulations.

Lastly, the report has established that changes in owners’ equity are impacted by the decrease and increase of respective items such as issued capital, Treasury stock, Reserves, Retained earnings, and Non-controlling interest.

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