Harmonization Of Accounting Standards

Abstract

Discussion on harmonization is started quite long time ago. Its impact on the countries economy is good or bad is the central idea of this essay. This essay is written specifically on the accounting standard used in Australia. This essay starts with introduction on various topics such as conceptual framework, IASB, Sacs then it discussed the issue of harmonization. Harmonization will have positive impact on the economy because it attracts overseas investors to invest in Australia. This essay covers difference between conceptual framework developed in Australia and IASB framework. There are given lot of difference such as treatment of non for profit entity is same as the public entity in A-IFRS. Reporting entity concepts and valuation of non current assets is also different in A-IFRS .AASB framework is more prescriptive in nature as compare to IASB. Changes made in SAC4 are given at the end like the issues of operating dates and transitional provisions.

Introduction

Every country has economic activities. To measure these economic activities fairly and free form any bias accounting standards are necessary. So every country has specific accounting standards .in the context of Australia there are also accounting standards which are made by AASB. This essay tells about Australian accounting standards developed in Australia and also discuss the IASB (International accounting standards board). After that this essay made comparison between these two set of standards. These essays also gave their views about IASB standard should be followed or not. After that there is discussion about changes made in SAC4 in the year 1992 and 1995.

Purpose

The purpose of this essay is to make comparison between Australian standards set by AASB(Australian accounting standard board) and Australian equivalent of IASB framework (International accounting standard board) .this report fed light on the topics like should Australia adopt these standards set by IASB and what are the long term results of adopting these IASB standards .this standard . There is also the discussion about changes made in SAC4 between 1992 and 1995.

Overview of the essay

In this essay there is discussion about conceptual frameworks and SAC1 SAC2 SAC3 SAC4 .then there is discussion about IASB and comparison between two standards. There is also a lot of discussion about changes made in SAC4 after that there is paragraph about implication of adopting international accounting standards. There is lot more discussion about harmonization of accounting standards.

Conceptual framework in Australia:

According to Belkaoui A. R., and S. Jones, 2002 Conceptual framework is a set of concepts that specify the function, scope and purpose of financial accounting. There are two types of frameworks one is descriptive and another is prescriptive. A descriptive framework is that which tends to explains present financial reporting practice on the other hand prescriptive framework attempts to develop concepts for accounting that should be there. Prescriptive framework seeks more changes in the accounting system as compare to descriptive framework.

In Australia conceptual framework has made progress in 1980 when six exposure drafts were released. These drafts have considered the issues like objective of the financial reporting qualitative characteristics of the financial report, definition and recognition of the assets and definitions and recognitions of the liabilities. These drafts are released at the same time. In 1987 two more drafts are added one is definition of the reporting entity and definition and recognition of the expenses. In 1990 SACs are released theses SACs are: SAC1 for definition of the reporting entity, SAC2 definition of general purpose financial reporting and SAC3 qualitative characteristics if financial information. In 1992 one more SAC, SAC4 was released which is for definition and recognition of elements of financial statements .these SACs are given in detail in the later part of this essay(Belkaoui A. R., and S. Jones,2002).

Merits of conceptual framework

According to Belkaoui A. R., and S. Jones, 2002 Conceptual framework is like a constitution for standard setting process. It is the concepts to define nature, subject, and purpose, of the financial report. it has many advantages to have a conceptual framework for than company for example when there is a conceptual framework implemented in the country then all business bodies follows that framework and so there is better communication between different business entities. Otherwise it is not possible if there is no conceptual framework in the country. The AARF (Australian accounting research foundation) has discussed many different benefits of having conceptual framework as follows all financial reports will be in consistent with others. Setting conceptual framework is also economical for the country. More advantages are given below:

• Those who made the framework are now more responsible and accountable for their actions .entities are now more accountable if they do not proved any disclosure or giving false information. CF provides a means of communicating key concepts to financial report to preparers and users, as well as providing guidance to reporting entities when no specific standards address a particular issue.

• Financial reports made by the help of conceptual framework are consistent and more in logical manner so that there is more understandability in the financial reports.

• Because standard-setters will have harmony on many important issues, the Development of standards for accounting will be more economical.

There are also some disadvantages linked with conceptual frameworks like development of conceptual framework is under the influence of the political power .so political power can divert the conceptual framework which is not always good. Conceptual framework is costly to develop. (Belkaoui A. R. and S. Jones, 2002)

Conceptual framework defines and discussed topics such a definition of financial reporting and definition of reporting entity. After that it tells about objectives, qualitative, and elements that should be present in the financial report. It gives suggestion and guideline on various issues such as techniques of measurements, basis of measurement. Conceptual framework is like a handbook that should be followed to make financial report. (Belkaoui A. R. and S. Jones, 2002)

The Australian conceptual framework was developed by AASB (Australian Accounting Standards Board) and AARF (Australia Accounting Research Foundation). The financial reporting council (FRC)