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Australia has introduced Australian equivalents to International Financial Reporting Standards (AIFRS)

Extracts from this essay...

Introduction

Globalisation has led more countries to open their doors to foreign investment. As business expands across borders, both the public and private sectors are increasingly recognising the need for globally accepted accounting and auditing standards. Most major capital markets are pursuing convergence towards a single set of globally accepted standards recognising that global capital markets require high quality, globally consistent and uniform regulatory and standards regimes. So Australia has introduced Australian equivalents to International Financial Reporting Standards (AIFRS) for reporting periods commencing on or after 1 January 2005. The transition from the previous Australia Generally Accepted Accounting principles (AGAAP) to AIFRS is a major change for companies. Based on the research from academic and professional journals, 'the benefits of adopting IFRS are obvious' (Carroll, 2003a), it becomes a more effective communication and engagement between business, investor and other shareholders. The benefits of adoption are likely to outweigh of the negative impacts. A1. Benefits to Australian Business a) Quality and Comparability of Financial Statements and More Efficient Capital Markets The benefit of adoption of IFRS is 'improvement in the efficiency of the capital markets that will arise from the existence of a set of globally acceptable accounting standards that result in high-quality, comparable and transparent financial reporting' (Alfredson, 2003a; Alfredson, 2003b). At this point, both domestic and foreign investors will be better able to comprehend the information contained in Australian financial reports and make valid comparisons with alternative investment opportunities. Also, a large number of private and public sector entities of all kinds are obliged to prepare their financial reports under the provisions of AIFRS. These entities not only have to consider the technical issues involved in the transition to the new accounting standards, but also the potential effect on investor sentiment of the move to AIFRS. The major benefit of adopting of IFRS as 'financial statement comparability for investors, can reducing the cost of capital in Australia and improving access to foreign capital for Australian entities' (Knapp, 2003).

Middle

1. Business combinations: AASB3 'Business combinations' contingent liabilities that are reliably measurable are required to be recognised as part of the business combination and intangible assets are required to be recognised separately from goodwill. According to Note 38 (a) intangible assets relating to brand names and goodwill were recognised in respect of the acquisitions, such as acquisition of Clive Anthonys Pty Ltd. There were no other intangible assets or contingent liabilities requiring recognition under AIFRS. 2. Intangibles: According to Note 38 (c) On acquisition business assets of JB HI-FI, brand names of $43,094 thousand were recognized under A-GAAP but when transition to A-IFRS the value of the brand was increased by $12,928 thousand, as a result of recognising the deferred tax liability arising from the recognition of this asset. 'The directors have reviewed the carrying value of both brand name and goodwill on consolidation and are satisfied the value of these intangibles has not been impaired during the 2005 financial year and since the acquisition date.' 3. Leases: AASB117 'Leases' and according to Note 38 (h) the consolidated entity is required to account for fixed rate increase in operating leases on a straight line basis and other current and non-current provisions at 30 June 2005 will increase by $1,016 thousand of JB HI-FI. 4. Impairment of assets: AASB136 'Impairment of assets' require the recoverable amount of assets to be assessed on a Cash Generating Unit, whereby assets are recognised in respect of the independent cash flows they generate. In addition, future cash flows are required to be discounted under A-IFRS. According to Note 38 (j) impairment losses of $412 thousand of JBH will need to be recognized in respect of leasehold improvements for the financial year ended 30 June 2005. 5. Employee Benefits: AASB119 'Employee Benefits' the consolidated entity is required to account for its annual leave provision on a current and non-current basis.

Conclusion

While such quantified disclosures were not required in 30 June 2004 accounts, they will have to be made in those for periods ending on or after 30 June 2005. It appears significant preparation and consideration of the impact of adoption of IFRS remains to be undertaken by Australian businesss. Carroll, N., 2003a, 'Thought Required Before the IFRS Plunge', Australian CPA, November, p. 76. Alfredson, K., 2003a, '2005 Implementation - A Status Report', CA Charter, April, pp. 50-52. Alfredson, K., 2003b, 'One Way Street', Australian CPA, February, p. 66. Knapp, J., 2003, 'International Convergence 2005: Off and Running', CA Charter, September, pp. 54-58. Collett, P.H., Godfrey, J.M. and Hrasky, S.L., 2001, 'International Harmonization: Cautions from the Australian Experience', Accounting Horizons, Vol. 15, No. 2, pp. 171-182. Haswell, S. and McKinnon, J., 2003, 'IASB Standards for Australia by 2005: Catapult or Trojan Horse?', Australian Accounting Review, Vol. 13, No. 1, pp. 8-16. Williamson, K., 2003, 'Time for a Smooth Change', Australian CPA, June, pp. 74-77. Dodd, C. and Sheehan, V., 2004, 'On Your Mark, Get Set ...', Charter, February, pp. 66-67. Nobes, C. and Parker, R., 2004, Comparative International Accounting, 8th edition, Pearson Education, Harlow, England. Heathcote, A., 2005, 'Australia's most wanted', Business Review Weekly, January 13-19, pp. 68-69. Perera, H.B., Rahman, A.R. and Cahan, S.F., 2003, 'Globalisation and the Major Accounting Firms', Australian Accounting Review, Vol. 13, No. 1, pp. 27-37. Howieson, B. and Langfield-Smith, I., 2003, 'The FRC and Accounting Standard Setting: Should I Still Call Australia Home?', Australian Accounting Review, Vol. 13, No. 1, pp. 17-26. Peter, G..Gerhardy., 2005, 'A Review of the Costs and Benefits of Australian Adoption of IFRS' School Of Commerce Research Paper, Series 05-4, ISSN1441-3906. Flight Centre Limited, Annual Report 2005, 2005 JB HI-FI Limited, Annual Report 2005, 2005 Australian Infrastructure Fund, Annual Report 2005, 2005 Riversdale Mining Limited, Annual Report 2005, 2005 Henderson S. & Peirson G., (2004), 11th Edition, Issues in Financial Accounting, Prentice Hall, Melbourne, p.32. Buffini, F., 2004e, 'Asic pleased with efforts on accounting rules', The Australian Financial Review, 23 November, p. 3. ?? ?? ?? ?? 1

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