Generally Accepted Accounting Standards

Question: Discuss about the Generally Accepted Accounting Standards. Answer: Introduction: Accounting is considered a thriving profession in Australia. There was an increase in the number of professionals to 140000 in 2005-2006 as compared to 100000 in 1996-1997 (International recruitment services for Australia and New Zealand, 2007). Despite of this increase there continues to be shortage of accounting professionals in Australia. The Federal government of Australia has classified accounting professionals on the Migrant Occupations Demand List. In order to cope with the shortage of skilled professionals, the government in collaboration with universities have dedicated efforts towards providing specialized education and upgrading the skills of the accounting professionals. Besides this, implementation of several acts such as Uniform Companies Act and Uniform Tax Act are aimed at establishing standardized business taxes at the federal level. Besides this, The Companies Act provides information related to disclosures and preparation of the companys financial statements so as to comply with the disclosures of Australian Stock Exchange (Jackling Keneley, 2009, p.157). The accounting standards established by Australia comply with the international standards (IFRS) and US Generally Accepted Accounting Standards (US GAAP). The Australia accounting standards are developed by Australian Accounting Standards Board (AASB) for public, private and not for profit organizations. Australian Securities and Investments Commission Act 2001 establish the functions and powers of the AASB (Jackling, 2007, p.33). Accounting is considered as a best profession to accelerate the business career of an individual. The main reason behind this is that accounting is considered as a main tool and language of a business. It takes into consideration with the bottom line and activities of the business. In addition to this, several changes have been occurred in the accounting profession due to increased government regulations and changes in technology, globalization, frequent changes in tax laws, and occurrence of restructuring and downsizing of corporations. Due to frequent changes in the business environment, there is an increased demand for accounting professionals in the businesses in Australia due to presence of shortage of accounting skills. Accountants are considered as professionals that has dynamic and prestigious role of financial experts, management consultants, system professionals and budget analysts. In addition this profession is best suited to women as they exhibit the business responsibil ities of accounting profession in an effective manner. There is a presence of several job opportunities in the accounting profession (Jackling, 2007, p.37). In all the different forms of businesses such as public companies, private companies, government and not for profit organizations. the public accounting firms ranges in size from single practitioners to international firms that provide different services to businesses and individuals such as tax, auditing, accounting and consulting services. In such organizations, accountants gain exposure and experience that helps in the development of new skills required to perform the job. Besides this, there are some characteristics of accounting professionals which include the following. The accounting professional requires expertise and full knowledge of the accounting profession in order to attain customer satisfaction. In addition to this, the professional has to consider the requirements of the client and exhibit loyalty towards the practitioner and perform different activities in a professional manner. In todays business environment, the organizations do not exhibit smooth functioning of di fferent business activities in the absence of the accounting professionals (McPhail, 2001, p.292). The main reason behind it is that the accounting professional keep a record of different economic transactions carried out by the company for the purpose of assessing of the sales and profitability of the business. The different stakeholders of the accounting profession include government, investors, employers, business, clients, credit grantors and financial community. In addition to this, it also includes professionals who are dependent on the integrity and objectivity of the accountants. Professional accountants are required to conduct an ethical behavior that does not consider selfish commercial view. The selfish commercial view has a meaning that the accounting professional not only focuses on making profit but also consider providing services to clients in a social responsible manner. The three obligations of an accounting professional are that the professional should possess the knowledge of the accounting profession (Aranya, Pollock Amernic, 1981, p.274). Besides this, the priority should be given to the interests of the clients over their own interests and fulfill the duties and responsibilities to serve to the public. It is requisite for the professional to accept the social responsibility to serve to the interests of public. It is the necessity of the accounting profession that the professional should do or perform activities in the interests of its clients. This facilitates in gaining recognition and high status in the profession by the professionals (Cooper Robson, 2006, p. 426). Financial statements are prepared by the organizations to keep a record of the economic transactions carried out by the business. There are broadly three types of financial statements prepared by the companies such as income statement, balance sheet and cash flow statement. These statements are prepared in accordance with the accounting standards established by the regulatory authorities of the country (Gordon, Loeb Zhu, 2012, p.383). Definition of the Project Nowadays, majority of the multi-national companies prepare financial statements in accordance with the International Financial Reporting Standards (IFRS). Emergence of globalization has resulted in the adoption of the common accounting language i.e. IFRS standards for the purpose of preparing financial statements. This is because the companies have expanded their businesses across national boundaries due to which they find difficulty in making comparison of the financial position of one company with another (Kargin, 2013, p.74). This states that the adoption of IFRS by the companies helps in making comparisons with other companies across international boundaries or nations. The project mainly focuses on the analysis of the impact of adoption of IFRS on the financial statements of the companies in Australia (Uchenna, 2016, p.127). Background of the issue The main problem faced in the accounting profession is that there is an adoption of the adequate accounting standards by the companies so that the stakeholders or users of the financial statements can make easy comparisons with other companies in order to make effective and efficient decisions. Companies adopt different standards for preparing their financial statements such as generally accepted accounting principles in different countries like UK GAAP, US GAAP, Australian Accounting Standards. This results in difficulty in making comparisons of the financial position of different companies in different countries (Cheong, Kim, Zurbruegg, 2010, p.136). The first three adopter countries of IFRS include Australia, UK and France. The introduction of the IFRS helps in increasing the pervasiveness of the earnings management in these countries. The sharing of the information by the companies of different countries does not result in the formation of the common language of the accounting. Besides this, there are different factors such as national institutional factors, and management incentives play a important role in the formation of the financial reporting standards adopted internationally (Stent, Bradbury Hooks, 2010, p.101). Along with this, different regulatory bodies such as IASB, European Commission and SEC have made efforts to collaborate the mentioned factors rather than collaborating different accounting standards. The mentioned problem is crucially for the accounting profession as it results in the difficulty in comparing the financial position of different companies operating in different countries. This is the main reason to adoption of the IFRS standards by the companies so that investors and other users of the information evaluate the financials of different companies to make accurate decisions related to investment in the company (Muller, 2014, p.979). Aim and Objectives The main aim of the project is to evaluate and investigate the reasons behind adoption of IFRS for preparation of financial statements and its impact on the financial statements of the companies. For the purpose of attaining this aim, there is a requirement of achievement of the following objectives. To understand the meaning and significance of the financial statements for the companies To understand the importance and meaning of the IFRS. To examine the reasons behind the adoption of the IFRS by the companies operating in Australia To analyze the impact of IFRS on the value relevance of the accounting information To evaluate the impact of the adoption of the IFRS on the financial statements of the companies. Literature Review As per Jeanjean Stolowy (2008), nowadays companies eager to adopt a common language of accounting i.e. IFRS for the purpose of preparation of the financial statements. It facilitate the users of the financial statements to make comparisons with international companies for the purpose of making effective decision. Approximately 100 countries allow the adoption of the IFRS standards by the companies so as to provide easy comparability of the companies in terms of financial performance and positions in different financial periods (Jeanjean Stolowy, 2008, p.488; Istrate, 2014, p.472). In a similar manner, Holthausen (2009) states IFRS is adopted across different countries in the world which provides several benefits to the companies. This helps in providing a uniform set of the accounting standards to be applied to record different transactions carried out by the businesses. The adoption of the IFRS facilitates in easy cross country comparisons of firms and results in transparency in the operations carried out by different businesses across the world. It is also requisite that the economic and institutional factors become similar across countries for the purpose of building economic viability of the adoption of the IFRS standards (Chua Taylor, 2008, p.468; Bragg, 2010, p.182). Apart from the accounting standards, there is a presence of other factors that helps in the determination of the financial reporting outcomes (Holthausen, 2009, p. 453; Istrate 2014, p.480). According to Heykal, Siagian Iswandi (2013), it is essential for the banking firms to reduce the risks which are encountered by them by the use of IFRS standards as it facilitates in overcoming the competition at the global level. This also results in increasing the level of transparency of the operations carried out by the banks. Public companies such as banks use Statement of Financial Accounting standards to prepare financial statements as it takes into consideration different corporate types of public companies and corporate banking services. The statement of Financial Accounting Standards is keen to adopt IFRS in the year 2012 by making necessary adjustments in GAAP to attain consistent performance (Heykal, Siagian Iswandi, 2013, p.1248; Chua Taylor, 2008, p.472). Analysis of the gap with the Literature Little research has been done on the comparison between IFRS and countries generally accepted accounting principles. Besides this, there is a scope of research on different aspects of the research topic such as importance of the adoption of IFRS in place of locally generally accepted accounting principles for the purpose of providing easy comparability of the financial performance and profitability of the companies. Research Methodology Research Philosophy: The recent research attempts to investigate the impact of International Financial Regulatory system on the financial statements of the business organization. For this reason, a well-constructed methodology needs to be taken into consideration so that a positive philosophy can be implemented between the research process and the literature review of the research. Research Approach: Research approach is one of the major steps to carry on a research process. There are two types of research approaches; they are Inductive research approach and Deductive research approach. Inductive research approach helps to develop new set of theories and concepts from the research process. On the other hand, deductive research approach helps evaluate different concepts and theories based on the collected data and information. Research Design: For the purpose of this research, explanatory research design will be considered. In explanatory research design, the dada are collected from both primary and secondary sources; then they are evaluated and explained based on the evaluation to get the desired result. Research Strategy: Research strategy is important for the smooth conduct of the research process. Based on the research strategy, the data can be collected based on surveys, interviews and questionnaires. In order to judge the impact of IFRS on the financial statements, a survey will be conducted on a group of financial managers and financial employees. Data Collection and Analysis: Data collection and analysis is necessary to get the desired outcome of the research process. For the purpose of this research, both primary and secondary data will be collected. Quantitative approach will be taken into consideration for the collection of primary data. The primary data will be collected from surveys. The sample size of the research will be 50 persons that will include 20 financial managers and 30 financial employees. The survey form will include 15 questions. After the collection of primary data, they will be analyzed in Microsoft Excel to get the desired results. On the other hand, secondary data will also be collected for the research process. The sources of secondary data will be the financial statements of various companies, the website of IFRS, various essential financial journals and articles. Data will be collected from these sources for the research. Expected Research Outcome: It is expected that the analysis of both primary and secondary data will help in getting the desired result of the research process. In a more precise note, this research process will help in determining the impact of IFRS on the financial statements of the business organizations. Organization of the Research In the first step, the problem or issue related to accounting profession is identified, then the problem is explored by the use of secondary sources of data collection such as books and scholarly articles. First of all a number of books are searched by the use of keywords related to the topic i.e. impact of IFRS on financial statements. After searching sorting of the books and journal articles is done and the books and journal articles is selected gto create a background of the research. In addition to this, the aims and objectives of the project is identified in order to carry out the research in a successful manner. Besides this, the next step is to review the information collected from different literary sources in order to create the background of the research. After this, the solutions of the problem are identified. Timeline The project will be completed in 6 weeks. The Gantt chart is as follows. Particulars/Time in weeks 1 2 3 4 5 6 Identification of the problem Establishment of aims and objectives Reviewing of the Literature Data collection methods Proposed Solution to the problem identified References Aranya, N., Pollock, J. Amernic, J. (1981). An examination of professional commitment in public accounting. Accounting, Organizations and Society 6 (4), 271-280. Billabong. (2016). Reports. Retrieved from https://www.billabongbiz.com/phoenix.zhtml?c=154279p=irol-reportsarchive Bragg, S.M. (2010). IFRS Made Easy. John Wiley Sons. Cheong, C.S., Kim, S. Zurbruegg, R. (2010). 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