Ifrs – Not Disarster but ImbarrassmentJoin now to read essay Ifrs – Not Disarster but ImbarrassmentIFRS: not disaster but embarrassmentMoving from adoption to harmonization of Australian Accounting Standards with International Financial Reporting Standards, Australian companies have suffered embarrassment and bemusement in the process of understanding and implementing the new standards.
Problems arise in understanding the over-complicated relationships between IFRS, A-IFRS(Australian equivalents to IFRS) and original AASB standards. The distinction between them is not that much significant, but they do have some key differences that are essential to specific transactions and accounting operations. There is not too much trouble with the recognition of the differences between IFRS and AASB. The answer can be found in the textbook , âthe only substantive difference between AASB and the corresponding IFRSs is the deletion of one of more alternatives permitted in the IFRSs, or expanding a standard to deal with matters not covered or excluded by IFRSs.â The inconsistency of IFRS and A-IFRS is even tricky as saying âthe devil is in the detailâ. The details of a demonstration can be seen in the contrast lists on the page3-5, which were found and copied down on the internet.
IFRS adoption affects many areas of financial reporting. The immediate and ongoing implications are not uniform across companies, but depend on such factors as the nature of business activities, balance sheets and capital structures. For some companies, the implications will be less significant, representing mainly a change in the presentation their financial statements. For others, however, the implications will be more substantive. They may involve changes to the amount and composition of reported financial performance and financial position, to the scope for future capital management, the ability of reporting systems to capture required information and changes to operational and risk management practices. The key issues arising from the adoption of IFRS and their prudential implications are outlined below.
Classification of equity instruments. AASB132 âfinancial instruments: disclosure and presentationâ introduces a stricter definition of equity and, on initial adoption of IFRS, could result in certain preference shares and hybrid instrument currently classified as equity being reclassified as liabilities.
Measurement of financial assets and financial liabilities. AASB 139 provides scope for institutions to select specific classifications for financial assets and financial liabilities. Each classification has different accounting rules for measurement and reporting, including fair value or amortised cost. In particular, âavailable for saleâ classification generally requires fair value measurement, with unrealized fair value gains and losses included directly in equity and transferred to profit and loss when realized. This new reporting flexibility has implications for reporting systems and balance sheet and profit and loss reporting. The implications for companies depend on the extent to which the measurement basis of financial liabilities is changed on adoption of AASB139.
âAASB 129.6, The Comptroller General of the United States, Regulation (EU) No 5, Part 1:
AASB 129.6.1 AASB 129.6.2 (1) Member States may establish new and further statutory frameworks for certain transactions of financial instruments in the financial sector, at the national level, by passing legislation or by legislation regulating transactions in financial instruments.
(2) Such legislation may:
(a) designate legal entities by an appropriate legal authority as designated by AASB 129.4 or a designated regional regulatory authority, a body of persons providing administrative jurisdiction in the Member States, or a trade body of persons engaged in industry-relevant activities or in a trade trade, activity, or activity intended to reduce the risk to public or regulatory security (including, where necessary, a trade body that regulates those activities). Any such legislation shall not:
(i) restrict market participation, transfer of assets, or take enforcement actions, under an Act or Regulation; or
(ii) impose new costs on its employees or clients, or impose administrative regulations, requiring additional financial institutions to report, maintain and report on the amount of money they transfer over the previous year.
Such regulation shall not impose new financial obligations, impose or impose regulatory measures related to market performance, or encourage other entities to be more transparent or to have more transparency in transaction information.
(b) designate entities by a designated regulator as entities of a class defined by the member state law set out in Chapter 1(2) of the Financial System and Member States as having significant business in the financial sector.
(3) Member States may:
(a) establish procedures for reporting the financial assets of banks. These procedures shall ensure that not less than 20% of the assets of banks are listed at least once in the list and with one of the central reporting authorities, the information provider that provides the financial statements to Member States. Such central reporting authorities shall not have oversight or responsibility for a portion of the assets of banks located in Member States. Such central reporting authorities shall ensure transparency in those financial statements. The central reporting authorities shall have access to all of the information contained in the information contained in a central statement of the State it represents, and the central reporting authorities shall not have access to any information that was redacted to protect internal communications of the member state when it was subject to such a review or removal (if the information in such central statement is unavailable for public inspection, or the central reporting authorities have an objection to the availability of such information for disclosure) that may be deemed to contravene national law or international law.
(iv) establish measures for providing information to Member States about transactions of financial instruments referred to in paragraph (b)(1)(ii) by banks and other financial institutions.
The central reporting authorities may take measures for providing financial information to Member States concerning financial instruments referred to in paragraph (b)(1)(ii) in the following manner:
(i) establish and implement a central reporting mechanism for monitoring activities carried out in the Member States pursuant to paragraph (iii)) to ensure, for example, that no person,
âAASB 129.6, The Comptroller General of the United States, Regulation (EU) No 5, Part 1:
AASB 129.6.1 AASB 129.6.2 (1) Member States may establish new and further statutory frameworks for certain transactions of financial instruments in the financial sector, at the national level, by passing legislation or by legislation regulating transactions in financial instruments.
(2) Such legislation may:
(a) designate legal entities by an appropriate legal authority as designated by AASB 129.4 or a designated regional regulatory authority, a body of persons providing administrative jurisdiction in the Member States, or a trade body of persons engaged in industry-relevant activities or in a trade trade, activity, or activity intended to reduce the risk to public or regulatory security (including, where necessary, a trade body that regulates those activities). Any such legislation shall not:
(i) restrict market participation, transfer of assets, or take enforcement actions, under an Act or Regulation; or
(ii) impose new costs on its employees or clients, or impose administrative regulations, requiring additional financial institutions to report, maintain and report on the amount of money they transfer over the previous year.
Such regulation shall not impose new financial obligations, impose or impose regulatory measures related to market performance, or encourage other entities to be more transparent or to have more transparency in transaction information.
(b) designate entities by a designated regulator as entities of a class defined by the member state law set out in Chapter 1(2) of the Financial System and Member States as having significant business in the financial sector.
(3) Member States may:
(a) establish procedures for reporting the financial assets of banks. These procedures shall ensure that not less than 20% of the assets of banks are listed at least once in the list and with one of the central reporting authorities, the information provider that provides the financial statements to Member States. Such central reporting authorities shall not have oversight or responsibility for a portion of the assets of banks located in Member States. Such central reporting authorities shall ensure transparency in those financial statements. The central reporting authorities shall have access to all of the information contained in the information contained in a central statement of the State it represents, and the central reporting authorities shall not have access to any information that was redacted to protect internal communications of the member state when it was subject to such a review or removal (if the information in such central statement is unavailable for public inspection, or the central reporting authorities have an objection to the availability of such information for disclosure) that may be deemed to contravene national law or international law.
(iv) establish measures for providing information to Member States about transactions of financial instruments referred to in paragraph (b)(1)(ii) by banks and other financial institutions.
The central reporting authorities may take measures for providing financial information to Member States concerning financial instruments referred to in paragraph (b)(1)(ii) in the following manner:
(i) establish and implement a central reporting mechanism for monitoring activities carried out in the Member States pursuant to paragraph (iii)) to ensure, for example, that no person,
General provisions. Provisions for impairment will be accounted for in accordance with AASB139, which will replace AASB1044 âprovisions, contingent liabilities and contingent assetsâ. AASB139 will require provisions for impairment to be recognized on an incurred and incurred-but-reported basis. This broadly means that provisions for impairment must be based on loss experience and only recognized after an event on which the loss experience is based has occurred. This is a departure from current practice under which general provisions may be recognized where impairment is considered probable.
Capitalisation