The Australian accounting standard board formulates the policies and standards of the financial reporting which are applicable to the public and private sector organization working in Australia. The AASB for founded in 1991 and is established at Caulfield, Australia. The report presents the process that is used by AASB for the development of the accounting standards that helps in the financial reporting of the entities along with the description of the recent developments and issues that have arise or taken place in the financial reporting and accounting. The report has also addressed the failure of 2014 framework in resect of guidance on issues in relation to the disclosure practices.
The main objective of the Australian accounting standard board is to formulate the policies that helps in the financial reporting of the companies in Australia. The board sets the accounting standards which has to be followed by all the companies that helps in the common reporting practices which would help the users to understand and compare the financial statement of different entities (Ryan, Mack, Tooley, & Irvine (2014)). The common disclosure practice protects the interest of the stakeholders who uses the financial statements of the company to arrive at various decisions. The report discusses about the institutional and regulatory arrangements of the AASB along with the process employed by the board for the development of accounting standards. Furthermore, the features of AASB approach that is used in the developing and interpreting of accounting standards haven been explained and how the accounting standards are enforced by ASIC has also been discussed in the report. The conceptual framework of 2014 has failed in providing guidance for the principle of disclosure practices, the reason for the same has been illustrated in the report along with some recommendations that may be useful in the formulation of the policies by the AASB.
Institutional and regulatory arrangements in financial reporting
There are 3 agencies which are responsible for the institutional and regulatory arrangements in the financial reporting (Pawsey, N. (2016)). The agencies have separate functional responsibilities which are as follows:
a) The RBA (Reserve bank of Australia) owes the responsibility of framing monetary policy, regulating the payment system and for the overall financial system stability.
b) The ASIC owes the responsibility of maintaining the integrity of market and protecting the interest of the customer.
c) The APRA owes the responsibility of prudential supervision and addressed the failure of 2014 framework in resect of guidance on issues in relation to the disclosure practices.
d) The aim of the regulatory structure is to assure the effectiveness in the cooperating and coordinating the 3 agencies and their functions. The mechanism of the structure is designed in such a way that it facilitates the information exchange fully and in timely manner, reduces the duplication of work and set the responsibility when there arise of financial matter. The liasioning framework of the board contains various tiers which are headed and controlled by the council. The legislation has extended the responsibility of APRA to RBA and ASIC and for the payment system board to APRA. The operational level arrangement is set out in 3 MOUs which is signed among RBA, ASIC and APRA.
Process employed for development of accounting standards by AASB
The due process deployed by the AASB is based on the principles of strategic influence, consultation, transparency and accountability (Ram & Newberry (2013)). The explanation of the principles are as follows:
The principle of the strategic influence is in accordance for the maximization of the Australian input and influence with IPSASB and IASB.
The process for the development of the accounting standards by AASB is done after consulting with various entities and professional bodies which are impacted and it is done mainly to increase the standards quality (Bamber & McMeeking (2016)).
The AASB and AUASB are responsible for the process of transparency. It includes the decision of making information public on which the AASB takes its decision.
The accountability is based on the principle of the cost benefit analysis that is designed for the new or the amended standards. It can be in the form of regulation statement or similar document that helps in the setting of basis for the conclusion. There is need to set up proper accountability in the recorded items and allows organization to evaluate the possible issues in the followed reporting framework.
The process is based on the questioning of answers to the following question such as:
What is the problem?
What actions are required?
What are the available policy option?
What is the net benefit of the option?
Which entities or individuals should be considered for the consultation?
What are the best options available?
Features of AASB for the development of interpretation of accounting standards
The processes and policies framed by the AASB set the functions and powers of AASB (Standard, (2017)). The approach which is used for the developing and interpreting of the standards is: The AASB for founded in 1991 and is established at Caulfield, Australia. The report presents the process that is used by AASB for the development of the accounting standards that helps in the financial reporting of the entities along with the description of the recent developments and issues that have arisen or taken place in the financial reporting and accounting. This shows the possible issues and factors which may lead to failure to make the legal reporting compliance set up by the organization in the reporting framework.
Issue identification: the IASB committee or the IFRS committed identifies the issues that may be technical and requires consideration. The issues may be in relation to profit or non profit entities which are identified by the IASB and IPSASB respectively. The organization themselves may also refer the issues for consideration by AASB.
Addition of identified issues in the agenda: the issues after getting identified is included in the project proposal and is sent for the evaluation which involves the decision if the proposal should be worth considering or not.
Researching and considering: the AASB discusses the agenda papers and carries on the research which is done by the AASB staff.
Stakeholder consultation: the consultation is done through drafts, discussion papers, focus groups, invitations to comments from the various stakeholder.
Issuing the pronouncement:
The results obtained from the research and consideration is presented in the form of issuance of pronouncement that can be in the standard form and in document of conceptual framework
International organization submission:
The results of the pronouncements are also submitted to the various international entities this leads to the setting up the connection in the stakeholders and allow the stakeholders in the required program.
Receive comments and implement:
Further, the AASB asks for the comments from the stakeholders on the proposal and afterwards the standards are implemented and interpretations are monitored from time to time.
Enforcement of standards by ASIC
The capital and market regulator i.e. ASIC is an Australian government body set up under the act of Australian commission act, 2001. The role of ASIC involves:
Maintain, improve and facilitation of the financial system performance
Effective administration of law
Promotion of confidence of investors and consumers in the Australian finance system.
Storage and processing of received information
Taking action and enforcing them for giving the effect to law
The ASIC obtains substantial enforcement powers for the implementation of financial reporting and auditing under the corporation act and other state crimes act (Irvine & Ryan (2013)). The entity is responsible for providing the orders in relation to compliance and instituting the legal obligations that comprises of production of outcomes which occupies large criminal and civil liabilities. It directs the companies in relation to the preparation and lodging of reports along with seeking the injunctions for restraining contravention of the corporation act and investigating about the breach of corporate laws and acts. The ASIC contains a qualified staff team which enforces the matter of financial reporting. With the proper implication of the AISB, program, and company could easily set harmonization in the work set up program and helps in strengthen the reporting framework.
Reason for failure of conceptual framework 2014
The conceptual framework of 2014 has failed in providing the guidance in relation to principles that underlie the practice of disclosure (Huber (2017)). The reasons for the failure of the framework are considered to be as follows:
Defining of accounting policies to be adopted was not clearly stated:
The framework 2014 failed to define the accounting policies that should be opted by various entities in various situation (Mazhambe, (2014)). It did not cover all the aspects and situations that requires to be defined separately in the framework. The adoption of the framework created a collusion with other laws.
Recognition principles to be applied were not clear:
The recognition principle were not aligned with the prevailing laws that created a complicated situation for the users as to which policy should be followed.
The measurement concept used in the framework were not justifies:
The measurement concept was not in integration with the standards set by the AASB. Also, the weak reporting requirements created a difficulty for the interpretation of various standards and policies set in the framework. This measurement concepts implemented with a view to justify the proper integration in the reporting framework and helps in strengthen the true and fair view of the reporting program.
Disclosure practice failed in bringing the transparency: The framework of 2014 provided the disclosure practice that lack the transparency and hence the true and fair view of the financials could not be obtained which led to the complete failure of the conceptual framework. However, if the proper reporting framework is not followed then it might disturb the transparency of the recorded items in the books of accounts of the company.
The Australian accounting standard board formulates the policies and procedures with the help of the institutional and regulatory arrangements made by the board. The standard provides the guidance on the measurement, recognition, reporting and other disclosure practices that are required to be followed by the organizations (Handley, Evans, & Wright, (2019)). The framework that should be designed by the AASB should clearly define the accounting policies that should be followed by eth companies, set the recognition principles clearly, should have a justifiable measurement concept and the disclosure practice set out should be transparent. It is therefore recommended that the framework should be in integration and harmonization with the other prevailing laws and should not create a collusion among the entities. There is need to set up proper harmonization in the international and domestic reporting framework by the organization to strengthen the transparency in the recorded items and helps in winning the trust of the shareholders.
After the completion of the report, it is inferred that Australian Accounting Standard Board is the body which is responsible for the setting and developing of the reporting framework which is required to be followed by the companies. It has installed a due process for the development and the interpretation of the standards and the ASIC enforces the standards. It is evident that any framework should consider four issues before designing the framework which are defining, recognizing, measuring and disclosing practices. If the framework lacks in any of the above issues than it may lead to the failure of the framework.
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