Intermediate Financial Accounting and Reporting

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Table of Contents

Introduction
Discussion
Conclusion
References

Introduction

Comparing and contrasting the objectives of general purpose financial reporting (GPFR) of the AASB Framework with that of IASB Exposure Draft will decide whether the latter improve the former. Determining whether the objectives of each framework are appropriate will also be evaluated in this paper.

Discussion

The two frameworks as compared and contrasted

Both frameworks from AASB (2008) and IASB (2008) do exhibit similarities in various ways. The first and most obvious similarity lies in catering to users with general or common purposes as the reports generated by both will not address the special needs of their intended users.

The second similarity of the two is found in a greater number of users that will be served by both compared with special purpose reports. Both frameworks practically serve the users of financial reports in general which may include stockholders, prospective investors, short term and long-term lenders and creditors, receivers of goods or services or the customers and government agencies that include the taxing authorities and the regulators.

AASB and IASB frameworks on the other hand differ in several ways. The first distinction is evident in the extent of users covered. Although both cater to general users, the AASB framework covers the private and public alike while IASB proposed framework excludes the public sectors as a user since it is exclusively designed for public listed private companies (IASB, 2008). The second difference may be seen in the territorial coverage of the standard with the AASB sounding to be applicable only in Australia but that of IASB is international in character.

The third distinction lies also in the absence of a conclusion regarding the qualities of information in relation to the objective of the reports under AASB (2008) while IASB (2008) statement provides the qualitative characteristics of information that are connected to objectives of financial reporting. Some of these qualitative characteristics consist of understandability, reliability, relevance and timeliness (IASB, 2008).

The fourth distinction may be appreciated in the group of users encompassed under the general-purpose users served particularly on the primary users. The AASB framework’s primary users are exclusive to the resource providers, recipients of goods and services and the government agencies performing an oversight function (AASB, 2008). IASB’s primary users, on the contrary, are exclusive to the providers of capital, which pertain only to stockholders or equity-capital providers and creditors or debt-capital providers.

The fact that the AASB framework does not exclude the government is consistent with its coverage and purpose as earlier presented while IASB could not be expected to include the government entities in providing accounting standards for the same except if the government entity is a capital provider either as stockholder or creditor to a publicly listed company.

The AASB framer puts the accountability of management and government bodies as one of its primary objectives (AASB, 2008). The attitude of the framework is to consider the financial reports as a way to demand explanation which may be considered as looking more at what happened in the past. IASB framework, in contrast, gives more emphasis to the expected increased wealth of capital providers and the stability of the business (IASB, 2008) as a result of putting their capital in the business under risks of losing the values thereof.

AASB framework’s demand for accountability from decisions made by management and government regulators include those of the right of the general public to demand the same accountability. As a result, there could be a conflict of expectations under AASB. While stockholders are expecting increased wealth, the expectation of the public for cheaper products may run counter since profit maximization need not be contained in cheaper products. As to how the AASB address the conflict under general-purpose reports may be lost in what kind of balance must make on which party should receive the more favourable interpretation of the accounting standard, whether the stockholders or the general public. Since AASB would address both public and private users, there could really be conflict on how standards would be applied.

On other hand, the primary concern of the IASB proposed framework is making sure that capital providers get their due in terms of return of capital. The latter framework may appear therefore to be more specific and responsive to the needs of business compared when only one standard addresses simultaneously the concern of government and private sectors. The philosophy behind the IASB framework appears to be more consistent with the principles of economics which give due consideration to the cost of capital or opportunity cost.

Is AASB improved by IASB?

Based on comparison and contrast made between the two frameworks, it is evident that the IASB proposed framework makes a big improvement of the AASB framework on GPFR especially on the kind of users addressed. Since AASB may be encountering conflicts between the interest of the capital providers and the general public and the government taxing authorities, IASB provides a way to do away with the possible conflict of standards within the standard.

By giving its focus to capital providers, the IASB has in effect prioritized what should enjoy as a matter of right as to who should have greater control and responsibility to the business organization by exclusively making the general-purpose reports address the needs of capital providers. Theoretically, it is not sound for government to engage in business (Slesinger and Isaacs, 1968) since its focus must be regulation. Thus it could not be that general-purpose reports address government and private entities at the same time. Private entities are mainly established for profits; hence it cannot be expected government entities will behave similarly under the same standards.

If AASB will continue to address both public and private users, it could amount to have not provided a standard at all for the failure of the framework to prioritize which stakeholder should have the preferred right in organizations.

Are the objectives of each framework appropriate?

As to whether the objectives of each framework are appropriate is generally evaluated on whether the objectives could accomplish what purpose each seeks to accomplish. However, the statement of objectives could have a conflict with each other. In the case of the AASB, its objectives include providing general purpose reports to both private and public but there are no qualitative characteristics to describe the objectives such as relevance and reliability which the IASB framework has. It may thus be argued the AASB framework’s objectives under GPFR are inappropriate by the failure of the framework to define how the quality of information should be had.

The inappropriateness therefore lies in its apparent failure to meet its purpose. Another thing that may provide support for inappropriateness may come from its lack of focus to address which stakeholder should be given priority. IASB objectives in contrast are appropriate because of the presence of the qualitative characteristic of information that would have to be provided under the GPFR and its having a focus on which stakeholder should have the priority.

Conclusion

In can be concluded that the AASB framework on objectives under GPFR lacks things which may be improved upon by the IASB proposed framework. Improvements can therefore be derived in providing a focus as which stakeholder should be addressed first as matter of priority in consonance with sound economic principles. Objectives of AASB frameworks also become inappropriate for lack of the necessary qualitative characteristics as those possessed by IASB framework.

IASB objectives are appropriate for they may attain their designed purpose as may be supported in the consistency of providing qualitative characteristics to information and prioritizing capital providers to be addressed first by the reports under GPFR. AASB standard may after all stand to benefit after from its commitment to follow IFRS starting January 1, 2005 (Previts, et. al 2007).

References

AASB (2008) Statement of Accounting Concepts SAC 2 (8/90) Objective of General Purpose Financial Reporting. Web.

IASB (2008) EXPOSURE DRAFT OF An improved Conceptual Framework for Financial Reporting: Chapter 1: The Objective of Financial Reporting and Chapter 2: Qualitative Characteristics and Constraints of Decision-useful Financial Reporting Information. Web.

Previts, et. al (2007), Research in Accounting Regulation, Elsevier.

Slesinger and Isaacs (1968),Business, Government, and Public Policy, Van Nostrand.

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