Australian Accounting Standards Board (AASB) Rules

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Introduction

The Australian Accounting Standards Board (AASB) can be described as the government agency which has the mandate for development, issuing as well as maintaining the compulsory standards which are applicable to any company that operates in the country (Clarke, p. 12).To begin with the first AASB rule outlines the requirements for the derivatives which can be used to hedge risk exposures. The AASB rule outlines that for any derivative that can be used to hedge against risk exposure then it should be accounted for as either fair value hedges or cash flow hedges. This AASB rule defines the fair value hedges as those which facilitate the conversion of cash flows to variable cash flows where the losses and gains encountered in the transaction being recorded in the profit and loss trading account (Clarke, p. 14). Cash flow hedges in this sense are converted to the fixed cash flows where all the profits and losses that have occurred are directly channeled to the equity. This AASB rule is very important to ADIs which depends on derivatives and financial assets and liabilities to qualify for any hedge when it comes accounting treatment (Clarke, p. 25).

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The second important rule of AASB is the rule concerning a revenue this implies that this rule is concerned with regulation of revenue which is concerned with the limitation of cost that are actually associated with any form of acquisition of any financial assets, financial liabilities and any other form of investment contracts which can be easily capitalized (Mills, p. 17). Normally this limit is applicable to any direct incremental costs as well as other costs which can easily change the pattern during the amortization process. This rule has a great effect when it comes to the quantum as well as the timing of any investments contracts which can be profitable to company. This capitalization rules have a great effect mostly on insurers and ADIs (Mills, p. 23).

The other important rule is the rule which is concerned with the financial instruments thus it outlines the rules that are required for the measurement of both financial assets and liabilities. Here this rule clearly outlines the scope for financial institutions when it comes to the selection and classification of financial assets as which assets are held for trading, maturity, available for sale ,loans originated and the which assets can be classified as financial liabilities (Dagwell, p. 23). In addition, this rule clearly classifies the required accounting, measurement and reporting rules which comprise of the amortized cost which particularly identifies the fair value and the unrealized fair value or gains and losses which are directly included directly to the equity after which they are directly transferred to the profit and loss trading account (Dagwell, p. 26). It therefore goes further to identify the financial assets which are required to back up insurance liabilities which are actually measured at net realizable market value which helps in the clear approximation to any fair value (Dagwell, p. 30).

The fourth important rule is the rule which is concerned with the life insurance business which clearly outlines that all the assets of any life company be recognized at a particular market value and incase any changes occurs in the market value then the AASB recognizes such changes to be recorded in the profit and loss trading account (Mills, p. 26). This clearly means that this AASB rule requires any surplus money which comes as a result of market changes in a life’s company investment be identified as a net asset as well as an asset which is completely recognized as being separate asset which should be accounted for in the company’s financial statements as well as in the trading profit and loss account (Clarke, p. 30). This therefore implies that such Life Insurance Contracts therefore requires all the consolidated groups to write off against any retained earnings which actually extend to the any other retained earnings within the company

According to AASB rule number 116 it defines a useful life of an asset as the period through which a given asset is expected to be useful to the company. It therefore outlines the following characteristics when it comes to the company determining the useful life of asset; expected usage, physical wear which actually includes depreciation, technical and commercial obsolescence and other legal issues (Mills, p. 28).

The other important rule is the replacement rule of an asset which outlines that all the assets should only be capitalized with the recognition criteria. This clearly indicates that the part of the assets which have a useful life which is seen as material is different from other assets then it implies that the asset requires replacement when depreciation occurs. In reference to complex assets which may include assets such as service delivery networks, buildings and other major equipments of the plant then they are required to be replaced during useful life of the asset (Dagwell, p. 31).When it comes to the physical assets of the property the AASB rule indicates that the cost of the item should be separately depreciated by the company breaking down the existing assets into parts and using the appropriate values to depreciate the individual parts.

Ways through which entities report transaction costs

When it comes to the reporting of various transactions costs by reporting entities the costs of acquisition of an equipment or property are measured at value and recorded in monetary terms. When this is being done the parts of the assets are treated differently thus it is treated as a separate entity though its components are carefully accounted for this method is referred to as class of asset approach (Mills, p. 32). In addition when it comes to the revaluation of the reserves it clearly indicates that all the profit reserves should therefore be accounted for during such revaluations on an individual asset basis. This method therefore differentiate between an asset and what does not constitute an asset which helps in the prescribing the unit of measure that a given asset can easily be recognized (Mills, p. 35).

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The measurement of this cost therefore implies that the cost of an item, property or plant equipment which qualifies to be recognized as an asset therefore all the costs should be measured at its cost. In case where the entities are non profit making then it implies that the cost of acquiring an asset should be recorded as a nominal cost or the cost as its fair value on the date of acquisition. Incase the non profit entities tend to receive any government grant of non-monetary asset then the entity should recognize the grant and asset at the fair value (Dagwell, p. 36).

On the initial acquisition of a property by an entity it implies that the costs which are incurred such as construction and inspection costs should be recorded differently from the total costs paid for acquiring the asset. These costs therefore should therefore be reallocated as a portion which is recognized as the value in the financial statements rather than being added to the overall cost or fair value of the property, plant or equipment (Clarke, p. 32).

Analysis of whether the acquisition costs should be treated uniformly or differently

The standard setters should require a uniform treatment for these costs because the uniformity in reporting these costs will ensure comparability as well as improve transparency. This will ensure that all business combinations concerning any transaction costs are fully accounted for and merger accounting is fully abolished. This lead to the recognition of intangible assets which will be used in business for acquisition since this will ensure that the company effectively identifies the fair value of all intangible assets required irrespective of whether they appear in the company’s financial statements or not (Mills, p. 40).

When this costs are treated with uniformity it will enhance greater transparency then when they are treated differently as through this the purchase price which is allocated to all the assets and the fair value incurred in the transaction will be shown in the financial statements which contains the acquired assets and liabilities together with the specified recognition criteria (Mills, p. 60). Furthermore this will lead to the attribution of any amount in the financial statements to be attributed as good will which clearly helps in the identification of an overpayment in the transaction.

This will also help in capitalizing all the acquired intangible assets together with their purchase price immediately the assets have been valued and capitalized (Dagwell, p. 56). This will ensure full disclosure of the reason why the disclosure was made, the price that was incurred and the property that was acquired. This helps the entities making the transaction to clearly identify the underlying valuation corporate collapse: accounting, regulatory and ethical failure (Clarke, p. 45).

Work cited

  1. Frank L. Clarke, Corporate collapse: accounting, regulatory and ethical failure; Published by Cambridge University Press, (2003) Pp.12-45
  2. Doug Mills, Foundations of accounting; Published by UNSW Press, (1996)Pp. 17-60
  3. Ron Dagwell, Corporate Accounting in Australia; Published by UNSW Press, (2007) Pp. 23-56

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BusinessEssay. (2022, February 9). Australian Accounting Standards Board (AASB) Rules. Retrieved from https://business-essay.com/australian-accounting-standards-board-aasb-rules/

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BusinessEssay. (2022, February 9). Australian Accounting Standards Board (AASB) Rules. https://business-essay.com/australian-accounting-standards-board-aasb-rules/

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"Australian Accounting Standards Board (AASB) Rules." BusinessEssay, 9 Feb. 2022, business-essay.com/australian-accounting-standards-board-aasb-rules/.

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BusinessEssay. (2022) 'Australian Accounting Standards Board (AASB) Rules'. 9 February.

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BusinessEssay. 2022. "Australian Accounting Standards Board (AASB) Rules." February 9, 2022. https://business-essay.com/australian-accounting-standards-board-aasb-rules/.

1. BusinessEssay. "Australian Accounting Standards Board (AASB) Rules." February 9, 2022. https://business-essay.com/australian-accounting-standards-board-aasb-rules/.


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BusinessEssay. "Australian Accounting Standards Board (AASB) Rules." February 9, 2022. https://business-essay.com/australian-accounting-standards-board-aasb-rules/.