The Conceptual Framework for Financial Reporting

Abstract

The Australian Conceptual Framework is a framework developed by Australian Accounting Standards Board (AASB), an Australian Government Agency. The development and implementation of the standards allow businesses and organisations domiciled within Australia to participate in the global trade effectively.

The amendments to the Australian framework are necessary because they give Australian businesses and organisations a competitive edge when it comes to engaging in cross-border trade and international financial transactions. Many enthusiasts believe that changes that affect the Australian Conceptual framework and the consequent amendments are politically motivated. This paper reflects on amendments to the Australian accountinf standards, and highlight why the ammendments were initiated through a political process.

Introduction

AASB is an Australian accounting standards agency tasked with the development and implementation of financial standards that guides both the private and public business entities within Australia. According to Jones and Higgins (2006), AASB is part of the Australian accounting standards conceptual framework, which is a major contributor of the international accounting and financial reporting standards. The AASB has adopted all the relevant international financial reporting standards and incorporated those into the Australian acounting and financial reporting standards so that the local regulations are in tandem with the international regulations (Australian Accounting Standards Board 2011).

The conceptual framework for financial reporting

Compliance of the Australian Government, with regards to its accounting standards, ensures that all financial statements of business concerns within the country complies with the International Financial Reporting Standards (IFRS) (AASB 2013). However, it has been established that the process of designing, implementing and amending financial reporting standards has been influenced by conflicts between the government, private and public sector, and the accounting bodies (Collett, Godfrey & Hrasky 2001). Each of these stakeholders attempts to dominate the process and wield power over the others in order to be the majority gainer of the outcomes.

Changes in the Australian leadership regimes brought the need for restructuring the accounting standards. The shift of power and control of accounting and financial reporting responsibility from accounting bodies to the state necessitated the changes in the very rules. The accounting bodies believed that by shifting and supporting the government’s move, they would gain more power and state support in the new accounting regime (Dodd & Rozycki 2008). However, the selfish needs of individual groups have resulted into strict requirements for compliance by all accounting entities, even those groups that resisted the adoption of new dispensations from the beginning. The opposing groups based their argument for resistance on fear of ending up disadvantaged once the government took over (Brown & Tarca 2001).

The adoption of the new and harmonized accounting principles sought to put in place reforms that would guide the accounting standards and processes in the country (Zeff 2002). However, this was quickly discarded by the government, showing little or no sensitivity to the corporate reactions and its reluctance to relinquish their powers to an international body. The government, instead, made the reforms comply with the international standards in order to appease the global community and put Australia at the same level with the international community (Brown & Tarca 2001).

The government was aware of the need to harmonize the domestic accounting and financial reporting standards with the global community (Brown & Tarca 2001). Currently, many countries are marred with controversy about confronting their accounting standards. Australia is seen as one of the pacesetters in harmonizing and accepting the international accounting standards (Carnegie & West 2005). This can be regarded as positive steps towards realizing a fully internationally-compliant domestic regulations. However, the regulatory developments in the accounting standards have been brought by constant political pressure.

The Australian economy’s experiences have underpinned the need for harmonization that are not necessarily what it appears, given the political nature of the financial standard settings (Stoddart 2000). Political experts have tried to explain the underlying reasons for harmonization by showcasing the basis for standard setting from their perspectives. This harmonization has been twisted in their favour in order to garner support from the accounting community. In principle, parties with vested interests can push regulatory agenda that potentially sabotage user needs (Stoddart 2000).

Accounting standards have also been emphasized on the basis of personal interests from different shareholders. A study done on the effects of accounting information (Stoddart 2000), showed that individual interests were dominated by shareholders’ interest. This was further showcased by the approach of marginal economic to information to showcase the social value that accounting principles have on accounting information and shareholders, interests (AASB 2013). Efforts also made to evaluate the social value and implications of accounting reports, sing the approach of marginal economics to information or the analysis of economic consequences, have also indicated that there is pronounced shareholder inclination in the process of developing these frameworks (Ang, Sidhu & Gallery 2000).

There was also a greater concern by the government and the community to develop accounting standards, rules and high levels of compliance by the accounting professionals (Peter, Jayne & Hrasky 2001).

This brought the need for a governing body to oversee the accounting standards and to establish the Accounting Standards Review Board (ASRB) in Australia. It is vital to look at the interest of all stakeholders while considering the adoption of accounting standards as they are affected by any reform to the standards (Carnegie & West 2005). There have been numerous doubts about the political participation in the accounting process that development of accounting rules are consistent with notions of ‘pluralism’ rather than those arrangements seeming closer to the form of interest-group politics labelled ‘neo-corporatism’ (Collett, Jayne & Hrasky, 2001).

In summary, the Australian government shocked the world business community when it infused the international accounting standards to its domestic accounting standards. This has led to the country being recognized as one of the countries whose harmonization efforts have yielded good financial systems. The changes in the accounting standards can be seen as a political process that provided a platform for parliamentary and electoral debate and received a lot of media attention.

Conclusion

In conclusion, the role of accounting standards and the structure of standard setting is explored in this essay. Through the review of accounting standards, proposals and submissions from various stakeholders, the political nature of standard setting is also illustrated. It is important to note that the flawed nature of the proposal is at the center of arguments as the fundamental assumption and that the proposals could not achieve the desired outcomes. Despite the fact that international standards eventually supplant domestic standards, the accounting standard makers in Australia have minimal to no role in the international standard setting arena. This is because stakeholders are looking for their personal agendas. In the end, it is not about what is right for the community but what individuals stand to gain.

Bibliography

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