Assessing financial reporting comparability across institutional settings : the case of pension accounting

The drive for comparability of financial information is to enable users to distinguish similarities and differences in economic activities for an entity over time and between entities so that their resource allocation decisions are facilitated. With the increased globalisation of economic activities, the enhanced international comparability of financial statements is often used as an argument to advance the convergence of local accounting standards to international financial reporting standards (IFRS). Differences in the underlying economic substance of transactions between jurisdictions plus accounting standards allowing alternative treatments may render this expectation of increased comparability unrealistic. Motivated by observations that, as a construct, comparability is under-researched and not well understood, we develop a comparability framework that distinguishes between four types of comparability. In applying this comparability framework to pension accounting in the Australian and USA contexts, we highlight a dilemma: while regulators seek to increase the likelihood that similar events are accounted for similarly, an unintended consequence may be that preparers are forced to apply similar accounting treatment to events that are, in substance, different.

An accounting standard for nonprofits : the missing essential building blocks

There have been numerous calls over the years for the development of an accounting standard for not-for-profit entities (NFPEs). Probably the most commonly quoted in this regard is that from the Industry Commission Report No. 45 in 1995 which contained the following recommendation: The Commonwealth government should provide funds to the Australian Accounting Standards Board and the Public Sector Accounting Standards Board to develop within two years suitable accounting standards for Community Social Welfare Organisations. This recommendation was made over 5-years ago. Why has no action been taken towards its implementation?...

Comments on the Australian Accounting Research Foundation's Legislation Policy Discussion Paper NO.4 (A framework for financial reporting by incorporated associations)

The Australian Accounting Research Foundation (AARF) recently issued Legislative Policy Discussion Paper No.4 which proposes a framework for financial reporting by Australian incorporated associations.This paper comments on both the merits and deficiencies of the proposal. In particular it notes that the proposal simply advocates that the application of differential reporting, accounting standards, and the conceptual framework be imposed on incorporated associations by amended statutes. It is noted that in light of long experience in the corporate sector, he espoused benefits of such a move may not eventuate. Further, concern is expressed that the proposal is a blank cheque one because of the inadequacy of existing relevant accounting standards and the proposal to introduce new relevant standards. Another major defect in the proposal is that it emanates from accountants who acknowledge in their conceptual framework, the need for external reports to report on performance through both financial and non-financial reporting methods. Despite that acknowledgment, the standard set of external reports prepared by accountants do not measure performance as defined in their own conceptual framework (SAC 2) and in their auditing pronouncements (AUP 33), and they have restricted their domain to financial reporting (SAC 2). Accordingly the proposal appears to be seriously deficient and it is suggested that it be rejected and a new proposal be prepared by a multi-party group free from vested interests.

Accounting regulation for charities : international responses to IFRS adoption

This paper examines charity regulatory systems, including accounting standard setting, across five jurisdictions in varying stages of adoption of International Financial Reporting Standards, and identifies the challenges of this process. Design/methodology/approach Using a regulatory space approach, we rely on publicly available archival evidence from charity regulators and accounting standard setters in five common-law jurisdictions in advanced capitalist economies, all with vibrant charity sectors: United Kingdom, United States of America, Canada, Australia and New Zealand. Findings The study reveals the importance of co-operative interdependence and dialogue between charity regulators and accounting standard setters, indicating that jurisdictions with such inter-relationships will better manage the transition to IFRS. It also highlights the need for those jurisdictions with not-for-profit or charity-specific accounting standards to reconfigure those provisions as IFRSs are adopted. Research limitations/implications The study is limited to five jurisdictions, concentrating specifically on key charity regulators and accounting standard setters. Future research could widen the scope to other jurisdictions, or track changes in the jurisdictions longitudinally. Practical implications We provide a timely international perspective of charity regulation and accounting developments for regulators, accounting standard setters and charities, specifically of regulatory responses to IFRS adoption. Originality/value: The paper contributes fresh insights into the dynamics of charity accounting regulation in an international context by using regulatory space as an organising framework. While accounting regulation literature provides a rich interpretation of regulatory issues within the accounting arena, little attention has been paid to charity accounting regulation.

Issues in Financial Accounting [15th edition]

"Issues in Financial Accounting addresses the controversial issues in financial accounting that have been debated by the preparers, users, auditors and regulators of financial statements. Students are presented with real-world examples, current debates and the underlying rationale for the accounting concepts demonstrated. Throughout the text, academic studies and professional accounting research are referenced to also provide a critical understanding of historical debates in financial accounting. The new 15th edition covers significant recent developments to the accounting standards in Australia and is based on the AASB standards and interpretations that have been issued up to the end of 2012. This includes the Australian Accounting Standard Board's (AASB) program of changes to make accounting standards equivalent to International Financial Reporting Standards."---publisher website

Defining and Accounting for Fundraising Income and Expenses

Charities' fundraising financial transactions should be reported in the interests of accountability, and the report should be publicly available. However, research shows that at present there is little consistency in how fundraising is defined or in how such transactions are reported, and little guidance from accounting standards. This report examines whether the current reporting of fundraising in annual financial statements by Australian charities is fit for the purposes of informing the donating public and other stakeholders, whether through the Australian Charities and Not-for-profits Commission’s registry strategy or through other means such as private ratings agencies. The authors endeavour to suggest a way forward if it is not.

Defining and Accounting for Fundraising Income and Expenses : Executive Summary : ACPNS Current issues Information Sheet 2014/2

Executive summary of Report examining definitions of fundraising and formal Australian accounting standards to ascertain their impact on reporting fundraising transactions by not-for-profit entities.

Alignment and differences between the Australian Water Accounting Standard and the Water Accounting Framework for the Minerals Industry

In 2012, the Bureau of Meteorology under the banner of the Water Accounting Standards Board released the Australian Water Accounting Standard 1 (AWAS 1). This standard has been in development since 2007 with key milestones being the release of the Preliminary Australian Water Accounting Standard in 2009, and the exposure draft of the Australian Water Accounting Standard in 2010. Throughout this period, the Minerals Council of Australia’s Water Accounting Framework has developed concurrently with the Australian standards and the standards have informed elements of the framework. However, the framework is not identical to the standard as the objectives between the two are different. The objective of the Water Accounting Framework is to create consistency in water reporting of the minerals industry and to assist companies reporting to corporate sustainability initiatives. The objective of AWAS 1 is to provide information to water management bodies to facilitate decisions about the allocation of water resources. Companies are to report on an annual basis, not only physical flows of water but contractual requirements to supply and obtain water, regardless of whether the transaction has been fulfilled in the reporting period. In contrast, the Water Accounting Framework only reports on flows that have physically happened. The paper will provide summary information on aspects of AWAS 1 that are most relevant to the minerals industry, show the alignment and differences between AWAS 1 and the Water Accounting Framework and explain how to obtain the information for the AWAS 1 reporting statements.

Accounting accruals and information asymmetry in Europe

We investigate whether the positive relation between accounting accruals and information asymmetry documented for U.S. stock markets also holds for European markets, considered as a whole and at the country level. This research is relevant because this relation is likely to be affected by differences in accounting standards used by companies for financial reporting, in the traditional use of the banking system or capital markets for firm financing, in legal systems and cultural environment. We find that in European stock markets discretionary accruals are positively related with the Corwin and Schultz high-low spread estimator used as a proxy for information asymmetry. Our results suggest that the earnings management component of accruals outweighs the informational component, but the significance of the relation varies across countries. Further, such association tends to be stronger for firms with the highest levels of positive discretionary accruals. Consistent with the evidence provided by the authors, our results also suggest that the high-low spread estimator is more efficient than the closing bid-ask spread when analysing the impact of information quality on information asymmetry.

Rhetoric in international standard setting process: constructing accounting reality

The paper seeks to explore in depth the ways in which rhetorical strategies are employed in the international accounting standard setting process. The study proposes that rather than simply detailing new accounting requirements, the texts and drafts of accounting standards are artefacts, i.e. deliberately and carefully crafted products, that construct, persuade and encourage certain beliefs and behaviours. The persuasive and constructive strategies are also employed by the constituents submitting comment letters on the regulatory proposals. Consequently, the international accounting standard setting process is an ‘interactive process of meaning making’ (Fairclough, 1989). The study regards accounting as a social construct based on intersubjectivity (Searle, 1995; Davidson, 1990, 1994) and posits language as a constitutive factor in the process (Saussure, 1916; Peirce, 1931-58). This approach to the use of language and the role of rhetoric as a persuasive tool to convince others to our perception of ‘accounting reality’ is supported by the sociological work of Bourdieu (1990, 1991). Bourdieu has drawn our attention to how language becomes used, controlled, reformed and reconstituted by the social agents for the purposes of establishing their dominance. In our study we explore in particular the joint IASB and FASB proposals and subsequent regulations on the scope of consolidation and relevant disclosures that address issues of off-balance sheet financing, a subject that is very timely and of great topical importance. The analysis has revealed sophisticated rhetorical devices used by both the Boards and by the lobbyists. These reflect Aristotelian ethos, pathos and logos. The research demonstrates that those using accounting standards as well as those reading comment letters on the proposals for new standards should be aware of the normative nature of these documents and the subjectivity inherent in the nature of the text.

Setting UK standards on the concept of control: an analysis of lobbying behaviour

The present study aims to contribute to an understanding of the complexity of lobbying activities within the accounting standard-setting process in the UK. The paper reports detailed content analysis of submission letters to four related exposure drafts. These preceded two accounting standards that set out the concept of control used to determine the scope of consolidation in the UK, except for reporting under international standards. Regulation on the concept of control provides rich patterns of lobbying behaviour due to its controversial nature and its significance to financial reporting. Our examination is conducted by dividing lobbyists into two categories, corporate and non-corporate, which are hypothesised (and demonstrated) to lobby differently. In order to test the significance of these differences we apply ANOVA techniques and univariate regression analysis. Corporate respondents are found to devote more attention to issues of specific applicability of the concept of control, whereas non-corporate respondents tend to devote more attention to issues of general applicability of this concept. A strong association between the issues raised by corporate respondents and their line of business is revealed. Both categories of lobbyists are found to advance conceptually-based arguments more often than economic consequences-based or combined arguments. However, when economic consequences-based arguments are used, they come exclusively from the corporate category of respondents.

Understanding complexities in international accounting standard setting: agenda entry and the case of IFRS for SMEs

Earlier accounting works have shown that an understanding of agenda entry is critical to better understanding the accounting standards setting process. Consider Walker and Robinson (1993; 1994) and Ryan (1998); and more generally agenda entrance as theorized in Kingdon (2011). In 2003, the IASB placed on its agenda a project to promulgate a standard for small and medium-sized entities (SMEs). This provides our focus. It seemed to be a departure from the IASB’s constitutional focus on capital market participants. Kingdon’s three-streams model of agenda entry helps to identify some of the complexities related to politics and decision making messiness that resulted in a standard setting project for simplified IFRS, misleadingly titled IFRS for SMEs. Complexities relate to the broader international regulatory context, including the boundaries of the IASB’s standard-setting jurisdiction, the role of board members in changing those boundaries, and such sensitivities over the language that the IASB could not agree on a suitably descriptive title. The paper shows similarities with earlier agenda entrance studies by Walker and Robinson (1994) and Ryan (1998). By drawing on interviewees’ recollections and other material it especially reinforces the part played by the nuanced complexities that influence what emerges as an international accounting standard.

The accounting profession: a religious and community platform for change

Following the failure of large corporations in both Australia and the United States, considerable dialogue has been generated on the integrity and role of accountants. This focus of this study was to examine the role of the professional accounting community, which shapes, and is shaped by the value, religion and culture of accounting members. In view of the impetus towards internationalization of accounting standards it is suggested the accounting profession re-examine its position as part of the international human community
and re-examine its core values.

Implications of the IFRS goodwill accounting treatment

Purpose – This paper aims to critically examine the change in accounting treatment for goodwill pursuant to international financial reporting standards (IFRSs) by reference to the Australian reporting regime.

Design/methodology/approach – The paper discusses and compares the former Australian and the new IFRS treatments for goodwill. This comparison focuses on the advantages and potential complexities of the new method, with the aim of identifying the issues and challenges that preparers, independent auditors and those involved in corporate governance face in complying with the new requirements.

Findings – The paper highlights that the identification and valuation of cash-generating units and goodwill require numerous assumptions to be made in estimating fair value, value in use and recoverable amount. Considerable ambiguity and subjectivity are inherent in the IFRS requirements.

Research limitations/implications – Findings suggest that future research should examine how financial report preparers and corporate governance mechanisms are dealing with the complex change required by the new goodwill accounting treatment and how the many critical issues involved in auditing the resulting figures are being addressed.

Practical implications – The research has practical implications for financial report preparers in identifying the issues that must be addressed in complying with the international goodwill accounting treatment. In turn, the paper highlights conceptual issues of relevance to auditors in their role of providing assurance on the resulting accounting numbers. It also has implications for others involved in corporate governance, such as audit committee members, in emphasising the areas in which they should be providing oversight of the accounting judgments. These issues are of relevance in any reporting regime based on IFRSs.

Originality/value – While much has been written about the mechanics of the new goodwill accounting requirements, there has been a lack of critical research highlighting the many problems and ambiguities that will arise in the application of those rules.

Corporate accounting in Australia

"The third edition of Corporate Accounting in Australia presents a comprehensive and contemporary explanation of Australian corporate accounting. Previous editions of the book, published in 1998 and 2001, established the book's reputation for excellence, with its user-friendly approach, keenly appreciated by both students and lecturers. This edition retains the accessible writing style and logical chapter format and sequence of its forerunners, and has been revised to reflect current developments, particularly with regards to the international harmonisation of accounting standards."