AUSTRALIAN ACCOUNTING STANDARDS

Approaches to Standard Setting in Accounting

Approaches to Standard Setting in Accounting

Introduction

In context of reduced disclosure requirements in Australian Accounting Standards, for years, the accounting standard setters have been waging a combat in opposition to the financial fraud, distorted and obfuscated financial reporting. This study contends the approaches to standard setting in accounting and that their success is contingent upon one important dynamic that, as of yet, has not been effectively addressed. The aspect in question is approaches to standard setting in accounting and their role in the financial reporting process.

Approaches to Standard Setting In Accounting

With reference to reduced disclosure requirements for AASB, the main directions of the approaches to standard setting in accounting include the following:

Creating the legal framework

Methodological support,

Training,

International cooperation.

In addition to this, reduced disclosure requirements establishes and amends reduced disclosure requirements for entities preparing general purpose of financial statements under Australian Accounting Standard; the RDR that is the Reduced Disclosure Requirements for additional and amended disclosures arising from AASB 13 and the consequential amendments implemented through AASB 2011-8.

The amendments eliminate the need for entity applying the RDR to comply with the disclosure requirement in AASB 13 that an entity disclose information that helps users of its financial statements assess, for recurring fair value measurements using significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income for the period. It also eliminates the need to disclose items such as a description of the valuation technique(s) and the inputs used in the fair value measurement, and a movement schedule of items included in 'Level 3'. Many other related disclosures are also excluded. In this context, a key stage in the reform of accounting is the development of new and refinement of the old regulations on accounting and put them into practice. In addition to this, the distinguished two main approaches to the organization of accounting that include the British-American and Continental accounting models.

IFRS is more conceptual (i.e., principle-based) than current U.S.GAAP, with little application guidance. U.S. GAAP is great rules-based, with specific application guidance. Consequently, the use of IFRS requires relatively more reliance on judgment, and less reliance on detailed rules. IFRS requires management to disclose more information about estimated amounts used in the preparation of financial statements than U.S. GAAP does.

IFRS provides specific guidance to the insurance industry. For example, reserves will not be allowed for possible claims under contracts that are not in existence at the date of reporting. This prohibition will be especially important with regard to catastrophe and equalization reserves; however, IFRS will not change the way that Incurred but Not Reported (IBNR) losses are accounted for.

In context of reduced disclosure requirements for AASB, for many companies, the full retrospective application of IFRS is not a simple task. Companies should restate the accounting records in accordance with each IFRS, back to the inception date of the entity. Fortunately, recognizing the practical difficulties, standard-setters have been provided in IFRS 1 which is a series of exemptions ...