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Accounting Standards of Australia and AASB15

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Introduction

The Australian Accounting Standards Board (AASB) has carried out certain changes in financial standard AASB15 and it provided great shock to people as no business in the country was prepared for it. The change has introduced a complete new technique for carrying out process such as recognition of revenue and measurement of the same (FINANCIAL REPORTING STANDARDS UPDATE. 2015). The present research report explains the key problem which has been addressed by making changes in AASB15. Along with this, the impact on changes on key stakeholders is also highlighted in the present study.

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Background

It can be expressed that the there was many modifications carried out by making changes in AASB15. One of the main and most important change which was needed is related to the way in which the recognition and management of revenue was carried out within many firms in Australia. It can be expressed that the changes resulted in bringing up a complete new framework for carrying out the process of revenue recognition (Kang and Gray, 2013). The new framework introduced consists of five major steps which need to be carried out. In stage 1, the contact with the customers is identified whereas in stage 2 the key obligations related to separate performance are identified. In the third stage of new framework, the overall price of transaction is determined and the fourth stage consider of a process in which the separate performance obligations are being assigned with the transaction price (McMeeking and Bamber, 2015). In the last stage, revenue is recognized when each and every obligation linked with performance is satisfied. It can be expressed that in the first look the new framework seems to be simpler and clear. However, it can be critically argued that the model consists of certain complicated riles, sets and procedure which needs to be taken care by companies at the time of managing and recognition of their revenues.

On the other side of this, AASB15 was also introduced with an objective to replace different types of accounting pronouncement. Here, the purpose was to provide to satisfy various types of requirement related to accounting by using a single source. Standards such as AASB 118: revenue, AASB 111: construction contract, AASB Interpretation 1042, AASB Interpretation 131, AASB Interpretation 13 etc, has been replaced by the introduction of AASB15. However, it can be asserted that industries such as software development, real estate, manufacturing, telecommunication etc. will be getting affected by AASB15 (AASB Issues New Revenue Recognition Standard. E.d).

Impact of changes in standards on stakeholders

One of the main and most important sectors which will be going to get affected by AASB15 is the construction sector. The rationale behind this is that the sector carries out transaction related to money in five major ways which are decreasing gross margin, increasing gross revenue, delay in revenue recognition, bringing the revenue forward, decreasing the gross revenue (Bond, Govendir and Wells, 2016). Now the major issue which companies will be facing is that there are chances that the revenue gets forever lost and it also not gets recorded in the financial statement of Construction Company. In addition to this, stakeholders such as business operating in Australia affected by the AASB15. For example the companies are now make changes in areas such as customer contract, the manuals related to budget and accounting, system of IT and scheme related to bonus. It can be also expressed that carrying out the practical implementation of AASB15 is not only the job of financial department of a company and it is required by all member in staff to carry out practical implementation.

The impact of AASB15 also has potential and a materialistic impact on the financial statement of a business enterprise. The key statements which are going to get affected include income statement and balance sheet of companies. Stakeholders such as businessman and investors also believes that the practical implementation of AASB15 will results in making certain changes in the business model of organization. Thus, companies will be required to take corrective measures regarding the same (He, Evans and He, 2016). However, at the same time the stakeholder such as business owner, members in financial team, broad members believes that the commercial sensitive information will not be disclosed because of the implementation of AASB15 (Revenue matters Is Australia ready for AASB 15? 2016).

Application of theory

In simpler terms theory can be called as an authoritative principle which helps in getting detailed information about something. The theory of accounting lays emphasis on the fact that a conceptual framework is provided to businesses for their financial reporting. It can be stated that the development of AASB15 was carried out with an useful purpose. The theory of accounting lays emphasis on the fact that businesses should ensure that all forms of financial statement should offer useful information to people. The information gained from AASB15 should be also very useful in terms of making strategic business decisions linked with growth and expansion. The theory of financial accounting focuses the standards developed should be of qualitative characteristics. This means that the data which has been provided by the AASB15 should be very consistent and comparable.

The implications of AASB15

It can be asserted that many companies operating in Australia will be affected by the implications of AASB15. However, it can be argued that the organizations which deal with bundled services and products are more likely to be affected by the implementation of AASB15. Furthermore, the degree to which this business will be affected will entirely rely on areas such as nature of products/services, contact with customers etc. As it has been already discussed, industries such as construction, telecommunication, real estate and software development will be affected to a great extent. In terms of practical implications, it can be asserted that AASB15 is going to encourage companies in Australia to carry out detailed examination of their past and present operation of business (Carnegie and O’Connell, 2014). Here, companies will need to define the kind of contract which they are using with customers. The business operating in Australia will also need to place efforts regarding identification of the contracts which falls outside the AASB15. On the other side of this, it can be also expressed that the clients or business units which offer their customers with different types of rebates and warranties will be getting affected by the AASB15. There are certain contract in which consideration is not fixed and varies. Thus, the companies which have entered into such contract with their customers will be also affected by the practical application of AASB15.

The practical implication of AASB15 will also force companies to incur some cost in terms of contracting with customers. The different type of cost which needs to be beard by company includes professional fees and different types of processing cost. Accounting for performance obligation is another potential implication of AASB15 which will be required to be taken care of in the best possible manner. Here, customers may start expecting something from other company and this might results in increasing the chances of performance obligations. As per the report of PWC Australia, there are wide ranges of areas which will be getting affected from the introduction of AASB15. For example businesses which are operating in Australia are more like to witness the impact of AASB15 on areas such as control, process, system, tax and relations with regards to the key investors. For example system is one of the most important areas which are going to get affected by the new standards (New revenue rules, 2014). Now companies will need to carry out more disclosure regarding their accounting and financial statements. The payment of tax in terms of cash can be termed as other major implications which AASB15 will have on the overall performance and business practices. Here, accounting authorities will really need to understand the fact that the companies will require to make changes in their overall practices. On the other side of this, the implications will also have impact on areas such as internal control assessment, internal resources of a company (Revenue matters, 2016). There are chances that AASB15 may encourage businesses or companies operating in Australia to make changes in their overall revenue management team.

However, it can be argued that at present PWC is working with other financial companies and experts in Australia in order to develop an approach which can be used for management of AASB15.

Conclusion

From the above carried out research report, it can be concluded that there has been certain modifications done in accounting standards of Australia and AASB15 has been introduced. It can be also inferred that the introduction of AASB15 has resulted in encouraging businesses in Australia to make certain changes in the way recognition and management of revenue was carried out. Furthermore, it can be concluded that the framework consists of five different stages which can be used for management of revenues in revised way. It can be inferred that the business practices, IT systems and different types of financial statement of businesses are the key areas which are going to be affected by the introduction or changes which has been carried out in AASB15.

References

  • Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136. Accounting & Finance.
  • Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairment decisions by Australian firms and whether this was impacted by AASB 136.
  • Carnegie, G.D. and O’Connell, B.T., 2014. A longitudinal study of the interplay of corporate collapse, accounting failure and governance change in Australia: Early 1890s to early 2000s. Critical Perspectives on Accounting, 25(6), pp.446-468.
  • Flack, T., Poole, G. and Marsden, S., 2014. Defining and Accounting for Fundraising Income and Expenses.
  • He, L., Evans, E. and He, R., 2016. The Impact of AASB 8 Operating Segments on Analysts’ Earnings Forecasts: Australian Evidence. Australian Accounting Review, 26(4), pp.330-340.
  • IASB, F., 2011. Revenue from Contracts with Customers. Exposure Draft.
  • Kang, H. and Gray, S.J., 2013. Segment reporting practices in Australia: Has IFRS 8 made a difference?. Australian Accounting Review, 23(3), pp.232-243.
  • McGregor-Lowndes, M., Flack, T., Poole, G. and Marsden, S., 2014. Defining and Accounting for Fundraising Income and Expenses.
  • McMeeking, K.P. and Bamber, M.A., 2015. An examination of international accounting standard-setting due process and the implications for legitimacy.
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