Pros and cons of Australia adopting International Financial Reporting Standards

As we know, Australia is going to harmonies its standards with International Accounting Standards (IASC); as a result the Australian standards will automatically compliance with IASC Standards. Harmonizing would not lead to lessen in quality of Australian standards, but rather formulate Australian standards more internationally recognized. At present the International accounting standard board planning to change nearly half of its standards and these changes are come into force in Australia on 1st of January 2005.

The changes, enclosed in the IASB enhancement project and in its amendments to standards on financial instruments, which will defiantly have leading effect on Australian companies. As a result the companies need to take necessary measure Goodwill in business has long been the subject of debate in accounting The main issue raised in the this paper regarding Treatment of goodwill under both the standards AASB1013 (Australian standard) and IAS 38 (International standard) and both the standards has different approach in treatment of goodwill.

As the harmonization process is in progress and hence the Australian standard has to be compliance with International Standard therefore it is a burning topic for companies and in corporate world in Australia. At present under AASB 1013 the companies amortize goodwill over a maximum of 20 years but under the International standard IAS36 the treatment of goodwill is quite different manner. Under IAS36 there is no need to amortize such goodwill because we can not judge the life of Goodwill and it may go further 20 years time frame hence IAS36 has quite different approach to the treatment of goodwill.

The international accounting standard will not require goodwill to be written off in equal chunks over a period I therefore tried to find major differences in the Accounting treatment of Goodwill under the related Australian and the International Accounting Standards and also to argue how the adoption of the International Standards serve the Australian corporate world in present business environment. Accountants all over the world have displayed an agreement in clamoring for uniform accounting standards to promote, evaluation and easy consolidation.

Further, uniform accounting standards is also desirable to make accounting a universal language of communication and to deny any scope for manipulation. In earlier seventies accounting practice from around the world joined forces and established a global body whose function is to minimize variations in international accounting reporting practices through the dissemination of international accounting standards. The process of harmonization is a step-by-step and as well as a progressive step hence the environments in which the harmonized standards must work are constantly sprouting.

Therefore it (harmonization) cannot be consider as isolated. The advantage of Harmonization is very clear because it reduce the diversity of accounting reports from one corner to other corner of the world. Harmonization will make the comparison of international reporting easier and less expensive. In Australia, Australian Accounting Standards Board a Public Sector body issues standard that all companies have to follow by virtue of the corporation law.

The body (AASB) has completed a substantial process to re-issue some of the standards that are incompatible with International standards, which is "an attempt to ensure that compliance with Australian accounting standards result in compliance with International standards". [[1]] In Australia the companies will implement International Accounting Standards by 1 January 2005, hence all entities from Ist January 2005, reporting under the corporation act have to apply International accounting standard Boards standards.

Therefore we can say that the process is under conversion, hence companies in Australia have to start thinking about how to implement these changes and what measures have to be taken, say for e. g. training of staff members and how to make the internal management report system parallel with new system etc. and so on. The Treatment of goodwill is always been a controversial issue in Australia, The Australian Accounting Standard for the Treatment of Goodwill Is discussed in AASB 1013 which also discuss about the Discount on acquisition that arise from acquisition of a business.

In general when the purchase consideration of a business after paying the identifiable assets and liability for that business, which is based on fair value may give accounting difference and if this difference is excess amount of the net asset will give rise to Goodwill. On the other hand if the purchase consideration is less then the net asset will be treated as discount . I will discuss later in detail the treatment of goodwill According to AASB 1013.

& IAS38. In late 90s ISAC (International Accounting standard revised it standard IAS 22 and issued IAS 38 which deals with treatment of goodwill (more specific intangible assets). This new or revised standard IAS 38 applies to all the Intangible assets but this standard not deals with Financial assets like Ordinary and Preference shares, Debentures, Bills and notes which represent claims for future payment on other economic units.

According to this revised IAS 22 " both goodwill and most identifiable intangible assets are to be accounted for in the same manner". [[2]] Hence if Australian Companies going to adopt this IAS38 and the time frame is already set will defiantly impact Australian companies' because the current AASB1013 practice for treatment of goodwill is quite different from IAS38 as the current practices in Australia regarding the identification and measurement of intangible assets, which comprises amortization. Proposed Structure by 2005

The International Accounting standards committee (IASC) is an independent private sector body, which shaped with the objective to achieve uniformity in accounting principle, which is used, by businesses and other organizations for financial reporting around the world. International Accounting standard have done immense effort to improve, harmonies and encourage convergence in financial reporting standards around the world: The advantage of international harmonization is enormous because of following reasons:

1. The financial report of different companies in different part of the world can easy be compared due to International harmonization. 2. Again harmonization removes barriers in international capital flows by removing differences in financial reporting. 3. Harmonization also reduces the cost, where Multinational companies operating in different part of the world and it also facilitate better comparisons between two financial reports of different countries.

It can be seen that International standards will be adopted in many parts of the world and Australia is one of the county, which recently decided to adopt International Financial Reporting standards by 2005. Which means Australian companies will adopt International accounting standard by January 1, 2005, all entities reporting under the Corporations Act will apply standards, which are issued by the International Accounting Standards Board (IASB). Adopting IAS is only a starting point whereas a great deal of work will have to be done over the next few years time.

The timeframe is incredibly short, whereas the disparities are huge between International Accounting Standard and Australian GAAP, which is a major challenge for Australian companies. Treatment of Goodwill under AASB The standard applies to Treatment of goodwill is discussed in Australian Accounting Standard, AASB 1013 which become operative since 30th June 1996. The Main Purpose of the standard, which is specified in AASB1013 basically divided in two parts. 1.

Part (1) tells if there is goodwill arise or if there is any discount arises on acquisition then how will this be accounted and 2. Part (2) tells about the financial disclosure (financial report) that relates to goodwill. In accounting the term Goodwill generally used by businesses and it is an unidentifiable Intangible assets of the firm.

These unidentifiable assets, which include as efficiency of the firm, the reputation of the firm or business in the market, the name of the business say brand name Ex.When someone says Colgate we recognize it as a brand, we trust the product because its reputation in market for so many years and therefore we never hesitate to buy the product or we have no second thought for the product. But when we look at the balance sheet of a firm, these assets are not reported, as separately, this is a simple example of Goodwill. Goodwill is measured for accounting purposes as the difference between the prices we paid to acquire of identifiable assets at fair value and if that price is more then those of identifiable assets are called "goodwill".