Financial Reporting Of Australia And UK †MyAssignmenthelp.com

accounting Question: Discuss about the Financial Reporting Of Australia And UK. Answer: Introduction This report takes an honest attempt towards the analysis of the regulatory framework for financial reporting of two countries. It can be seen that most of the developed countries all over the world have their own regulatory framework for financial reporting. For this report, the regulatory framework for financial reporting of Australia and United Kingdom is taken into consideration. There are two major parts of this report. The aim of the first part is to analyse and evaluate the necessary factors related to the financial reporting of the selected countries. The aim of the second part of this report is to make analysis of the selected financial reporting environment of the selected countries by relating Regulatory Capture Theory. Lastly, the conclusion will be developed with the help of a critical analysis on these selected financial regulatory environments for getting the idea of the extent of capture. Analysis of the Regulatory Framework for Financial Reporting Framework of Australia and United Kingdom Australia Australian Accounting Standard Board (AASB) is an Australian government agency responsible for the development of the necessary standards and principles for financial reporting (aasb.gov.au, 2018). Problems: Specific issue can be seen in the standard setting process of AASB. The example of a specific issue in Australian financial reporting system is the concern related with relevance and reliability of financial information in the financial statements of the companies. In addition, another perceived problems is related with the reduction of cost of the process of financial reporting. It needs to be mentioned that AASB is currently working on specific projects to address these problems (aasb.gov.au, 2018). How it works: As per the earlier discussion, AASB is the major decision maker in the financial reporting framework of Australia. The main responsibility of AASB is to develop issue and maintain financial reporting standards. It needs to be mentioned that AASB operates under Australian Securities and Investments Commission Act 2001 (rba.gov.au, 2018). The Australian Securities and Investments Commission, commonly known as ASIC, is another major part of the financial reporting regularity environment of Australia. The major responsibility of ASIC is to maintain the market integrity and to protect the customers from various frauds in the financial system. Another major part is the Australian Prudential Regulation Authority (APRA) and it is responsible for the deposit taking institutes. In this context, the name of the Reserve Bank of Australia needs to be mentioned as it is responsible for the development of monetary policy and to bring stability in the Australian financial system (rba.g ov.au, 2018). Progress Towards adoption IFRS: In the year 2005, 1 January, Australia adopted the standards of International Financial Reporting Standard (IFRS). Over the years, major progress in the adoption of IFRS by Australia can be observed. Smoothness can be seen in the transition process of IFRS by Australia. Major success can be seen in the application of IFRS standards for the financial reporting of not-for-profit Australian companies (iasplus.com, 2018). However, there is a need for further modification in the areas of quality and cost efficiency of financial reporting. Most importantly, with the adoption of IFRS across all the sectors, the users and developers have become able to move between sectors and countries with enough skills and knowledge (iasplus.com, 2018). In the recent years, one major project of AASB related to IFRS is to review the adoption of IFRS reporting standards by Australia. The main aim of this review program is the strategy of AASB to modify the standards of IFRS f or the financial reporting of not-for-profit business entities. Moreover, another aim is to bring simplification and clarification in the process of financial reporting (iasplus.com, 2018). United Kingdom (UK) Problems: The presence of some specific problems can in the financial reporting regulatory environment of UK. The financial reporting standard of UK has witnessed major problems on how to respond to the major development of IFRS (icaew.com, 2018). It needs to be mentioned that the companies of UK have to incur high cost along with major complexities in the adoption of the standards and principles of IFRS. This is the greatest problem faced by UK financial reporting regulatory environment. Apart from this, the UK financial reporting standard has been facing major issues related with the specific reporting needs for the charities (icaew.com, 2018). These are the major problems. How It Works: In the financial reporting regulatory environment of UK, the presence of two financial reporting frameworks can be seen. They are IFRS; and UK and Ireland GAAP (Generally AcceptedAccounting Principles). It is required for the public listed companies of UK to adopt the standards and principles of IFRS in order to prepare the financial reports of their group (frc.org.uk, 2018). However, the companies also have the option to select between IFRS and UK and Ireland GAAP in order to prepare the financial reports of their individual parent companies. In this context, FRS 100 Application of Financial Reporting Requirements provides the whole framework of financial reporting. The major legislative requirements of UK financial reporting are FRS 102 (frc.org.uk, 2018). The Financial Reporting Standard applicable in the UK and Republic of Ireland, FRS 101 Reduced Disclosure Framework and FRS 105 the Financial Reporting Standard applicable to the Micro-entities Regime (frc.org.uk, 2 018). Progress towards Adopting IFRS: It can be observed that IFRS has been the part of the financial reporting regulatory environment of UK since 2005 as per the EC regulation. Over these years, major progress can be observed in the adopting of IFRS by UK (aasb.gov.au, 2018). As per IFRS standards, it is required for all the domestic companies of UK trading their securities in the regulated market are required to use IFRS standards for financial reporting as per EU. It implies that these companies are required to comply with the standards of IFRS for the preparation of their financial statements. However, exception can be seen in case of foreign companies. In case of SMEs, they have the option to use the standards of IFRS with some further modifications (aasb.gov.au, 2018). Based on the above discussion, it can be observed that both Australia and UK uses different standards for the purpose of their financial reporting as Australia follow AASB and UK follows UK and Ireland GAAP (frc.org.uk, 2018). However, it can be observed that both the countries have done major progress towards adopting the standards and principles of IFRA. In the presence of IFRS standards and principles, it has become possible for establishing accurate process of financial reporting for the companies. Analysis of the Selected Environments in Relation to Regulatory Capture Theory Regulatory Capture Theory: In the year 1971, George Strigler introduced this Regulatory Capture Theory (Carpenter Moss, 2013). This particular theory states that a firm or an industry can become beneficial from different relevant legislations if they capture the related regulatory body. According to this theory, manipulations are done in the regulations for fulfilling the requirements of the parties having interest in them. Apart from this, this theory also states that after a specific period of time, the regulations serve the interest of their concerned industries (Carpenter Moss, 2013). Usefulness: The main advantage of this theory is that it helps in providing the explanation of the main intentions of the regulations. The development of these regulations involves the individuals and companies affected by them Young, 2012). For this reason, this particular theory helps in the adequate representation of policies and interest groups for the betterment of the companies and the industries. With the help of this theory, the companies and the industries become able to capture the negative intentions of the regulators for the betterment of their own interests (Young, 2012). Characteristics: In the Regulatory Capture Theory, George Strigler has mentioned about three major characteristics or three major assumptions that indicate that a particular regulatory environment is captured. According to the first characteristic, a regulatory environment will be considered as captured when there will be greed among the regulatory agency, regulatory party and customers; and their intention will be to maximize their own interest. Thus, in the presence of the intention of the maximization of own interest, the regulatory environment will be considered as captured (Chalmers, Godfrey Lynch, 2012). According to the second characteristic, the regulatory environment will be considered as captured when all the interested parties in the regulatory environment have rational expectation for the other parties (Boyer Ponce, 2012). According to the third characteristic, a regulatory environment will be considered as captured when the industries or the companies take huge time and effort for capturing the regulator (Portman, 2014). It is the responsibility of the regulators to set regulations in such a manner that the industries or the companies do not take much time to understand them. It can be seen that there are many instances where the financial regulators failed to implement correct financial regulations for the companies and the industries (Livermore Revesz, 2012). Analysis: From the above discussion, it can be seen that there are three major assumptions in the regulatory capture theory. In case of the financial reporting regulatory environment of both Australia and UK, there is a need to analyse the above-discussed characteristic of regulatory capture theory in respect of these environments. In this context, it needs to be mentioned that both the Australia and UK have some major history related with the development of accounting policies and standards (Agrell Gautier, 2012). Apart from this, there are some major cases where the regulatory environment was captured. In this context, the example of ASRB can be provided here. At the time of the discussion of the establishment of ASRB, the professional accountant members did lobby by ensuring the fact that the board would not have any independent capability; there would not be any independent chairperson and there would only be administrative officer in place of research director. Apart from this, the members of ASRB stated that the industries are required to set priorities after the discussions with the board. From this, It can be seen that ASRB considered the fulfilment of their interest above all. Most importantly, it can be observed that the members of ASRB were only professional that shows the lack of independence of the board (Chalmers, Godfrey Lynch, 2012). However, at present, the situation is very different in case of the financial reporting regulatory environment of Australia and UK. The motive behind the development of the board of both AASB and UK FRC is to provide independence to these bodies so that they can be beneficial. The 11 board members of AASB have come from different background like accounting, audit, public sector, finance and others. The same aspect can be seen in case of FRC. This aspect provides independence to these regulatory bodies (Baldwin, Cave Lodge, 2012). Apart from this, there is not any presence of lobbying in the development of the objectives of these accounting standards. It needs to be mentioned that the main aim of the financial regulatory boards of Australia is to provide the users with required financial information of the companies by establishing correct financial reporting standards (ifrs.org, 2018). Thus, it can be observed that the main priority of these boards is the development of single accounting standard for all the companies. Most importantly, the adoption of IFRS by Australia and UK has brought transparency, accountability and efficiency in the financial markets all over the world (ifrs.org, 2018). In this context, it needs to be mentioned that all of these financial regulators have established standards and principles that are easy for the companies and industries to capture. It can be noticed that there is not any rational expectations among the parties. It needs to be mentioned that there is another major aim of the development of FRC. With the implementation of FRC, it has become possible for the stakeholders of the companies to have a say in the accounting standard-setting process. More importantly, in the board of AASB, FRC and IFRS, people from different fields like private companies, regulators, directors and shareholders can be seen as the acting members (ifrs.org, 2018). There have been many debates related with the adoption of IFRS by Australia and UK. Many people have argued that regulatory environments of Australia and UK can be captured due to the adoption of the policies of IFRS as the standards setters are lobbying to fulfil their own interest in the presence of a single accounting standard. However, it needs to be mentioned that there is not any strong point in this argument, as there has not been anything bad happened in the presence of IFRS (ifrs.org, 2018). Thus, based on the above discussion, it can be said that there is less possibilities for these standards to be captured in the presence of all these aspects. Conclusion From the whole discussion, it can be observed that this report has aimed to discuss various aspects of framework for financial reporting of Australia and UK. At the same time, the report has also attempted to evaluate the framework for financial reporting of these two countries with the help of the various components of regulatory capture theory. It needs to be mentioned that the report has analyzed and evaluate all the necessary aspects of the framework for financial reporting of these selected countries with the regulatory capture theory. The following discussion shows the critical analysis of the framework for financial reporting of Australia and UK in relation to regulatory capture theory. In case of the framework for financial reporting of Australia, it can be seen that relevance and reliability are the major issues in the financial reporting of Australia. The above discussion also states that AASB is majorly responsible for the development of financial standards and policies for financial reporting. Some of the other major bodies are APRA, ASIC and others. It can also be observed that Australia has adopted all the standards and principles of IFRS in order to bring accuracy in the financial reporting process. After applying the assumptions of regulatory capture theory, it can be observed that there is not any area in the framework for financial reporting in Australia that can be captured. The above discussion shows that there is enough independence in the body of AASB and IFRS as members from different area can be seen. After that, from the major activities of AASB, it is clear that there is not any lobbying in this body to fulfill the self-needs of the body members a s the main aim of AASB is provide the users with necessary financial information by improving the quality of financial reporting. Thus, based on the above discussion, it can be conclude that all these aspects diminish the possibility of regulatory capture for the framework for financial reporting in Australia. Almost same concept can be seen in case of the framework for financial reporting in UK. The above discussion states that framework for financial reporting of UK faces major problem in the adoption of various principles and standards of IFRS. It can be observed that there are two major frameworks for financial reporting available in UK; they are IFRS and UK and Ireland GAAP. At the same time, FRC also has to play an important part in financial reporting. It can also be observed that UK has adopted all the standards and principles of IFRS. In case of the application of regulatory capture theory, it can be observed that there is not any significant factor contributed towards the capturing of framework for financial reporting. Same as Australia, the board of FRC consists of members from different area. Apart from this, it can also be seen there is not any place for lobbying in the board members. Thus, based on the above discussion, it can be conclude that all these aspects diminish the p ossibility of regulatory capture for the framework for financial reporting in UK. References AASB Board. (2018).Aasb.gov.au. Retrieved 31 March 2018, from https://www.aasb.gov.au/AASB-Board.aspx AASB RESEARCH REPORT NO 4: REVIEW OF ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS IN AUSTRALIA. (2018).Aasb.gov.au. 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