Contemporary Issue in International Accounting Capital

Question: Discuss about theContemporary Issue in International Accountingfor Capital. Answer: Introduction: Today, countries trade with each other leading to flow of revenue and capital among them. International accounting standards have become a necessity to provide clarity and transparency between trading countries. International Financial Reporting Standards and Australian Accounting Standards are internationally accepted standards with country wise modifications. The paper opens with the necessities of international accounting systems keeping these two systems in light. Application of IFRS in some other economies has also been exemplified during the course of discussion followed by its role in international trade, investment and consumer satisfaction. The importance of IFRS to multinational companies has also been illustrated. The Australian Accounting Standard Board (AASB): According to Securities and Exchange Commission of the United States of America, the globalization of companies has given rise of flow of capital and revenue between countries (Sec.gov 2017). Today, the companies and individual investors invest abroad for capital appreciation. Hence, it has become important to have a set of common accounting standards to maintain transparency and liquidity in the accounting systems. The need for internationally maintained and followed standard of accounting has brought the accounting bodies in the world to come together and make new standard system of accounting. The Australian Accounting Standard Board (AASB) is the body that follows the Australian Securities and Investment Act 2001 and makes the accounting standard to be followed by the public and private companies in the country. The companies in Australia are required to follow Australian Accounting Standard according to the procedures laid down by the Common Wealth, state or local government bodies. The Certified Practising Accountants, Australia, the Institute of Chartered Accountants, Australia and the Institute of Public Accountants, Australia are under statutory compulsion to ensure that the companies following their systems of accounting comply with the Australian Accounting Standard (AAS) (Aasb.gov.au, 2017). International Financial Reporting Standards (IFRS): The Australian Financial Reporting Council directed Australian Accounting Standard Board to comply with the International Accounting Standard Board. The International Accounting Standard Board set down International Financial Reporting Standards (IFRS) which serves as the language of accounting in international business around the world. IFRS started as a method to standardize accounting in the European Union but spread to the rest of the world due to its applicability (Erdemoglu 2015). IFRS recognizes assets, liabilities, income and expenses, equity, contributions and distributions by owners and cash flow (Capkun and Collins 2016). The fair and transparent system of IFRS recognizes the organizations in the following ways: The system recognizes each organization as a going and continuous operating concern unless they are winded up. The system recognizes the items of assets, liabilities, expenses and so on if they suffice the definition and the criteria for their recognition. Each item is considered before accounting which allows grouping of items of similar nature together. This makes accounting more transparent and easier. IFRS requires the companies to at least present the financial statements once a year for financial review. This allows the review of the financial position of the company, ensures that IFRS norms have been adhered and accounting presentation has been done as per IAS 12. IFRS requires entities to present comparative statement for all the amounts of the previous periods. The statement should also have the narrative and description information to support the current financial figures. IFRS requires entities to follow the same standard procedure for accounting unless the entitys operation changes an item as per definition or there arises a necessity to change the accounting style. The Necessity of International Accounting Standard: The globalization of economies and the global expansion of companies into multiple countries have made it necessary to have a uniform accounting standard for all the countries. The IFRS came into being as a uniform accounting standard for the EU countries but has gained importance in most of the countries. This is due to the following reasons: Comparability: Today trades between countries have necessitated the governments to ensure that the companies with their domain follow a uniform accounting and reporting style. The Institute of Chartered Accountants, India, SEBI and Ministry of Corporate Affairs has made preparation of financial statements in IFRS mandatory. Reserve Bank of India has made IFRS a mandate of all banking accounts which has helped multinational companies including banks to expand into Indian market (Srivastava and Gupta 2014). Transparency: Transparency is a very important factor that makes international accounting mandatory. Investors can compare between companies before investing in the shares to study its stability and financial strength. A transparent system of accounting followed y all countries helps the stakeholders and the board of directors to make future strategies. Relevance: A uniform system of internationally recognised system of accounting helps a company to use its financial statements in multiple host countries. Multinational companies can use these financial statements to prove its strength while entering a new market. Common Wealth Bank based in Sydney is engaged in business in India, China, Indonesia, London and so on. Incorporation of IFRS in AAS has made it possible for the bank to operate in diverse markets conditions by following a uniform accounting and reporting system in all its locations (Commbank.com.au 2017). Reporting and strategy making: Multinational companies can report financial information from various locations to the management. The management, in turn can use the information to make business strategies for various market locations. Such strategies are particularly important in order to introduce a new product. For example, China is an important trading partner of Australia and was following its own accounting system. However, with the acceptance of IFRS, it became easier for Australia to measure the revenue from the Chinese market (Miao, X., 2016). Helps in international trade: Multinational companies operate in various economic through various modes like branches, FDI and franchisee. A universally system of accounting makes it possible for these companies to compare between different locations and review their performances. It also helps a company to measure the risk and profitability in several domestic markets and also diversify the risk over various markets. Multinational companies like PepsiCo and Microsoft operate in various countries like Taiwan, Singapore and the US. Acceptance of IFRS allows the companies to report the stocks, expenses, profits, sales and other accounting transactions in different countries in a transparent way for reporting and decision making (Schibuola 2014). Consumer and investors benefit: Countries can trade easily with other by applying IFRS which makes variety of goods and services available to the customers. Individual investors too can also study the financial statements of foreign companies before investing in their shares. Thus, an internationally accepted accounting standard boosts consumer satisfaction and investments which boost the world economy (Tong 2014). Conclusion: The above study shows that international accounting standards are very crucial for international trade. These standards form the base of accounting procedures of the countries and yet allow modifications considering the unique features of each economy. They also lead to investment and consumer satisfaction, thus boosting the global economy towards growth. References: Aasb.gov.au. (2017). Australian Accounting Standards Board (AASB) - Home. [online] Available at: https://www.aasb.gov.au/ [Accessed 1 Feb. 2017]. Capkun, V. and Collins, D.W., 2016. 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