When looking into accounting, it’s common to come across the term ‘AASB’, which means The Australian Accounting Standards Board. As the title states, this entity, under the Australian Securities and Investments Commission Act 2001, is in charge of the country’s accounting standards.
Over the course of the last two years, the ASSB has introduced several important standards that impact financial reporting in Australia, including:
How have these changes affected the Australian economy and accounting standards? We discuss everything it’s important to know below.
Accounting and financial reporting can be an overwhelming process. There’s so much to assess, analyse and pay attention to, so without proper guidelines in place, getting financial affairs in order can be quite the challenge. The AASB standards, however, promise to remove some of the hassles that come with financial reporting. Here are the main benefits of the standards.
Until 2022, there was a lack of transparency in how companies and firms report long-term debts with specific conditions. The new standards, however, aim to clarify how these financial statements should be delivered. This, consequently, means that investors and stakeholders can have a better understanding of their financial obligations and how to fulfil them.
Imagine a scenario – you invest in real estate without realising it comes with a ‘package’ deal – other tenants that have no desire to leave. This situation can quickly become a nightmare without finding a lawful solution. However, with the AASB standards, especially those introduced in 2022, stakeholders have more access to information about any covenants. This means that they can now assess any potential risks much more accurately.
One of the more recently created standards focuses on fair value measurement for non-profits. With the guidelines in place, the reported value of non-financial assets should be more accurate and true to their actual worth. Consequently, this would give a clearer picture of an entity’s actual financial position.
While AASB standards aim to make Australians’ lives easier, it’s not a secret that implementing new frameworks often comes with several challenges.
Although, in many ways, AASB standards provide more clarity and transparency, they can also be complex to follow. For instance, in the case of AASB 2022-6, entities must share detailed information about covenants in long-term liabilities.
To do so, they must identify and track various covenants’ conditions, which can be difficult, especially if a business has several loans or borrowing arrangements. Since monitoring all of this information is time-consuming and resource-intensive, there’s a bigger chance of making errors in financial statements.
With the AASB standards, businesses may be required to perform tasks and fulfil obligations they never had before. In some cases, organisations might need to modify their accounting software, upgrade their data collection methods and ensure their reporting is as accurate as possible.
Likewise, in the case of AASB 2022-10, which mainly focuses on non-profits, organisations may not have the expertise in fair value measurement, especially if they’re dealing with non-financial assets. As a result, they may need to hire external services, which adds to the operational costs.
One of the biggest challenges of AASB standards is ensuring their consistent application. This is especially true for fair trade. Making sure they are used consistently across many different asset types requires a deep understanding of valuation techniques and market factors. Unfortunately, this is not something the industry has. Moreover, market data is still quite limited, so it’s challenging to ensure that the valuations are comparable.
Implementing the new standards in an organisation’s operations isn’t something that can be done in one day. For the process to be successful, one must set aside time to research and prepare. Below, we’ve gathered our best tips.
Before considering implementing the ASBB standards, whether for insurance contracts, Australian securities, financial statements, or anything else, it’s important to understand what they’re all about. Make sure to read all the requirements several times and get help from accounting experts, who can explain what each standard means.
One of the biggest changes will impact insurance contracts in the public sector. To prepare for the process, analyse all of your contracts and determine how they will be affected by the new rules. Likewise, in regard to other standards, it’s important to review all current liabilities to figure out which ones will be impacted by the changes.
Practice makes perfect! To ensure an organisation implements the new requirements successfully, it’s a good idea to provide the finance and accounting team with proper training. While it may seem expensive upfront, it will definitely pay off in the long term. With a team that is well-educated on the new standards, an organisation will be one step ahead in the game.
To follow the AASB standards, one must take a thorough look at their financial systems. Do they fulfil the needs the organisation has? Can they ensure continuous monitoring? If not, it’s time for a change!
Implementing changes in account systems can seem daunting, but it doesn’t have to be. Luckily, we’re living at an age when we have technology for almost every problem, and this is no exception. Modern accounting software can be configured to address even the most specific needs, whatever they might be. This leaves less room for errors, plus it’s possible to concentrate on more exciting tasks!
In simple terms, AASB standards are a quality set of accounting rules designed to ensure all financial reporting is clear, consistent, comparable, and in line with global practices. Once every while, the AASB updates its standards to ensure they follow changes in the world.
Why is this important? Because it provides the framework for preparing and presenting financial statements.
The AASB standards offer many benefits, but only if they are implemented successfully. To do this:
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