The New Zealand (NZ) Framework for Financial Reporting is in the process of changing since 2009, as a result of the review of the statutory reporting requirements in New Zealand by Ministry of Economic Development (MED) and the Accounting Standard Review Board (ASRB). The mainly recommendation was to remove small and medium sized companies from the statutory reporting framework (Ernst & Young, 2013, p.11). This New Zealand Framework for Financial Reporting 2010 (NZ Framework) was issued by the New Zealand Accounting Standards Board of the External Reporting Board (XRB) in 2011. The changes of framework pull open the NZ financial reporting standards that comprise NZ Generally Accepted Accounting Practice (GAAP) setting movement from ‘rule-based’ approach to ‘principle-based’ approach. Then comes to the question: Whether the application of NZ GAAP is supported positively by the NZ Framework with the appropriate underlying principles, or it preserved a largely ‘rule-driven’ approach? From my perspective, NZ Framework provides parts of applicable underlying principles in guidance of NZ GAAP but there are rooms for improvement. This essay will discuss the influence NZ Framework brings to financial reporting standards that included NZ GAAP based on the debate between principles-based and rule-based. In particular, it will portray: (1) the nature and orientation of financial reporting framework and GAAP; (2) the main improvement of NZ Framework and the applications framework guided in NZ GAAP. The NZ Framework is an accounting conceptual framework based on the International Accounting Standards Board (IASB) Conceptual Framework. The key objective of the framework is to provide a complete and updated set of accounting concepts to use ... ... middle of paper ... ...n. Based on the definition of asset/liability, the operating leases items meet it. Therefore the amount should show as asset/liability off balance sheet as well. In conclusion, appropriate principles could lead to clearer interaction and more comparable financial reporting standards without the need of the current rules. The NZ Framework has provided parts of clear and appropriate underlying principles to lead the application of NZ GAAP and other financial reporting standards. However the standards setting movement from ‘rule-driven’ approach to ‘principle-based’ approach is still half-way in New Zealand. How could principles be sufficiently clearly portrayed and put into practice require the profession to think and support. Just as Tweedie (2007, p.7) states, a principle based system will only work if preparers, auditors, users and regulators wish to make it work.
References Financial Accounting Standards Board. 2006, July 6 -. Conceptual Framework for Financial Reporting. Financial Accounting Series, 1-55. Wolk, H., Dodd, J., & Tearney, M. (2003).
Until late 2002, financial reporting standards (FRS) in New Zealand were developed based on a sector neutral approach. This meant a single set of accounting standards were applied to all entities regardless of which sector they were operating in. This was achievable because when FRS was created, the financial reporting standards board (FRSB) took into account that entities in the public sector, not-for-profit sector and private sector would be applying these standards. This included having to think about a broad range of transactions, different reasons for carrying out transactions, the readers of financial statements for all sectors, and the information that those readers needed (Brady, 2009). Not only did FRS account for the range of entities that would be applying the standards but it was also written in a language that was appropriate and made sense for all entities in each sector (Brady, 2009). However, since the decision to
This is due to the fact that many traditional operating leases will now be brought on balance sheet as as right-of-use assets representing its right to use underlying leases asset and lease liability representing its obligation to make lease payments will also be recognised on balance sheet. Also, there is no more rental expense. Under AASB 17, operating expenses operating lease payments are recognised as a straight line basis whereas under AASB 16, all lease will incur a front-end loaded expenses such as depreciation on the Right to use asset and interest on the lease liability. These expenses will be recognised in the income statement over the least term. Moreover, AASB 16 also allows two recognition exemption where a lessee may choose not to recognised the Right-to-use asset and lease liability; the short term leases and low value
Olusegun Wallace, R. 1996. The Development of Accounting Research in the UK. In: Cooke, T. and Nobes, C. eds. 1997. The Development of Accounting in an International Context. London: Routledge, pp. 218-254.
In the world of international finance there are two major accounting systems; GAAP, which stands for Generally Accepted Accounting Principles, and IFRS, which stands for International Financial Reporting Standards. The United States prefers GAAP while the European market, as well as many other countries, prefers IFRS. By 2015 the Securities Exchange Commission is anticipating a total transfer to IFRS in the United States. Though the differences between GAAP and IFRS are few, they could affect accuracy of financial reporting throughout the world. It is important to understand the differences and similarities between both GAAP and IFRS if one is to globalize ones market (Logue).
As it was aforementioned, if it was an operating lease, it would be treated as an expense which will end up being in the income statement. This lease expenses would reduce net income, thus potentially reducing a company's income tax expense and rates. Moreover, operating leases create off-balance sheet financing because no liability is recorded on the balance sheet since no asset is recorded. The result is the company would display to its debt lenders better debt covenant ratios.
GAAP reporting standards (AICPA, n.d.). A private business owner can utilize the concise and familiar accounting principles and accrual income tax or cash basis method of financial reporting to assess the company’s performance and provide relatable decision-making information to stakeholders (AICPA, n.d.). Moreover, it is a cost-effective measure for business owners that do not have to comply with U.S. GAAP base financial statements. In addition, CPAs can provide value pricing by preparing meaningful and concise reporting to internal and external parties. However, a business owner should carefully consider and examine the available options before deciding on an appropriate reporting framework. In order to provide the best short-term and long-term solution, it is imperative to consider a company’s business structure and future
These principles were established to provide a common standards to accountants. The rules and regulations were created by the FASAB and the GASB. To guarantee the accuracy and reliability of financial statements professional accounts must follow the accounting cycle of GAAP. FASAB and GASB are the two major bodies that update these principles periodically. The reason for these periodic updates is to address the changes that occur in public bodies and organizations. One of the greatest advantages is that the financial statements from different corporations can be compared. The preventative measures of GAAP reduce risks and provide safeguards to an organization. GAAP help to eliminate fraud and risk through consistent financial reporting. Private and public organization both benefit from the use of the Generally Accepted Accounting Principles. Another important advantage of GAAP is its adaptability. GAAP provides for accurate and consistent reporting. There is no law that requires GAAP to be used. The GAAP guidelines are adhered to by the vast majority of organizations because of its accuracy in financial reporting. The accurate data provided through the use of GAAP helps an organization to achieve their financial objectives. There were no areas of this class that could have yielded additional information for me. The resources that we are provided should be utilized effectively to maximize the learning process. I enjoyed watching the lecture that professor Sheik provided. The live chats are often overlooked yet they embody valuable information which is critical to our success. The discussion board post are provided student engagement which allows one to gain greater clarity on the subject matter. I have enjoyed my learning experience in this class. I wish everyone continued success at Colorado Technical
Judgement is a notion of relevance and reliability in developing and applying accounting policies. It is a requirement of management that they exercise a high degree of professional judgement when selecting appropriate accounting policies in the preparation of financial statements that is relevant to decision-making and assessment needs of users. Management should also consider the applicability of IFRS and AASB in dealing with similar and related issues and then the definitions, recognition criteria in the Conceptual Framework when there is no IFRS standard or interpretation in certain circumstances that are specifically applicable. Management may also consider the most current pronouncements of other standard-setting bodies to the extent that do not conflict with IFRS and AASB in developing accounting standards and accepted industry practices by using a similar conceptual framework.
The GAAP (US Generally Accepted Accounting Principles) is the accounting standard used in the US, while IFRS (International Financial Reporting Standards) is the accounting standard used in over 110 countries around the world. The GAAP is considered a more “rules based” system of accounting, while IFRS is more “principles based.” Soon, the U.S. Securities and Exchange Commission is looking to switch to IFRS by 2015. The Comparison highlights some significant U.S. GAAP and IFRS requirements, which we believe are most commonly encountered in practice. This Comparison may be helpful to individuals that are new to IFRS who are trying to gain an appreciation of the more significant requirements of IFRS and how these requirements differ from those in the United States.
The Generally Accepted Accounting Principles (GAAP) is the rules and practices used by different countries to prepare their financial statements. In other words, it is the accounting principles used by countries according to their own set of accounting rules and principles to prepare financial statements to provide financial information of the company to shareholders, and investors in their own country, but globalization of business had emerged the need of single accounting standards. The globalisation has reduced the barriers in business and has resulted in the expansion of business with different countries. Expansion of business has resulted in the need of single accounting standards which could be used in almost all the countries. Previously,
This paper objective is to examine the pros and cons of both principles-based standards and rules-based standards and decide on which of these approaches is the better for the ever-evolving nature of accounting. Ultimately, the better of the two approach should take into account reliability and
Accounting principles are main consideration , certain standards like rules of operations are pillar characteristicis to built accounting statements. Accounting principles can be presented in many ways, sometimes its create confusion for readers mainly for beginners, but still acoounting principles are main tool to obtained financial statements. Its hold the whole acoounting process together.
The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S GAAP). The increasing recognition and acceptance of the International Financial Reporting Standards by accounting professionals in the United States, will affect the way in which the U.S will record financial statements in the future.
There are different understandings of financial reporting. In general terms, we can equate it to reporting of “external accounting”; which indicates an accounting that disseminates through internal business management to owner or broader stakeholder. From mainstream economist point of view, financial accounting can also be described as information that guides economic decisions. For information specifically in financial accounting, the approaching of perfect information is often taken as desired. More transparent information often leads to improved economic decisions. However, more transparent information means the more cost associated with providing the information.