1. Introduction
This paper will compare and contrast the objectives of general purpose financial reporting (GPFR) in the current AASB Framework (AASB, 2008) with that proposed in the IASB Exposure Draft (IASB, 2008a) and determine whether the proposal is an improvement with justification. This paper will also determine whether the objective in either of these documents is appropriate with justification.
2. Analysis and Discussion
2.1. Compare and contrast the two frameworks
The two frameworks are similar in the following respects: First, both objectives of General Purpose Financial Reports under AASB Framework and IASB Exposure Draft are to provide information to users of general purpose financial reports. Since both cover general purpose reports, users with special needs for information may not base their demand for reports under the statement under both frameworks. Second, a separate statement or accounting standard therefore will address the special needs of users for financial information under both frameworks (AASB, 2008; IASB, 2008a).
Third, both the frameworks discuss also the objectives of general purpose reporting by considering wide range of users who make economic decisions. These users may include the investors, creditors of money and in kind, employees, customers and government agencies.
The two are however different in the following respects: First, the target users under the AASB framework include the both private and public users of general purpose reports while target users under the IASB Exposure Draft include only users from the private sector (IASB,2008a). Under the first, the statement issued to such effect contains no conclusion regarding the particular qualities that information should have to meet objective of the reports (AASB, 2008) but under the second there are specifications of the qualitative characteristics of information which are needed to meet declared objective of financial reporting. These qualitative characteristics include relevance and faithful representation (IASB, 2008a).
Although both frameworks seek to serve variety of users, each framework has different set of primary users. Under the AASB, the primary users include the resource providers, recipients of goods and services and the parties that make a review or oversight function as basically represented by government agencies (AASB, 2008). On the other hand, the primary users are the providers of capital which may be represented by investors and creditors. This difference is expected as the first addresses needs both public and private entities while the second is only for private entities (IASB, 200ba). An exception however in the second is if the government agency is itself a provider or a source of capital in the private entity.
Under AASB, a mechanism is provided for the accountability of management and government bodies (AASB, 2008) which is more or backward looking attitude while IASB seems to view more about the future of the entity. As a consequence accountable managements and government bodies are accountable to the people at large while under the IASB, their primary concerns, which can still be considered an accountability, consist of profitability, liquidity and solvency of the business so that capital providers would be compensated with the risks they are involved with in putting their capital to business (IASB, 2008a).
It can be deduced from an international business context that IASB Exposure Draft is an improvement of the AASB framework on general purpose reporting on the following grounds: The primary-users target focuses on the private sector reporting rather both public and private sectors thus making things clearer and more meaningful the purpose of financial reporting. The primary users under AASB include the government and the customers while those of IASB are those capital providers which may not include the government and the customers. Since public entities have different priorities with the private entities, it is more consistent with logic and business sense to have a focus first on a particular group and the IASB’s Exposure Draft is closer in attaining and realizing objectives of general purpose reporting for business decision makers.
2.2.Is the objective in either of the documents appropriate? Why or why?
The objective in either document may be appropriate in the context of either framework since each jurisdiction, i.e. AASB and IASB, has the inherent right to determine what it needs and on what areas it would give priority. In the case of AASB, it addresses the need for both public and private sector entities under one statement since it considers important the participation of government in decision makers thus it considered the same as one of the primary users. In case of IASB Exposure Draft, it has its focus on private sector as users since the framework is viewed in the context of international business hence it calls its issuance International Financial Reporting Standards (IFRS).
3. Conclusion
The perspective from which the IASB framework is tested whether such is an improvement of the GPFR under AASB was viewed in the context of international business and thus the assertion that that there was such improvement because of the view focusing with private sector. As to appropriateness however, the issue is best decided by what a certain group of prospective users needs at particular point in time. Thus, the objectives of both can be considered appropriate in the context of what each jurisdiction contemplates for a particular set of users.
References:
AASB (2008) Statement of Accounting Concepts SAC 2 (8/90) Objective of General Purpose Financial Reporting, {www document} URL http://reference.aasb.gov.au/public_docs/concept_statements/SAC2_8-90_2001V.pdf, Accessed September 25, 2008
IASB (2008a) EXPOSURE DRAFT OF An improved Conceptual Framework for Financial Reporting: Chapter 1: The Objective of Financial Reporting and Chapter 2: Qualitative Characteristics and Constraints of Decision-useful Financial Reporting Information, {www document} URL, http://www.iasb.org/NR/rdonlyres/464C50D6-00FD-4BE7-A6FF-1BEAD353CD97/0/conceptual_framework_exposure_draft.pdf, Accessed September 25, 2008
IASB (2008b) Company Website, {www document} URL http://www.iasb.org/Home.htm, Accessed September 25, 2008
