Accounting standards which mandate the financial reporting preparation for preparers of general purpose financial statements are usually complicated, detailed, and lengthy. As such, the standards can be difficult to comprehend, and their application can be a daunting and confusing task. Not only for accounting professionals freshly entering the field, but for those with years of experience.
In Australia, a board of financial and accounting experts make up the Australian Accounting Standards Board (AASB), and are responsible for setting accounting standards. The AASB discusses changes to existing standards and develops new standards, sometimes for years at a time, as to best understand the intricacies of each standard. The AASB establishes how standards are to be implemented by organisations across Australia, and what the intended interpretation and result of the standards are.
Recently, the AASB released a range of new standards, the adoption of which caused a number of challenges for accounting professionals due to increased administrative requirements, and difficulties in assisting organisations as they adapt.
Two noteworthy standard changes to draw attention to are:
This standard created the need for businesses to reflect long-term lease commitments, such as the rental of an office space, on balance sheets. This must be done by recognising a ‘right-of-use’ asset and lease liability for the present value of the obligation. All expected cash flows for the remainder of the lease term from the start of the financial year must be included in the valuation.
Not only has AASB16 created the need for businesses to calculate the impact of adopting operating leases onto their balance sheets, it also requires processes and controls to be updated on a monthly basis, to ensure an accurate reflection of the leases within the accounts. This change will, of course, have a corresponding effect on an organisation’s financial ratios.
This standard changed the way revenue is recognised. The process of determining when and how much revenue can be recognised is now a five-step model, based on the identification and achievement of performance obligations, as well as the corresponding transaction price.
The necessity of technical expertise
Due to the complexities of new standards brought in by AASB – as can be seen in the examples above – as well as the future changes being brought out by the AASB, technical expertise is more valuable than ever to ensure accounting standards are being interpreted and adopted properly by businesses, and correctly reflected within financial statements.
If you’re confused by all of this, you’re not alone, and you need not worry. We at Accru are focused on staying ahead of future changes to be passed down by the AASB, and are committed to maintaining an in-depth understanding of the current standards applicable to our clients. As such, we have enlisted the services of a highly experience financial reporting expert and a previous board member of the AASB to provide consulting services to our teams on all standards old, new and upcoming, allowing us to achieve the highest level of comprehension, and up-skill our team members accordingly. As such, we are able to provide the best and most relevant advice.
You can be sure that at Accru, all of our team members are well versed in this complicated, but essential aspect of accounting practice.