14 Accounting: Business Reporting for Decision Making
1.7 Australian and international accounting
standards
LEARNING OBJECTIVE 1.7 Explain the current standard-setting framework and the role of the
professional accounting associations in the standard-setting process.
Prior to 2005, Australian Accounting Standards were largely developed by the Australian Accounting
Standards Board (AASB). However, since 1 January 2005, Australian entities have complied with Inter-
national Financial Reporting Standards (IFRS). The adoption of IFRS ensures compliance with inter-
nationally agreed principles, standards and codes of best practice, resulting in the issue of various new
standards and the amendment of many existing Australian standards. For some standards, the changes
have been substantial; in other instances, the changes have been insignificant. The Australian Accounting
Standards Board (AASB) is responsible for developing and maintaining high-quality financial reporting
standards in Australia and contributing to the ongoing development of global accounting standards. The
AASB provides input into current International Accounting Standards Board (IASB) projects by issuing
exposure drafts of amended Australian Accounting Standards that incorporate the relevant clauses and
requirements of the IFRS. The functions and responsibilities of the AASB include:
- issuing Australian Accounting Standards
- significantly influencing the development of IFRS (such as providing significant input to the devel-
opment of standards relating to the global financial crisis)
- promoting globally consistent application and interpretation of accounting standards.
The Corporations Act stipulates that disclosing entities, public companies and large proprietary
companies must apply Australian Accounting Standards in preparing their financial reports. For other
reporting entities (i.e. non-disclosing entities), preparers and auditors of general purpose financial state-
ments have a professional obligation to apply the accounting standards. A disclosing entity is an entity
that issues securities that are quoted on a stock market or made available to the public via a prospectus.
Financial Reporting Council (FRC)
The Financial Reporting Council (FRC) is a statutory body established under s. 225(1) of the
Australian Securities and Investments Commission Act 2001 (Cwlth), originally the Australian Securi-
ties and Investments Commission Act 1989. The FRC is responsible for overseeing the accounting and
auditing standard-setting process for both the public and private sectors in Australia. The FRC is made
up of key stakeholders from the business community, the professional accounting bodies, and govern-
ments and regulatory agencies (including the AASB). The FRC was also responsible for promoting
the Australian adoption of IFRS, and monitors the operation of the Australian Accounting Standards to
assess their relevance and effectiveness in achieving their objectives.
Development of accounting standards
The development of an accounting standard is a lengthy and rigorous process that can span several years.
An accounting standard must go through a number of different steps before it can become an official
standard to be applied under the Corporations Act. It is extremely important for any accounting issue to
be carefully examined and debated prior to it being issued as an accounting standard. Although many
of the Australian Accounting Standards stem from IFRS, the AASB provides input to the process. The
examination and debate of an issue with consultative groups, advisory panels and interested parties is
all part of a standard’s due process. The due process of an accounting standard includes identifying a
technical issue through submissions and other materials from interested parties; developing a project
proposal to determine if the project is worthwhile; researching the issue comprehensively; issuing an
exposure draft, discussion paper or an invitation to comment; and issuing a draft interpretation. The out-
come of the due process could be an accounting standard, an interpretation or a conceptual framework
document.