IFRS in Australian Government Essay

IFRS in Australian Government Essay

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In 2004, Australia became one of the first countries to impose IFRS on local government with full compliance taking place for the 2005/2006 financial year (Pilcher & Dean, 2009; Wee, Tarca & Chang, 2007). As the transition happen, AASB 9 was issued to replace AASB 139 as it applies to financial assets (Locke, 2013). The objective of AASB 139 is to establish principles for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items (Locke, 2013). While, AASB 9 Financial Instruments is equivalent to IFRS 9 of the same name as issued by the International Accounting Standards Board and the objective of AASB 9 is to establish principles for the financial reporting of financial assets and financial liabilities that will provide relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty’s future cash flows (Institute of Chartered Accountant Australia, 2012; Locke, 2013). AASB 9 has been issued on 7 December 2009 where companies are allowed to adopt the standard straight away or before January 2015 (Locke, 2013; Wee et al, 2007). AASB 9 is applicable for annual reporting periods beginning on or after 1 January 2015, with early adoption permitted and it will supersede AASB 139 from 1 January 2015 (Institute of Chartered Accountant Australia, 2012). So, we will be wondering what is wrong with the AASB 139 which has given rise to AASB 9. And, how the future application of AASB 9 will impact on the accounting for financial instruments in financial statements?
One of the shortcomings of AASB 139 is the consequence of the technically complex nature of the hedge accounting provisions. The specific concern is whether the h...

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...arket through profit and loss. However, a leeway is given in the case of inability to measure the fair value of the embedded derivative solely, where a fair value election is allowed to designate the entire contract at fair value. The two opposite classification for a same instrument distorts the financial performance and position of the entity (Mensah, Nguyen, & Prattipati, 2006). For example, when a preference share is labelled as a debt, periodic payments are classified as interest expense downgrading profits and increasing the leverage of the company. Conversely, a part of the instrument would be classified as an equity whereby dividend income would enhance profits and improve the gearing of the company. Overall, the financial position of the company is somewhat blurred in the distinction between the proportion of the effects of equity and debt classification

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