When looking into accounting, it's common to come across the term 'AASB', which means The Australian Accounting Standards Board. As the title states, this entity, under the Australian Securities and Investments Commission Act 2001, is in charge of the country's accounting standards.
Over the course of the last two years, the AASB has introduced several important standards that impact financial reporting in Australia, including:
AASB 2022-6: These guidelines address the accounting and reporting of long-term liabilities with specific conditions.
AASB 2022-10: A standard focusing on how non-profits and public sector entities should measure the fair value of non-financial assets.
AASB 2022-9: Deals with how public sector entities should account for and report insurance contracts.
Draft ASRS Standards for Climate-related Financial Disclosures: These are guidelines for reporting on financial risks and opportunities related to climate issues.
How have these changes affected the Australian economy and accounting standards? We discuss everything important to know below.
Impact of the New Benchmark
Accounting and financial reporting can be an overwhelming process. There's so much to assess, analyze, and pay attention to, so without proper guidelines in place, getting financial affairs in order can be quite the challenge. The AASB standards, however, promise to remove some of the hassles that come with financial reporting. Here are the main benefits of the standards.
More Clarity
Until 2022, there was a lack of transparency in how companies and firms report long-term debts with specific conditions. The new standards, however, aim to clarify how these financial statements should be delivered. This, consequently, means that investors and stakeholders can have a better understanding of their financial obligations and how to fulfill them.
Better Risk Assessment
Imagine a scenario – you invest in real estate without realizing it comes with a 'package' deal – other tenants that have no desire to leave. This situation can quickly become a nightmare without finding a lawful solution. However, with the AASB standards, especially those introduced in 2022, stakeholders have more access to information about any covenants. This means that they can now assess any potential risks much more accurately.
More Accurate Valuation
One of the more recently created standards focuses on fair value measurement for non-profits. With the guidelines in place, the reported value of non-financial assets should be more accurate and true to their actual worth. Consequently, this would give a clearer picture of an entity's actual financial position.
Challenges of AASB Standards
While AASB standards aim to make Australians' lives easier, it's not a secret that implementing new frameworks often comes with several challenges.
Complex Reporting
Although, in many ways, AASB standards provide more clarity and transparency, they can also be complex to follow. For instance, in the case of AASB 2022-6, entities must share detailed information about covenants in long-term liabilities.
To do so, they must identify and track various covenants' conditions, which can be difficult, especially if a business has several loans or borrowing arrangements. Since monitoring all of this information is time-consuming and resource-intensive, there's a bigger chance of making errors in financial statements.
Added Operational Costs
With the AASB standards, businesses may be required to perform tasks and fulfill obligations they never had before. In some cases, organizations might need to modify their accounting software, upgrade their data collection methods, and ensure their reporting is as accurate as possible.
Likewise, in the case of AASB 2022-10, which mainly focuses on non-profits, organizations may not have the expertise in fair value measurement, especially if they're dealing with non-financial assets. As a result, they may need to hire external services, which adds to the operational costs.
Consistency in Application
One of the biggest challenges of AASB standards is ensuring their consistent application. This is especially true for fair trade. Making sure they are used consistently across many different asset types requires a deep understanding of valuation techniques and market factors. Unfortunately, this is not something the industry has. Moreover, market data is still quite limited, so it's challenging to ensure that the valuations are comparable.
Steps for Implementing the Requirements
Implementing the new standards in an organization's operations isn't something that can be done in one day. For the process to be successful, one must set aside time to research and prepare. Below, we've gathered our best tips.
Preparation
Understand the Standard
Before considering implementing the AASB standards, whether for insurance contracts, Australian securities, financial statements, or anything else, it's important to understand what they're all about. Make sure to read all the requirements several times and get help from accounting experts, who can explain what each standard means.
Review Assets and Contracts
One of the biggest changes will impact insurance contracts in the public sector. To prepare for the process, analyze all of your contracts and determine how they will be affected by the new rules. Likewise, in regard to other standards, it's important to review all current liabilities to figure out which ones will be impacted by the changes.
Implementation
Invest in Training
Practice makes perfect! To ensure an organization implements the new requirements successfully, it's a good idea to provide the finance and accounting team with proper training. While it may seem expensive upfront, it will definitely pay off in the long term. With a team that is well-educated on the new standards, an organization will be one step ahead in the game.
Update Your Systems
To follow the AASB standards, one must take a thorough look at their financial systems. Do they fulfill the needs the organization has? Can they ensure continuous monitoring? If not, it's time for a change!
Take Advantage of Technology
Implementing changes in account systems can seem daunting, but it doesn't have to be. Luckily, we're living at an age when we have technology for almost every problem, and this is no exception. Modern accounting software can be configured to address even the most specific needs, whatever they might be. This leaves less room for errors, plus it's possible to concentrate on more exciting tasks!
In simple terms, AASB standards are a quality set of accounting rules designed to ensure all financial reporting is clear, consistent, comparable, and in line with global practices. Once every while, the AASB updates its standards to ensure they follow changes in the world.
Why is this important? Because it provides the framework for preparing and presenting financial statements.
Recommendations for Implementation
The AASB standards offer many benefits, but only if they are implemented successfully. To do this:
Set aside time and resources to train staff
Update systems so they match the new requirements
Leverage technology (there's software for everything!)
Summary: What are AASB Standards
The Australian Accounting Standards Board (AASB) sets accounting standards in Australia. Recently, they've introduced new guidelines like AASB 2022-6, 2022-10, and 2022-9.
These new standards aim to provide clarity in financial reporting, enhance risk assessment, and ensure more accurate valuation of non-financial assets in non-profits.
Implementing AASB standards can be complex and can sometimes increase operational costs.
Successful implementation involves understanding the standards, reviewing assets and contracts, training staff, updating financial systems, and using modern accounting technology.
AASB standards are crucial for clear and consistent financial reporting and can make business operations much easier in many ways.
