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Adoption of IFRS and CSR Reporting

Adoption of IFRS and CSR Reporting

Abstract

The country Australia adopted IFRS in the year 2005. From the year 2005 the IFRS was adopted smoothly and effectively in Australia. The transformation process in the country was very smooth. All the firms readily accepted the transformation as it was for their benefit. Australia adopted for IFRS all together into the local accounting standards. The preparation for adoption started in 1996. By the end of 2002 Australia significantly reduced the gap between the older set of rules and IFRS. IFRS bought huge benefit to the Australian company. It has bought a positive impact on the economy. IFRS was welcomed happily by the financial institutions and investors. The quality of Australian reports has developed and improved over since IFRS was implemented. The company selected here for IFRS analysis is AGL Energy Ltd. In 2007 the balance sheet of current assets contains both consolidated as well as parent entity information but in 2018 balance sheet there are only consolidated amounts. In the changing trends of business IFRS is definitely better as compared to any other standards. Corporate Social Responsibility has become an important concept. It is not only necessary from the legal point of view but it is also very important from the customer’s perception. Customer’s now days are more aware about the activities of the company. The company which is being selected for evaluating the CSR performance is ACACIA Energy Group. Extend of corporate social responsibility done by acacia is quite satisfactory. According to the CSR reports of the company there is no scope of improvement in corporate social responsibility. It has covered all possible sectors in their corporate social responsibility.

Introduction

IFRS is a set of financial rules and regulations that aims at better disclosure, transparency and improvements in the financial reports prepared by the companies. In this report we have taken two energy limited companies for measuring their performance in relation to IFRS and CSR activities. Both the companies are Australian Securities Exchange listed companies. The report contains a detailed study about the effect of IFRS on AGL limited. The ways of disclosure are also shown and understood from the report. AGL limited showed differences in ways of disclosure before and after adoption of IFRS. Australia adopted for IFRS all together into the local accounting standards. The preparation for adoption started in 1996. The report contains a detailed study about Corporate social responsibility in the company Acacia Energy Group and the scope of development of CSR activity in the company. Acacia is doing a good amount of corporate social responsibility. The activities are done for fulfilling various accounting objectives and theories. They have covered almost each and every field for the same. it believes that social working, environmental concern, developing a good environment and proper communication will help the company to create a good social value and good will.

PART – A

The country which is chosen for the relative analysis of part A questions is Australia.

Question 1

(I) the year in which the country adopted IFRS

The country Australia adopted IFRS in the year 2005. From the year 2005 the IFRS was adopted smoothly and effectively in Australia. The transformation process in the country was very smooth. All the firms readily accepted the transformation as it was for their benefit. It led to development of skills of people and easy movement between different sectors. Adoption of IFRS leads to saving cash and time in preparing financial reports. Multinational in a review by Australian Accounting Standards Board (AASB) it has been found that the implication of IFRS has been done properly and the small as well as big companies are satisfied with the same.

(II) Introduction of IFRS

Australia adopted for IFRS all together into the local accounting standards. The preparation for adoption started in 1996. By the end of 2002 Australia significantly reduced the gap between the older set of rules and IFRS. It focused on adopting the policies in such a way that it did not affect the people and created stress in the environment. IFRS was more detailed and was a better financial instrument as compared to AGAAP (Australian Generally Accepted Accounting Principles). For each subject a draft was registered to find out whether IFRS is better than AGAAP or not. The process was completed by July 2004 to give enough time for the constitution to implement. Australia gave a time of two years to each company for adopting IFRS. Australian Accounting Standards Boards issued reporting stating the importance and benefits of IFRS. They even stated why IRFS is best standard to follow. IFRS 4 contains information about insurance contracts. The major decision that AASB had to take was to take all IFRS or choose some specific one. It also took major decisions like whether to apply IFRS to all firms or to specific firms. It came with the decision that profit motivated entities should implement IFRS completely. Whereas, not for profit organisations should apply IFRS to the extent possible,

(III) Benefits and challenges in adoption of IFRS in Australia.

IFRS bought huge benefit to the Australian company. It has bought a positive impact on the economy. IFRS was welcomed happily by the financial institutions and investors. The quality of Australian reports has developed and improved over since IFRS was implemented. As we know benefit does not comes without challenges. One of the major challenges was deciding whether it will benefit the economy or not. IFRS would create some difficulty for the organisations in the beginning. The valuation and preparation of financial statements would become difficult at the starting. Through adoption of IFRS assessment and calculation of assets would become difficult. These were some of the major challenges faced by Australia in adopting IFRS in the country.

Question 2

The company selected here for analysis is AGL Energy Ltd. One financial report is just before adoption of IFRS and other financial report is after the adoption of IFRS. Though adoption was done much earlier still the report of 2018 is taken into consideration.

(I)  Remarkable changes in current assets and intangible assets.

Notes to accounts to Current assets for the year 2007 of AGL

In 2007 the balance sheet of current assets contains both consolidated as well as parent entity information but in 2018 balance sheet there are only consolidated amounts. The reports for 2007 are more detailed. Notes to accounts are more detailed in 2007 as compared to 2018. It will be easier to prepare financial statements under IFRS. The disclosure is much less with required information and will take less time and cost for preparation as compared to the one under AABS standards. In 2018 green commodities scheme certificates and instruments is included. In 2007 there is even description of each note to accounts. The disclosure is very less for IFRS.

Notes to Accounts for current assets for  2018

Intangible Assets

Notes to financial statements for intangible assets for the year 2007 –

Notes to accounts for intangible assets for the year 2018 –

The cost for generating intangible assets is huge. Even it is difficult to distinguish between the cost of generating intangible assets and cost of maintenance of intangible assets. Cost is differentiated is based on the development phase. There are two types of cost in intangible assets. One is the research cost and one is the development cost. There is a detailed disclosure in 2007 report and 2018 report is basically a less detailed. In 2018 figure it focuses on balances and covers.

https://www.annualreports.com/Company/agl-energy-limited

https://www.agl.com.au/-/media/aglmedia/documents/about-agl/investors/annual-reports/about-agl---annual-reports---2007-annual-report.pdf?la=en&hash=81A7F47213D0CCC119385DBC0B288C5A

(II) Usefulness of format disclosure of IFRS

In the changing trends of business IFRS is definitely better as compared to any other standards. IFRS bridges the gap between the complex business structures and the accounting requirements of the business. IFRS requires a retroactive disclosure. The requirement of IFRS is a consolidated statement. Providing a consolidated statement is compulsory and it could not be kept optional. IFRS does not Considers rewards and risks of transactions. It mainly focuses on the substance of the transaction. It provides two frame works to consider a particular financial instrument as asset or liability. It is not simply based on rule concept. It considers changes as per the requirement. It adopts more appropriate and concise policies. The aim of IFRS is to provide a more value driven financial statements. It can be useful to generate a valuable financial statement rather than giving a report of just numbers. It discloses detailed information regarding partnership, dividend payments and business acquisitions. It has a broader concept for measurement and recognition of revenue. It is a advance revenue recognition system. IFRS is a bigger guideline for business combinations. It looks at the legal aspects rather than just focusing on the transactions related to the business. It has eliminated the historical costing method and has bought fair value method into consideration. The disclosure method of IFRS is very different and better from that of AASB.

PART – B

QUESTION 1 – key trends in social corporate responsibility

Corporate Social Responsibility has become an important concept. It is not only necessary from the legal point of view but it is also very important from the customer’s perception. Customer’s now days are more aware about the activities of the company. They want to build relations only with those companies who have good name and well being. As a result consumers pay a close look to the corporate social responsibility activities of the organisation. With the revolving time the trends in CSR are also changing and it has taken many folds. They have become a essential part in huge multinational companies as well as small firms. Consumers have added a pressure on the companies to perform CSR activities. Some of the popular trends in social corporate responsibility in recent five years are mentioned below.

Increased focus on purpose – consumer’s choices are changing. They are focusing more on brand value and brand name. They are preferring brands which have a good social name. As a result companies are focusing more on meeting the needs of the society. Customers prefer the companies which have a good name and fame in the social responsibility activities. The activities of the companies in the field of CSR are increasing and they are trying to meet the needs and want of the society as well as environment as much as possible.

Change in interest of investors. Investors are no exceptions. With changing times the interest area of investors has also changed. They are now more concerned with the firms which not only has a good financial position but also has a significant contribution towards the society. There concern for environment, government and society has grown as compared to previous times. They even follow the rules made by the government to invest in the companies who follows environment, governance and society rules.

Taking a step against wrong social causes- earlier companies were not concerned what the wrong things happening in the society and surrounding. In recent days there is some change in this field. Companies are responding against the wrong things happening in the society. They are adopting social media platforms to show their concerns.

Steps against wrong government measures – sometimes government fails to adopt good policies for the environment. This causes excess harm to the environment and climate. Business firms are standing against the wrong policies of the government. As there is a change in corporate social responsibility trends business have shown more involvement for creating a better and safe environment. They stand against the wrong policies and programmes of the government.

Change to green technology – changes in the climatic situation has bought many changes in the corporate world. Now wasting of resources is not a option at all. Use and adoption of green technology is need of the hour. Non renewable resources are depleting at an alarming rate. The companies which are more responsible are adopting for green technology and are reducing their use of non renewable resources. Green technology helps to reduce pollution level and improves the condition of the environment.

More transparent report – it has become compulsory for the business firms to give a more transparent and clear financial and CSR report. It should include all the activities that the business has done for welfare of the society. This has raised the concern towards social responsibility. Public and investors can know how responsible companies are from the reports published. Showing social responsibility activities in the reports helps firms to create goodwill and attract investors as well as customers.

Go local trends – the multinational companies that are working on international level are now showing concern for the local markets. They are trying to understand the value of local suppliers and small retailers. Local markets and their development has become the new trend. Companies are providing support to the local markets and suppliers so that they can grow and develop. Many companies are joining hands with non profit organisations. Charity has become an important factor in developing good will of the company.

More focus on diversifying – staying within the boundaries is not the option anymore. Companies play a vital role in improving the environment of the entire world. They are expanding their business all over the globe. It is their responsibility to look after their country’s environment as well as after the world’s environment. 

Measuring of corporate social responsibility activities - not only customers but even firms are measuring extend of social responsibility done by other firms. It is used as a factor to tackle competition.  The firms with good amount of corporate activities are attacking on the firms which are not that much involved in the social responsibility fields.

Question 2

The company which is being selected for evaluating the CSR performance is ACACIA Energy Group.

(I) Extend of CSR reporting

The attached image shows the evidence of Acacia towards corporate social responsibility. It shows the focus and target areas for carrying out corporate social responsibility activities.

Extend of corporate social responsibility done by acacia is quite satisfactory. They have covered almost each and every field for the same. it believes that social working, environmental concern, developing a good environment and proper communication will help the company to create a good social value and good will. It has some major objectives in response to corporate social responsibility. It aims to increase commitment at all levels of the organisation for operating as per the rules of the society and environment. It gives prior recognition to the interest of investors and customers. It focuses on generating social responsibility activities in such a way that it benefits the lower class people. Some of the objectives of Acacia towards corporate social responsibility are to enhance the sustainability, enhance rural development, and promote education amongst the deprived, creating earning opportunities for the weaker sections, preserving and protecting the wildlife. It also has plans and objectives to use green technology and use renewable sources of energy.

https://acaciaenergygroup.com/wp-content/uploads/2017/06/Acacia-CSR-Policy.pdf

(II) Compliance with accounting theory

 Acacia is doing a good amount of corporate social responsibility. The activities are done for fulfilling various accounting objectives and theories. One of the major accounting theory for which disclosure of CSR is done by Acacia is stakeholder’s theory.

Stakeholder is a person or a body whose interest area lies in the activities of the business. Any activity done by the business will impact the stake holder. Stakeholder theory is a concept that takes business ethics into consideration. Its main aim is to give consideration and importance to all the parties who are interested in the activities performed by the organisation. A stake holder not only includes investors. It also includes customers, employees and other interested parties. The disclosure is done to attract more stakeholders and create goodwill in their eyes.

https://acaciaenergygroup.com/wp-content/uploads/2017/06/Acacia-CSR-Policy.pdf

(III) Scope of improvement.

According to the CSR reports of the company there is no scope of improvement in corporate social responsibility. It has covered all possible sectors in their corporate social responsibility. For examples they have taken environment, safety and security; wildlife protection; animal welfare; promotion of education, art and culture; disaster relief and various areas and target sectors in consideration. There is no such major field left in which there is a need for Acacia to have some corporate social responsibility activity. It has covered all the areas which are required for developing, maintaining and securing the environment.

Question 3 – recommendation about future of CSR reporting

There is a scope for development in CSR reporting in Australia. Some of the recommendations to the Australian financial regulators about the future of CSR reporting are as followed.

Australian financial regulators should think more about the future of corporate social responsibility. They should make more strict rules and make it compulsory for the companies to engage in corporate social responsibility. It should specify a minimum level of CSR activity that would be compulsory for each firm performing in the market. Another recommendation is that the regulators should focus more on each and every area in which corporate social responsibility can be done. It should be mandatory for all the firms to make contributions in each and every area. If only some fields are selected then it would be difficult to save and protect the environment in a better way. Activities in all the areas will lead to a better world. A proper rule for CSR reports will make companies more focused. They will be bound to pay importance to corporate social responsibility. The financial regulators of Australia should also make it compulsory for the companies to publish their CSR report in their financial statements.

Conclusion

We reached at a conclusion that IFRS is very important and essential for the present situation. It has made disclosures more relevant. Investors as well as interested parties are happy with implication of IFRS. The company selected here for analysis was AGL Energy Ltd. One financial report is just before adoption of IFRS and other financial report is after the adoption of IFRS. There were changes in the way of disclosure before and after adoption of IFRS. In the changing trends of business IFRS is definitely better as compared to any other standards. Providing a consolidated statement is compulsory and it could not be kept optional. IFRS bridges the gap between the complex business structures and the accounting requirements of the business. IFRS requires a retroactive disclosure. The requirement of IFRS is a consolidated statement. It has eliminated the historical costing method and has bought fair value method into consideration. It looks at the legal aspects rather than just focusing on the transactions related to the business. The disclosure method of IFRS is very different and better from that of AASB. Corporate social responsibility has become need of the hour. The selected company in the report has performed very well in this area. It has taken almost all the sectors where there is a scope for development of CSR activity. They have covered almost each and every field for the same. Extend of corporate social responsibility done by acacia is quite satisfactory. It believes that social working, environmental concern, developing a good environment and proper communication will help the company to create a good social value and good will.

References

Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting & Economics12(3), pp.290-308.

Dinh, T., Kang, H., Morris, R.D. and Schultze, W., 2018. Evolution of intangible asset accounting: Evidence from Australia. Journal of International Financial Management & Accounting29(3), pp.247-279.

Chua, Y.L., 2019. Determinants and effect of accounting comparability: insights from mandatory IFRS adoption In Australia and the EU (Doctoral dissertation).

Alshamari, A., Raghavan, M. and Shantapriyan, P., 2018. Analysis of IFRS on foreign capital inflows to Australia using endogenous structural break and ARDL approach. Available at SSRN 3156926.

Chua, Y.L., 2019. Determinants and effect of accounting comparability: insights from mandatory IFRS adoption In Australia and the EU (Doctoral dissertation).

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Freeman, R.E. and Dmytriyev, S., 2017. Corporate social responsibility and stakeholder theory: Learning from each other. Symphonya. Emerging Issues in Management, (1), pp.7-15.

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Verčič, A.T. and Ćorić, D.S., 2018. The relationship between reputation, employer branding and corporate social responsibility. Public Relations Review44(4), pp.444-452.

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