Australia accounting regulation system

Australia accounting regulation system

Question 1


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Over  the  years , various debates  have  been raised concerning  the significance  and necessity  of  accounting  regulations .On the other hand , the initiation  of  the Australian accounting regulation after the great depression in 1929 significantly transformed  Australia’s  accounting practices  especially in public companies. Consequently, understanding the effect of environmental aspects such as culture on financial disclosure and accounting practices is essential.   Gray’s (1988) introduced a framework consisting of four values that indicate how culture influences the practice of accounting at the national level. This particular paper seeks to evaluate how the Australian accounting regulatory system for Australian public companies reflects Gray’s accounting values.

 Literature Review

Gray (1988) identified four dimensions of values of accounting that can be adopted to characterize accounting practices within a particular nation.  This include; professionalism  versus  statutory  control, conservatism versus optimism, uniformity  versus  flexibility  and  secrecy  versus  transparency.   Gray’s (1988)  highlights that his evaluation of   cultural dimensions through the four  accounting  values , brings about an  influence to the  behaviour of financial disclosure as well as other aspects such as economic systems , political systems , firm size and the  operating systems of firms in a country.


According Australian Accounting Standards Board (2009) one of the major characteristics of the regulatory system for public companies in Australian is that of compliance to statutory control and prescribed legal requirements. Deegan( 2009)  highlights that  in  Australia  and in many other countries accounting is  moderately heavily  regulated, however   public companies have to comply  with the specified  accounting standards that  exist within the territorial and  state governments  and the entire nation.   Currently, accounting standards in Australia are issued by AASB or PSASB.  In addition other regulatory  bodies such as  ASC is charged with the responsibility  of ensuring that public companies  comply with accounting standards  and also take the necessary enforcement  actions to ensure that  the standards are complied with(AASB,2009).


Compliance with accounting standards for public companies is a matter that has legal backing (AASB, 2009). Public companies as business entities are regulated under the requirements of   the Corporations law to comply with Australian Accounting Standards Board (AASB) standards whereby firms are obligated to lodge and prepare financial statements as prescribed by section 3.6 and 3.7 of the regulation. Corporate Law Economic Reform Program (1997) highlights that accounting standards have legal backing in reverence with the Corporations law and are also a disallowable instrument as outlined by section 46A of the 1901interpreations Act.  As a result directors of every public company have to ensure that the financial statements of the company are prepared according to the applicable accounting standards.


A number of aspects can be examined in analyzing whether the Australian accounting regulatory system for Australian public companies reflect the accounting values propagated by Gray.

When evaluating Gray’s (1988) first dimension of accounting values; Professionalism versus statutory control in relations to accounting regulatory system for Australian public companies, various viewpoints can be raised. Professionalism versus  statutory  control is grounded on the perspective  that the  subcultural  dimension prefer  the  application  of personal professional judgment and the  upholding of professional  individual – guidelines contrary  to  the conformity of legislative control  and prescribe legal requirements. Henderson et al (2008) point out that Gray made a distinction between enforcement and authority of accounting systems, through the degree by which systems are imposed by professional judgment and statutory control on one hand, and disclosure characteristics and measurements on the other hand. Grey (1988) argued that accounting places more value on uniformity and professionalism as opposed to the relevant enforcements and authority that exist within the accounting system.  According to Palmrose, (2009) the role of professional judgment in financial accounting includes, establishing a system of internal control, identification of performance areas that need the attention of the management, verifying how financial statements will be prepared, applied and presented. In addition professionalism also involves the interpretation of regulations and accounting standards, going concern and disclosure.



When making a comparison between Australian accounting regulatory system for public companies and Grey’s value dimension of Professionalism versus statutory, it can be argued that the Australian accounting regulatory system for public companies is fundamentally governed by compliance to statutory and regulatory requirements as a result statutory control is more essential as opposed professionalism in the accounting practice, as proposed by Grey.  For instance Belkaoui  and Jones( 2009) highlights that in the recent years the government has expressed concerns over  the need  for the  ASC to  actively continue to monitor compliance with accounting  standards in order to enhance integrity in financial reporting and compliance to accounting standards in Australia.  The government stressed the importance of   partnership between accounting professionals and ASC in maintaining high profile compliance to accounting standards where   relevant.  As a result through   this means integrity and investor confidence will be enhanced in public service organizations and the capital markets. Deegan (2009) on the other hand argues that although many  companies stress the importance of statutory  control and  regulations , the  collapse  of big  companies such as Enron in 2002  was an indication  of the short comings  of the  focus on statutory  control and  regulations as opposed to professionalism .



Australian accounting regulatory system for public companies also recommends that  all affiliates of  the  accountancy  profession  are  obligated  to obey to accounting  standards  as  outlined by the Accounting Standards by Professional Statement (APS) which states that all members should assume responsibility in terms of preparing , presenting  or  auditing monetary statements  in harmony  with  the  approved standards of accounting  that exist in the  profession (AASB,2009). As a result through the adoption of the same criteria of confirming to accounting standards   uniformity becomes a significant characteristic in the preparation, presenting and auditing of financial statements within public companies. Doupnik  and Richter (2004) further highlights that uniformity in reporting and accounting practices in public organization functions as  an incentive  for  better decision making for the government .  This is because when uniformity is exists in public companies the government is able to make clear decisions concerning the allocation resources in future. With focus laid on sectors such as tax collection, macroeconomic policies and decisions of the investors.


The second accounting value propagated by Grey (1988) of uniformity versus flexibility highlights that there is a preference by companies of enforcement or implementation of homogeneous practices in accounting and continued utilization of the application over time as contrary to adapting to flexibility that comes about with the circumstance that the individual company is facing.  What is evident is that public companies is Australia have adopted uniformity as opposed to flexibility. As a result Grey’s (1988) analogy of uniformity versus flexibility is constant to the Australian accounting regulatory system for public companies. A study conducted by Yussoff and Lehman

(2009)  revealed that inclination to mandatory reporting implies that Austrian public companies have more preference for a uniform and standardized reporting and accounting system. As a result this particular reporting behavior indicates that uniformity is highly valued in Australian culture and within public organizations.


Gray (1988)   proposed conservatism versus optimism as another dimension which is grounded on preference for cautions approach to treatment and measurement, in order to deal with future uncertainty as opposed to utilizing laissez-faire, optimistic and risk taking approach.  In a study conducted by Yussoff and Lehman (2009) the findings indicated   that many companies have mutual opposition to practices of reporting to their environment which can be understand as a cultural feature that indicates elements of conservatism. Yussoff and Lehman (2009) further highlight that accountants in public companies usually have fear of the negative implications that come about due to disclosure. In most cases accountants have to be careful in order to not disclose bad news such as loss of contracts, poor profits and other aspects that affect the performance of the company. Yussoff and Lehman (2009) highlight that this view by accountants gives an indication of how public companies are concerned about the uncertainty of external relations that are brought about by environmental reporting practices. As a result many public companies tend to adopt the strategy of playing safe when undertaking disclosure.



Secrecy versus transparency is another accounting value that is based on adoption of confidentiality that results to restricting revelation or disclosure of information among companies (Gray, 1988).   Financial Information is confined to a chosen group of individuals and in most incidences is presented just to a selected audience for the purpose of internal use.  Transparency on the other hand is based on openness whereby information is widely and readily provided to the public. Yussoff and Lehman (2009) in their study highlight that in secrecy is a cultural value that is perceived as a suitable strategy of disseminating environmental information to reveal the potential dangers that are arise due to open reporting. Many accountants in Australian public companies argued that secrecy in environmental reporting was actually justifiable, especially on matters of loss of profits and poor performance.  However transparency was also considered as a good practice in public companies especially when it comes to compliance with regulations that exist in the environment. As result most public companies have their annual reports open to the public through their websites, an indication that transparency is actually very essential (Jaggi and Low 2000).



From the above analysis Australian accounting regulatory system for Australian public companies is to a certain level coherent with some of the accounting values proposed by Gray (1998). The paper highlights one of the values which professionalism versus statutory control is to some level nonexistent in Australian public companies.  The other three values of uniformity versus flexibility, conservatism versus optimism and secrecy versus transparency where applicable in accounting regulatory system for Australian public companies. This paper recommends that further research should be undertaken on how Gray’s hypotheses  relates  to Australian accounting regulatory system for Australian public companies.




Question 2



Accounting practices have since the start of the 21st century been subjected to regulatory guidance to a varied extent in many nations. This is based on the fact that financial disclosure or accounting information plays a significant role in the distribution of social resources as well as the effective functioning of the capital markets. This report is intended to provide the ABC Ltd’s directors with an overview as regards the main components of the Australian accounting regulatory system that the corporation faces.


Compliance with Accounting Standards

Businesses regulated under the Corporations Laws are required to act in accordance with the standards set by the Australian Accounting Standards Board (AASB) whereby entities are expected to organize and submit financial statements subject to section 3.6 and 3.7 of the Law. As highlighted by Australian Accounting Standards Board (2009) accounting standards are officially authorized with respect to their relevance to Corporations Law entities and are therefore disprovable instruments for the purposes of section 46A for the interpretation of Act 1901.

Compliance with the accounting standards is very significant as it is central in as far as investor confidence within the market is concerned. Moreover, according to Common Wealth of Australia (1997), accounting standards are significant regulatory devices of accounting as they serve as a guide between various parties who take part in a company’s management, such as directors, shareholders and creditors.

Simply having a well formulated as well as a rigorous accounting standard is not enough in achieving investor confidence. Therefore, compliance with the standards ought to evident, and seen to be vigorously monitored and enforced. According Common Wealth of Australia (1997), more recently, various concerns have been raised to the government as regards the need of the ASC to continue actively monitoring compliance with the standards so as to ensure the integrity of financial reporting within Australia. It is only if this is done that investor confidence and financial integrity within the Australian capital market can be maintained.


Audit Quality

An effective audit function is recognized as a vital component of efficient capital market, as a result, forming a major component of the regulatory system in Australian accounting that the company faces. According to Australian Accounting Standards Board (2009) the Auditing and Assurance Board was set up by the CLERP Act as a self-governing legal framework as stipulated by section 227A of the Australian Securities and Investment Commission Act 2001. Based on section 336 of the Corporations Act, the Auditing and Assurance Board, may possibly develop auditing standards with the objective of corporations legislation. One of the functions of the AUASB as set out in paragraph 227B (1) of the Australian Securities and Investments Commission Act is to take part in as well as contribute towards the expansion of a solitary set of standards for international use .

 Audit acts as an essential exterior proof on the truthfulness of financial statements. In this case, AUASB, where necessary, employs international standards on Auditing as provided by the Assurance Standard Board as a foundation for its auditing standards, so as to realize conformity with the global auditing standards. Additionally, as highlighted by Common Wealth of Australia (1997), transparent financial reporting along with an effective audit function boosts confidence in a company’s financial system and is critical for a sound economic growth. The Australian Auditing Standards made by the AUASB are legally applicable legislative mechanisms as outlined by the Legislative Instruments Act 2003.



Robust Financial Reporting

According to the Common Wealth of Australia (2010), a robust financial reporting is dependent on the excellence of standards of accounting in addition to reliable, correct appliance and independent application of the outlined standards. A robust financial disclosure is also of huge significance to investors as well as other participants in the financial market as far as decisions of allocation of resources and to regulators is concerned. As highlighted by the Common Wealth of Australia (2010), the assurance of all the users of financial statements in the integrity and the transparency of financial reporting are vitally significant to the performance of the company in addition to a sound economic growth of the nation.


As directors of company the relevance of corporate regulation is a priority matter in the running of the organization. As a result as proposed by the Australian Accounting Standards Board 2009, directors should be at the fore front in ensuring that the company complies with the requirements of the accounting regulatory system.




Question 3



    Regulation can be defined as a means or strategy by which company directors and their reporting entities can be made accountable.  The foundation of authority for reporting is basically derived from a mixture of legislations that are from the government and from self regulations that developed by professionals. In the context of Australian public companies, the major source of authority comes from legislation (Corporations Act 2001) and accounting standards that are offered by the Australian Accounting Standards Board (AASB) (Deegan, 2009).  Some of the components of Australian accounting regulatory system include;

Compliance with Accounting Standards

 Compliance to accounting standards basically means that ABC Ltd, as a public company, has to fulfill the requirements that established by regulatory accounting bodies in the country. The Australian Accounting Standards Board (AASB) is charged with the role of issuing accounting standards that companies within the public sector such ABC Ltd, have to abide by.  Some of the compliance areas include the aspect such as disclosure of financial statements in terms of cash flows, financial performance and financial position of the company (AASB, 2009).

Shareholders in most cases are interested in getting information which will assist them in paying, receiving and selling their dividends.   It is  therefore essential  for  shareholders  to know that  compliance  with  accounting standards is a fundamental aspect  of  enhancing  their confidence  towards the company . As a result in order to for the company to develop shareholder confidence, rigorous and well formulated accounting standards have to exist in the company. This can be met  through meeting the requirements of the Australian accounting regulatory system such as prudence   which requires that  caution should be exercised  when it comes making judgements about income or assets  of the company .Other significant compliance areas  include neutrality  which is preparing  financial statements  that are free form biasness and going  concern  which aims at  giving  information of the continued  operation of the  company in future(Bendrey and West 2003).

The Australian Accounting Standards Board (2009) highlights that compliance with accounting standards enhances reliability and truthfulness in the preparation of financial statements, this in turn will be beneficial to the interests that   users of financial statements such as stakeholders have.

Audit Quality

Audit quality can be described as procedure that involves transmission of suitable professional and independent information about financial statements that are supported by precise judgements and essential verification. Achieving this is by behaving in agreement with ethical and audit regulations so as to develop objectivity, professionalism and integrity when coming up with financial statements .The framework of audit regulation is therefore a crucial enhancer   of audit quality (Bendrey and West 2003). Australia adopted a variety of laws for the purpose of attaining   audit quality in companies.


One key regulatory framework is called Auditor independence. This is outlined in the Corporate Act.  The aspect  of Auditor independence is a vital aspect in  facilitating audit quality because  absence of independence  actually  results to  lowering the capability of an auditor come up with  objective judgements that  can lead  to the  development of confidence in the  entire   audit procedure  (Treasury report, 2010).The requirement of  auditor independence is outlined  in Corporate Act Division 3 of Part 2M.4 .

The Australian quality control standard is an added key regulatory framework for ascertaining audit quality.  The (AUASB) Auditing and Assurance Standards Board was devised by the CLERP 9 Act ,  under subdivision 227A  of the 2001 Australian Securities and Investments Commission Act . The responsibility of the Auditing and Assurance Standards Board is to facilitate the development of a solitary framework of auditing standards that can be utilized across all public organization (Treasury report, 2010).


Robust Financial Reporting

Financial reporting is important because it works towards offering unbiased, transparent as well as relevant information concerning   economic performance and the performance of businesses. High quality financial reporting by corporations plays a significant role in the well functioning of capital markets. Reliable and reliable financial reporting is very significant especially in an uncertain economic environment. Australian Accounting Standards Board (2009) therefore recommends that most public companies have their annual reports open to the public through their websites. This enhances robust financial reporting and is also an indication of transparency within the accounting practice.




Shareholders are essential partners in the running of any company. This is because shareholders are also users of financial statements.  As a result, it essential for shareholders to be well informed, about the main components of the Australian accounting regulatory system that the company faces.


Australian Accounting Standards Board 2009, Framework for the Preparation and Presentation of Financial Statements, Melbourne retrieved 2 January 2012,   From <>


Belkaoui, R  and Jones, S 2009, Accounting Theory, Thompson, South Melbourne


Bendrey, M and West, C, 2003, Essentials of management accounting in business, Cengage Learning EMEA.



Deegan, C 2009, Financial accounting theory, 3rd edn, McGraw-Hill Australia Pty Ltd, North Ryde, NSW, ch. 2, pp. 32–56.


Doupnik, T. S. and Richter, M. (2004), “The impact of culture on the interpretation of “in context” verbal probability expressions”, Journal of International Accounting Research, Vol. 3 No. 1, pp. 1-20.

Corporate Law Economic Reform Program , 1997, Accounting Standards Building international opportunities for Australian business, Commonwealth of Australia .


Common Wealth of Australia, 1997, Accounting Standards: Building International Opportunities for Australian Business, Australian Government Publishing Service.


Commonwealth of Australia, 2010, Audit Quality in Australia: A Strategic Review



Gray, S.J, 1988, Towards a theory of cultural influence on the development of accounting systems internationally,  Abacus, 24(1), 1−15.



Henderson, S, Peirson, G & Herbohn, K 2008, Issues in Financial Accounting, Pearson Education, Frenchs Forest.


Jaggi, B. and Low, P. Y, 2000, “Impact of culture, market forces, and legal system on financdisclosures”, The International Journal of Accounting, Vol. 35 No. 4, pp. 495-519.


McKinnon, J, 1993, Corporate disclosure regulation in Australia, Journal of International Accounting, Auditing and Taxation, 2(1), p1-21.



Palmrose, Z,2009,  The  role  of professional judgement in Accouting and  Auditing , Sage.


The Treasury (2010) Audit Quality in Australia: A Strategic Review Commonwealth of



Yussoff, H  and Lehman , G, 2009, Culture and environmental reporting in Malaysia and Australia , Conference on Social and Environment Accounting Research.


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