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Will your accounting policies change?
The International Accounting Standards Board had recently issued a revised conceptual framework (RCF). Copies of the IASB’s Conceptual Framework for Financial Reporting (March 2018) are available for purchase on their website. In a related blog post we discuss how the RCF will affect the use of the reporting entity concept and special purpose financial statements in Australia.
So how else will the revised conceptual framework affect Australian organisations? You may be affected without realising it.
Common responses to the RCF are ‘what is the conceptual framework?’, or ‘I remember studying the conceptual framework in my accounting studies, but I cannot remember using it since.’ These responses are understandable as many accountants do not use the conceptual framework on a day to day basis.
The conceptual framework is not an accounting standard and does not override accounting standards. It is the high-level principles that the International Accounting Standards Board and Australian Accounting Standards Board use in developing accounting standards.
The RCF covers:
- the objectives of financial reporting
- the characteristics of useful financial information
- a description of the reporting entity and its boundary
- the definitions of the elements of financial statements—assets, liabilities, equity, income and expenses
- when elements are recognised, derecognised, measured, and presented and disclosed.
Where might you use the conceptual framework?
The main situation your organisation would refer to the conceptual framework is under AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors when it selects an accounting policy for a transaction, in the absence of an Australian accounting standard dealing with that topic.
When will the change be effective?
The earliest date any changes will be mandatory is for financial years beginning 1 January 2020. However, given that the Australian Accounting Standards Board needs to consider the revisions for the public sector, and resolve the issues discussed relating to special purpose financial statements, the start date for the public sector is likely to be later.
Disclosing the effect of any changes
The Australian Accounting Standards Board will introduce the changes through amendments to existing standards, such as the change to AASB 108 mentioned above. When preparing future financial statements, you will need to disclose the future effect of the changes that are not yet effective.
As you are currently reviewing your accounting policies for the new accounting standards, now would be an opportune time to identify if you have any of these policies and consider possible impacts.