Harmonization of Ifrs (Aasb 107)

In: Business and Management

Submitted By natureelle
Words 1489
Pages 6
Accounting standards are the product of modernization which initially becomes the rules and regulations to govern the way in preparing financial statements. In these days, International Financial Reporting Standards (IFRS) are widely implemented, yet the underlying accounting practices are still unstandardized due to various factors of economic and cultural differences, just to name a few. In 2010, proposals were issued in Australia and New Zealand which aim to harmonize the standards as adopted in both countries (KPMG, 2010). The purpose of this paper is to study whether the given option of using the indirect method in reporting cash flow statement is beneficial to the users of general purpose financial reports. The paper is divided into five parts where it started off with a brief introduction of AASB 107, following by the reasons for harmonization, the arguments for and against the (in)direct method as well as some criticisms before moving into conclusion.

Cash flow is vital to determine the potential of profitable firms as most firms under the basis of accrual accounting may still present favorable profits, despite having poor cash management. The objective of AASB 107 is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of cash flow statement (Australian Accounting Standards Board [AASB], 2013). In this paper, focus is concentrated in reporting cash flow from operating activities using either the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed or indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature (AASB, 2013).

As mentioned above, one of the major reasons that such harmonization occurred is because standardization of accounting standards is not necessarily the standardization of accounting…...

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