ACC721 FRAMEWORK OF ACCOUNTING &

REPORTING 1

Assignment 1

Name: Miller Bakeoliu

ID: 700028446

Teacher’s name: Maslyn Tauvave

Contents
Introduction...........................................................................................................................................2
The list of all the accounting standards and the dates they were issued..............................................3
International Accounting Standards in the Pacific.................................................................................4
The specific standards that were successfully adopted by Pacific countries and the benefits they
brought..................................................................................................................................................5
Benefits..............................................................................................................................................5
Investors and Specialists................................................................................................................5
Comparability................................................................................................................................6
Decision making.............................................................................................................................6
Cost................................................................................................................................................6
Specific standards that some countries in the Pacific finds difficulties dealing with.............................7
Difficulties..........................................................................................................................................7
Criticism.........................................................................................................................................7
Education.......................................................................................................................................7
Small and medium sized entities...................................................................................................8
Opportunity cost............................................................................................................................8
Corruption.....................................................................................................................................8
Conclusion.............................................................................................................................................9
Glossary...............................................................................................................................................10
Bibliography.........................................................................................................................................11
Introduction
Tourism and agriculture provides competitive advantages to small Pacific island economies because
of their exceptional locations, and their natural and cultural resources, hence attract foreign
investments into their tourism and agricultural industries. These attractions has boosted the need
for using accounting reports within their firms to a very high level.

Accounting reports are the devices used to express actual and planned operations and to inform the
stakeholders of the operations of enterprises. For these reports to be useful to users, a certain
degree of uniformity is required, because only then can they be used as a basis for comparison
between different firms in different countries in terms of efficiency and productivity. Thus,
international financial reporting standards are essential to the reporting firms within the Pacific and
the world.

This report is based on the successes and challenges faced by the Pacific countries after adopting the
international Accounting standards into their accounting systems. The report consists of the list of
all the accounting standards and the dates they were issued, the specific standards that
were successfully adopted by Pacific countries and the benefits they brought , Specific
standards that some countries in the Pacific found difficulties dealing with , the difficulties that
occurred after using the standards, and a Conclusion.
Acronyms

EU- EUROPEAN UNION

IOSCO- INTERNATIONAL Organization of Securities Commissions

ASEAN - Association of South-East Asian Nations

WTO- World Trade Organization

IASB- International Accounting Standards Board

MNCs- Multinational corporations

ANZ- Australia and New Zealand Banking

SPSE- South Pacific Stock Exchange

AASC- Accounting and Auditing Standards Committee

ISAs- International Standards on Auditing

FASs-Fiji Accounting Standards

ADB- Asian Development Bank

FIA- Fiji institute of accountants

IFRS for SMEs- International Financial Reporting Standard for Small and Medium-sized Entities
PNGIA- Papua New Guinea Institute of Accountants
ASBPNG- Accounting Standard Board of Papua New Guinea
SIA- Samoa institute of Accountants
SMEs- Small and medium-sized entities

GAAP- Generally accepted accounting principles

The list of all the accounting standards and the dates they were issued
IAS or IFRS Name Issued
(Years)
IAS 1 Presentation of Financial Statements 2007
IAS 2 Inventories 2005
IAS 3 Consolidated Financial Statements 1976
IAS 4 Depreciation Accounting N/A
IAS 5 Information to Be Disclosed in Financial Statements 1976
IAS 6 Accounting Responses to Changing Prices N/A
IAS 7 Statement of Cash Flows 1992
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 2003
IAS 9 Accounting for Research and Development Activities N/A
IAS 10 Events after the Reporting Period 2003
IAS 11 Construction Contracts 1993
IAS 12 Income Taxes 1996
 IAS 13 Presentation of Current Assets and Current Liabilities N/A
IAS 14 Segment Reporting 1997
IAS 15 Information Reflecting the Effects of Changing Prices 2003
IAS 16 Property, Plant and Equipment 2003
IAS 17 Leases 2003
IAS 18 Revenue 1993
IAS 19 Employee Benefits 1998
IAS 20 Accounting for Government Grants and Disclosure of 1983
Government Assistance
IAS 21 The Effects of Changes in Foreign Exchange Rates 2003
IAS 22 Business Combination N/A
IAS 23 Borrowing Costs 2007
IAS 24 Related Party Disclosures 2009
IAS 25 Accounting for Investments N/A
IAS 26 Accounting and Reporting by Retirement Benefit Plans 1987
IAS 27 Separate Financial Statements 2011
IAS 28 Investments in Associates and Joint Ventures 2011
IAS 29 Financial Reporting in Hyperinflationary Economies 1989
IAS 30 Disclosures in the Financial Statements of Banks and Similar 1990
Financial Institutions
IAS 31 Interests in Joint Venture 2003
IAS 32 Financial Instruments: Presentation 2003
IAS 33 Earnings per Share 2003
IAS 34 Interim Financial Reporting 1998
IAS 35 Discontinuing Operations 1998
IAS 36 Impairment of Assets 2004
IAS 37 Provisions, Contingent Liabilities and Contingent Assets 1998
IAS 38 Intangible Assets 2004
IAS 39 Financial Instruments: Recognition and Measurement 2006
IAS 40 Investment Property 2003
IAS 41 Agriculture 2001

Because the resources in a lot of Pacific countries are limited and there aren’t any full time research
personnel to do the researches within their institute of Accountants’ AASC, the most efficient and
effective way to keep pace with changes in accounting standards is to adopt the IFRS. Afterwards,
the institute of accountants has to constantly updating and reissuing the standards as they are being
updated internationally. Those Pacific countries with limited resources such as Fiji, Vanuatu,
Solomon Island, Samoa, and PNG could ask for professional assistance from the IASB or overseas
accounting bodies.
International Accounting Standards in the Pacific
All nations are suitable for using IFRS, but because of their unique economic, social, and cultural
factors most of them tend to set their own standards or adopt IFRS with modification.

Political, economic, social, cultural and environmental factors tend to contribute in shaping the
accounting standards of a country. Whereas, some country’s accounting standards are mostly
influenced by their mother country such as the American Samoa, and New Caledonia.

Individual IFRS must be in line with other legislative requirements, if a standard contravene a law
within the country then it must be amended. Also, reporting entities are required by law to report
their financial performance in compliance with IFRS.

 PNGIA has adopted the entire IFRS on the year 2001 and starting on the 1 st January 2018 the
ASBPNG had approved for all Small businesses to use the IFRS for SMEs.
 The Samoa institute of Accountants had approved the adoption of the IFRS for SMEs on the
1st July 2011.
 Fiji started adopting the IFRS after 1st July 2001. The Accounting and Auditing Standards
Committee (AASC) intends to realign Fiji accounting standards with IFRS every five years. In
2006, FIA decided to adopt IFRS to achieve an internationally recognized accountability
system. In 2009, FIA decided to adopt IFRS for SMEs for all incorporated small and medium
sized reporting entities.
 There weren’t any information available online or in the library about the specific dates of
when Solomon Islands and Vanuatu started using IFRS.

Within each country the relevant IFRS are adopted either completely or with modifications to be
in line with the business environment, and regulations such as the company law and so forth.

The specific standards that were successfully adopted by Pacific

countries and the benefits they brought.
Some countries had adopted the entire IFRS like PNG, but as for others, only some standards were
adopted, for example in Fiji IFRS 1-31 were adopted while the rest were considered as guidance
standards meaning although reporting entities are to refer to these standards and apply them where
possible, the application is not mandatory.

Benefits
One of IFRS’s main goal is to improve accounting quality and transparency. The developing countries
could benefit from this, because high quality financial statements could drive down cost of capital,
provide better resource allocation and increase the global mobility of capital and other resources.

Investors and Specialists

Using IFRS can benefit financial analysts, lending institutions (such as the World Bank) and other
stakeholders by giving them information that can assist them in making accurate investment
decisions and risk estimates worldwide. It also helps in terms of assessing and comparing the
performance of firms within different countries. As quoted in an argument made by the Fiji Institute
of Accountants:

“The adoption of the IFRS will immediately make accountability in Fiji recognised to an
international benchmark. If the institute has to develop its own standards then it will have
trouble making these standards compatible and accepted internationally. So that is one of the
major aspects of the alignment towards the IFRSs.” (Convergence of accounting standards in the
South Pacific island nations, P.277).

Harmonizing of accounting standards can increase transparency for investors, information

asymmetries (Asymmetry, 2020) can be lowered and risks and opportunities are easier to observe
by investors. The assumption is that this should lead to higher foreign investments by other
businesses and individuals.

Comparability
As already stated, IFRS enhances the comparability of financial reports. For example, if a firm within
Solomon Island is reporting results to a company in Australia that company will certainly want
results that are basically following one international general accepted accounting practice. The
company doesn’t want special rules operating in Solomon that would render the reports useless in
Australia. IFRS also benefits SMEs in emerging economies by enabling them to have an
internationally recognised financial reporting framework that could improve their access to credit,
upgrade the professional competence (professional competence, 2020) levels through education
and training, reduce the need of hiring auditors and ease the burden of financial reporting on small
and medium sized entities in countries where full IFRS is required. The improvement in
comparability is likely to result in quality investment decisions, and increase the SME’s ability to
access funds, and secure investments from overseas investors.

Decision making
IFRS enables better decision making by companies: with higher accuracy of the information, it is
easier to estimate the real economic situation of a firm and offers managers the opportunity to
make decisions based on that data. They can easily compare their financial statements with
competitors, both domestic and foreign. Furthermore, the consistency in reporting can also assist
the central government greatly in term of governing. As the FIA argues:

“The Fiji government’s policy is essentially to reform the economy and deregulate the whole
thing, thus the government is constantly looking at assessing the performances of public
enterprises. The way in which it can do that is to measure the performance against those of
other countries. It can only be measured effectively if the measurement is done by using the
same rule. Therefore, international benchmarks and the setting of performance targets would
have to revolve around the adoption of some consistent measure, that is, same/similar
standards.” (Convergence of accounting standards in the South Pacific island nations, P. 278)

Cost
Adopting IFRS lowers cost of capital. Why is that? Foreign investors do not have time to become
familiar with national accounting standards. And if they are not familiar with an accounting
language, they will simply charge a risk premium. These costs are likely to be passed on to the
company and the country they are investing in.

By adopting a common body of international standards, countries can expect to lower the cost of
information processing and auditing for capital market participants as users, and auditors of financial
reports can be expected to become familiar with one common set of international accounting
standards than with various local accounting standards. It as well attracts multinational corporations
and financial institutions to register on the South Pacific stock exchange. Raising the country’s’ status
as an important and co-operative member of the globalization community. This is an important
factor to create employment opportunities.
Specific standards that some countries in the Pacific finds difficulties
dealing with.
Guidance standards which are considered not mandatory are due to two reasons. Firstly, it’s
because the standards may not be relevant, using Fiji as an example, in the case of IFRS 29, the
standard addresses a problem that the country does not presently experience, as its inflation rates
for the past 10 years have remained below 10% per annum. The same applies to the case of IFRS 19
and IFRS 26, which relates to employee benefits and retirement benefit plans. There are no such
plans in Fiji. Secondly, even if the standard is relevant, some organisations may have difficulties in
complying or may simply not comply, for the reason that there are practical problems associated
with these standards. Therefore, it is better to wait and see how the other, more established,
professional accountancy bodies cope with these problems. As quoted from a statement made by a
member of the FIA’s Accounting and Auditing Standards Committee:

“FIA cannot dictate to the world in terms of what generally accepted accounting principles
should be. We obviously follow what happens overseas. As we do not have the funds for
research, thus one easy way for us is to have standards developed by our sister institutes and
adopt theirs to start off.” (Convergence of accounting standards in the South Pacific island nations,
P.278)

Difficulties
Criticism
The biggest part of criticism of IFRS is that the system is way theoretical and not adopted to use in
practice. Certain theoretical advantages occurring in developed countries will be lost in developing
countries because (1) they do not have a lot of influence in the development process of the
standards, (2) the standards are not adapted to the local economic and political situations which
could be vastly different, and (3) they have much bigger switching costs because of the ground
breaking differences with their old standards. It is a system designed in more advanced economies,
so the primary focus is not on developing countries.

Additionally, IFRSs are not very specific and they require professional judgements from the
preparers. As quoted from a member of the FIA’s Accounting and Auditing Standards Committee:

“Accountants may find difficulty in applying, as in the IFRSs the wording is somewhat general
so it makes it hard for members to apply them, particularly if they are smaller or sole
practitioner or general members in Fiji themselves. ” (Convergence of accounting standards in the
South Pacific island nations, P.282)

An example: IFRS 2 make references to the last-in-first-out (LIFO) method of inventory valuation
which is still in use in the USA but not widely accepted elsewhere. It also gives too much freedom to
companies to exploit different treatments, which leads to lack of consistency.

Education
Another issue is the lack of IFRS knowledge for the whole staff and employees involved. Not all
institute of accountants in the Pacific countries are associated with a multinational accounting firm
nor do they have access to relevant continuing professional education courses. For such
accountants, interpreting and applying IFRS can be difficult. Thus, the well-educated and more
experienced institute of accountants should examine the IFRSs and decide whether they are useful
to members or should they provide explanatory notes to the standards making them more
understandable. Moreover, the lack of quality teachers and good textbooks in developing countries
can cause implementation issues and problems for the good compliance of the accounting rules
affecting the accounting quality. Because accountants and students as potential accountants need
qualified teachers and text books to educate them in ways of following accounting rules,
implementing standards, writing quality reports and so forth.

Small and medium sized entities

The international Accounting standard board has not set any specific boundary to determine which
entity should be classified as small and medium, but rather left the decision to regulatory authorities
and standard setters in individual jurisdictions. This creates issues for the institute of accountants in
defining “small and medium sized entities” and outlining its boundaries.

The biggest challenge that exists in adopting IFRS for SMEs is in providing adequate training to equip
practitioners (practitioner, 2020) with the necessary skills. Small firms are facing challenges in
developing IFRS related skills to help ensure compliance, transparency and to provide opinion on
financial statements.

Switching from using a countries’ own GAAP to IFRS could be very costly to both the profession and
the reporting entities (SMEs), because IFRS is usually more complex with more disclosures and rules.
The costs incurred by the firms are mainly staffing time to train employees of using the new system,
updating information and financial reporting systems, meeting increased auditing costs, and meeting
the costs of legal and professional fees to address the impacts on existing contracts and agreements.
For these reasons, many small and medium-sized entities are unwilling to adopt IFRS for SME
because they are being concerned about the cost being greater than the benefits. Therefore, SMEs
rely on the institutes of accountants within their country to provide training and educational
support. But unfortunately, within some countries in the Pacific, the institute of accountants relies
on IASB for educational and training materials, as it does not have enough funding and expertise to
develop them by themselves. Examples of such countries include Fiji, Solomon, and Vanuatu.

Opportunity cost
Another reason why Pacific countries refuse to adopt IFRS is because it may lead to an increase in
opportunity cost meaning that the country has to forgo the benefits of any past and potential
innovations (innovation, 2020) in the local reporting standards that is specific to their economies,
such as having a clear understanding of what the standard means, producing a report is cheaper
because there is no need of seeking professional judgements, and so forth.

Corruption
Political authorities are the ones who decides which standards are going to be used in a country and
how they are going to be implemented. In many developing countries, the quality of local
governance institutions are low and thus likely to suffer from corrupt, slow moving, or ineffectual
governments that are resistant to or incapable of change. In such countries with more corruption
and bad systems, accounting information is less trusted which means that bank financing becomes
more important and accounting quality lags. The quality of accounting reports will be very low for
countries with more bank financing and political risks. What’s more is that when a country is known
to be corrupt, firms are more likely to distort the figures in order to get lower tax amounts,
government purchases….etc. However, when there is a high chance of intervention by the
government, some companies could have more incentives to show lower profits in order to drive
down taxes. The ideas of following accounting rules and regulations are very low within corrupted
economies.

Conclusion
To conclude, the primary purpose of preparing financial reports is to meet the information needs of
users. The accounting standard plays a very important role in achieving this objective. Standard
setters therefore must ensure that standards developed facilitates the achievement of this objective
and ensure that all countries use the same accounting standards created, and avoid reaching
situations where the standards serve no purpose, rendering them to be useless towards reporting
environments.

Although IASB freely provides all the necessary guidelines and interpretations for the standards that
it developed, there is still a need for local practitioners to undergo face-to-face training, because our
local reporting environment is significantly (significantly, 2020) different from the environment in
which the standards were developed. Practitioners need to understand the differences that exists
between the two environments and the implications (implication, 2020) of the standards in local
context (context, 2020). This can also enhance the professional competency and market ability
status of practitioners.

The success of any set of accounting standards is having accountants and auditors with sufficient
educational background. Therefore, universities can help in updating their curriculum by
incorporating (incorporating, 2020) newer standards like IFRS for SMEs in their degree programs.
For example, universities in Fiji have already incorporated IFRS into their programs in the year 2012
and probably include IFRS foe SMEs shortly after.

In addition, with enough funds, resources, and expertise, Pacific countries can counteract the IFRS
judgement difficulties and improve accountant skills by:

 Providing support for a comprehensive (comprehensive, 2020) review of bookkeeping and

accountancy skills needs within the public and private sectors.
 Design a framework of professional qualifications that are appropriate to the needs of both
public and private sectors in the Pacific island environment.
 Establish professional bookkeeping and accountancy qualifications.
 Provide adequate training and so forth

But, simply adopting IFRS is not enough. The total possible benefits of adopting IFRS in Pacific
countries are higher than the costs and issues, but only with good implementation and effectuation
(Effectuate, 2020). Education and legislation need to be shaped to comply IFRS. There is also need
for strong legal and political entities, good corporate governance and strong internal controls in
order to get all the benefits.
Glossary
Asymmetry- The situation of not being equal or the same.

Practitioner- A person who regularly does a particular activity, especially one that requires skill

Innovation- A new idea, way of doing something, etc. That has been introduced or discovered

Significantly- In a way that is large or important enough to have an effect on something or to be

noticed

Implication- A possible effect or result of an action or a decision

Context- The situation in which something happens and that helps you to understand it

Incorporating- To include something so that it forms a part of something

Comprehensive- Including all details, facts, information, and so forth to enable all people with
different level of skills to understand.

Professional Competence- The capability to perform the duties of one’s profession generally, or to
perform a particular professional task, with skill of an acceptable quality.

Effectuate- To put something into effect or operation.

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