Adoption of IFRS and CSR

Reporting
HI6025
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Abstract
The main concern and aim of this report is to significantly examine the adoption of the
international financial accounting system (IFRS) and the trend in the corporate social
responsibility (CSR). IFRS is a set of accounting method or standard, which are build to
help a company to prepare their financial statements of a company. This is a basic need
and demand of a business and the features of the IFRS also change according to the
needs, in this report the analyses the financial condition of a company before using IFRS
and what is their current situation. And the CSR is for reporting and recommend the future
directions of the Australian financial companies.
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Contents
Abstract...............................................................................................................................................1

Introduction.........................................................................................................................................4

Part A...................................................................................................................................................5

I. Year of adopt IFRSs in Australia.............................................................................................5

II. Introduce IFRS in Australia......................................................................................................5

III. Benefit and challenges of adopting IFRS.............................................................................6

Answer 2.........................................................................................................................................6

I. Australian company uses IFRS accounting...........................................................................6

II. Usefulness of new format of disclosures compared to the disclosures at the pre-
adopting of IFRSs..........................................................................................................................7

Part B...................................................................................................................................................8

Answer 1.........................................................................................................................................8

Corporate Social Responsibility..................................................................................................8

Answer 2.......................................................................................................................................10

I. Extent of Corporate Social Responsibility............................................................................10

II. Legitimacy Theory...................................................................................................................11

III. Improvements required in CSR Reporting.........................................................................12

Answer 3...........................................................................................................................................13

Recommendation to Australian Financial Reporting Regulators.........................................13

Conclusion........................................................................................................................................14

References........................................................................................................................................15
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Introduction
This report is for properly examine the adoption of the IFRS and through analyses the
adoption of this financial reporting standard also need to analyses the benefits and
challenges for the reporting entities. For this report the chosen country is Australia, and in
Australia the IFRS is implemented according to Australia accounting standards which is
affiliated by their government. Further in this report need to analyses and compare
companies’ financial statement through their annual report of the year before when the
company is adopt IFRS, to the current annual report of that company. Also evaluate the
difference in the new format of the disclosures to the pre-adoption of IFRSs (Houqe,
2018). And further in the report discuss the trend in the corporate social responsibility,
through the literature of the 5 years. And analyses of the implementation of CSR in
company, and their accosting theory, and how company can improve it. And in the
conclusion of this report need to give the opinion on the IFRS and CSR in a company.
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Part A

I. Year of adopt IFRSs in Australia

International financial reporting standard (IFRS) is uses for prepare financial statement
and for make these statements consistent, comparable and transparent for company, in
other words IFRS help a company in prepare, maintain and report their accounting
statement. This assignment will analyse the adoption of IFRS in Australia, this is a crucial
change in the financial reporting standard of the Australia. Australia has adopted
international financial reporting standard since 1 January 2005. The board of the IFRS was
in the need and demand from 1996, but the first implementation of IFRS happen after a
long research and satisfaction till 2005. In Australia IFRS mostly implemented in
independent, private, and organization which is not work for only profit. IFRS is
implemented in Australia accordingly Australian accounting standard board which is their
government agency under Australian securities and investment commission act 2001
section 334. This jurisdiction status is adopted by the all those companies which is
publically traded and plus others (Alzeban 2016).

II. Introduce IFRS in Australia

The adoption of the IFRS is stabilized under Australian accounting standard board
(AASB); this is work for the implemented IFRS properly in Australia. This strategy was
discussed in the proposal of CLERP 9. And most of the European countries are including
and implementing this and committed to IFRS for their account management.
For those company who is work for gain some profit in private and government business
organizations their financial statement are prepared according to the corporations Act[4] of
the AASB. The adoption of the IFRS in place of other methods will took some significant
changes in the accounting method and process in company’s financial report. Adoption
and implementation of this IFRS affect the use of other and existing standard methods of
Australia. In adoption of IFRS the audit committees is also play an active role. ASIC stated
that they analyses and examine the implementation of IFRS in each company in the
duration of three to four years. And every year ASIC examine more than 400 companies.
ASIC specifically target companies that is having a significant change in the policies, and
they have any impact on their financial reports.
Adoption of international financial accounting standards

 Need to recognize all the required assets and liabilities.

 If the new standards are not approved than need to recognize the assets and
liability.
 Apply the new standard for evaluate the assets and liability.
 Find the all high quality information which should be transparent for their users and
the customers.
 These data should be comparable with the all periods present.
 The basic cost should not be exceeding the user’s benefits (Chalmers et al. 2011).
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III. Benefit and challenges of adopting IFRS

Adopting IFRS as a new method for financial statement, its common to occur some
challenges and it provide some benefit to the system this is the reason of adopt IFRS.
Indentify the benefits of IFRS in Australia

 IFRS help a company to increase in their comparability and transparency between

their financial statements.
 IFRS standards are helping a company to reduce the information gap between the
company and the providers.
 It create more flexibility, this is based on the principles, rather than the rules.
 IFRS help the investors to identify the opportunities and risk in the environment, and
also help in improving the capital allocation.
Challenges of IFRS adoption

 There are many contradictory views for emerges of the economic from the IFRS
adoption.
 According to Rong-Ruey, D through an accounting standard the difference in the
national business environment can’t be indentifying.
 In the places where the quality of the standard is already high, the adoption of the
IFRS is seems less attractive.
 A single financial communication can’t reflect the transparent difference in the
institution and culture.
 Adopting IFRS include lot of challenges such as the complexity of the standard,
cost, lack of knowledge in technical field, and fair value issue (Bahadır et al.
2016).

Answer 2

I. Australian company uses IFRS accounting

The chosen company for this assignment which implemented international financial
accounting standards is Wesfarmers limited which was established in 1914 at the Western
Australia. This is a largest public farmer company in the rural community
This company adopt the required the IFRS for their financial accounting and in 2005 when
Australia adopt this costing method this company is also started implemented IFRS in their
company.
So the first financial statement of the annual report of this company in 2004 when they are
not adopted IFRS in their financial accounting. And the second financial report shows the
current financial report of this company.
Difference in non-current assets
The total net current assets of this company in 2004 was $3,880,716 and it because of
their receivable, investment and other financial assets, property, plant and equipment,
deferred tax assets, and intangible assets and other. In these the most effective term of
non-current assets are property, plant and equipment $1,600,052.
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And currently the value of their non-current assets increasing unconditionally, total non-
current assets for the year 2019 is $11,983M and in 2018 it was $28,227M. The non-
current assets in the current situation depend on the investment in association and joints
ventures, deferred tax assets, property, plant and equipment, goodwill, intangible assets,
derivatives and others, and in this year the most effective term of non-current assets are
their investment in association and joint ventures which is $3393M.
Difference in intangible assets
An Intangible assets are is a not physical assets, these are some assets of the company
which don’t have any figure and size but have a price in the market, some example of
intangible assets are these such as property, trademark, copyright, etc. in Wesfarmers
company their intangible assets price are increases rapidly the price of their intangible
assets in 2004 was only $1,472,724 and it was $1,519,898 in the year 2003. And in the
current situation the value of the company’s intangible value is $986M in 2019 and
$4369M in 2018. So through all the real stats the companies’ intangible assets price was
increasing and decreasing alternatively (Houqe 2018).

II. Usefulness of new format of disclosures compared to the disclosures at

the pre-adopting of IFRSs
IFRS has varies format to adopt according to needs and it’s also upgrading them with the
need of time and environment. The first format of IFRS was adopted in 2005 in Australia
and they adopt INFS 7 for their financial instruments. That IFRS format can be consider for
discloser at the pre-adopting of this format.
And in the current situation the useful format of IFRS is IFRS 9, IFRS 7, and IAS 39.
These format was adopted for the solving the problem of uncertainty that accrue in the
interest rates. And for the future demand and requirement of additional disclosures that is
useful for decrease the risk and expose the management ways of this risk to users. And
the IFRS for these are IAS 39, IFRS 9, IFRS 7, IFRS 4, and IFRS 16.
In my opinion the new format of disclosures of IFRSs is all according to the need of the
time, through these upgrading of the format of IFRSs the major problems of the companies
be solved accordingly.
For an example in current situation the environment of the business face the problem of
the risk management and the factors of the IFRS was not concentrate on these factors of
the company. So the new format of disclosures of the IFRS is mainly focused on this
problem, and upgrading accordingly (Kvaal & nobes 2010).
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Part B

Answer 1

Corporate Social Responsibility

Corporate social responsibility is a key success of business which is increasing
rapidly. CSR is an activity which takes place in every organization and it is the
responsibility of company to protect the interest of society and meet their social
obligation. The roots of social responsibility lie in philanthropic activity such as
charity and donation. Most of the social obligation is concerned with providing basic
necessities such as food, water, clothing, education, healthcare etc. CSR needs to
address the well being of all stakeholders and the activities related with CSR are
holistic and integrated with core of business strategy for addressing social and
environmental impact of business. Organization is socially responsible for all the
activities which have an impact on employees, customers, shareholders and
community.
Corporate Social Responsibility in Australia
From last few years it is observed that the performance of CSR is not satisfactory so there
is a need of proper awareness in society about the CSR activities that was developed
globally.
Company’s biggest priority is its relationship with stakeholders and employees but
company mainly focus on internal affairs related with business.
Some of the countries still think that CSR is used for brand promotion or for reputation.
The aim of Wesfarmers is to operate the business activities in accordance with the
1. Providing a safe workplace to its employees
2. Satisfying the needs of customers by providing them quality
3. Contributing towards economy, society and growth of company (Advantage 2020).
Key trends of CSR
1. Increases Transparency- The demand of customers and stakeholders has been
increased to provide proper disclosure of companies CSR report. This results in
maintaining the transparency of company's financial information and data. The CSR report
of Wesfarmers shows the increase in trend and reveals the performance of company.
2. Green technology - Wesfarmers is working towards the green technology and for the
betterment of society. The company is also contributing towards environment by producing
fertilizer, industry safety products and so on. Nowadays the use of natural resources is
depleting in the world and company needs to be socially responsible for making
investment in green technologies and eliminating the use of non renewable resources.
3. Supporting other companies- Wesfarmers use to support other local companies for
purchasing raw material or other finished goods. The company use to operate globally and
recognise the market value and the chain of supplies. The CSR initiative of company is too
engaged in activities that will benefit local community and earning profit for the
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organisation. The trend of CSR shows the efforts of employees and the positive trend of
company towards the economic contribution.
4. Sustainable development goals- The Wesfarmers has a sustainable development
goal which includes:
‌I. Reducing poverty
‌II. Providing quality education
‌III. Actions related with climate change
‌IV. Eliminating inequalities
The progress shows results of first five years and the requirement of company to meet the
goals of company.
5. Measures related with corporate social responsibility- Company needs to measure )
the efficiency and capabilities so as to determine the accuracy and strategies of corporate
social responsibility (Wang & Sarkis 2017).
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Answer 2

I. Extent of Corporate Social Responsibility

The extent of corporate social responsibility is increasing rapidly nowadays because the
performance of company is not evaluated on the basis of financial performance but on the
basis of CSR report of company and the disclosures of company. CSR plays a vital role
towards indicating the social performance of company. Company nowadays is considering
important to prepare separate report on sustainability so as to show the contribution of
company towards the development of society. Businessman becomes aware and realized
the significance of preparing report and providing information related with financial
performance and corporate social performance of company. Corporate transparency helps
the hierarchy of management in maintaining relationship with stakeholders and provides
information in the form of disclosure by various means of communication such as
websites, media, company’s annual report etc. The need of society is not about fulfilling
the economic needs but them also look that company should follow the laws, values,
ethics and responsibilities. Wesfarmers in his CSR report follows economic responsibility,
social responsibility and ethical responsibility.
Company believes that to understand the sustainability and managing the impact of CSR
activities on community and environment they operate in their business so as to ensure
that they will continue the same value in future. The goal of Wesfarmers is to provide
satisfaction to its shareholders and customers with the help of financial instruments and
strong management of company. Wesfarmers also discloses his information about
environmental effect and the relationship with its stakeholders in the CSR disclosures. The
report describes about the role of company towards society and community whether it is
damaging any natural resource or carrying on any harmful activities which is not good for
environment (Ali et al. 2017).
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II. Legitimacy Theory

‌After reviewing different accounting theoretical concepts from last few years so as to
analyze whether firms are engaged in CSR activities or not. The conceptual framework of
these theories helps in identifying the features of theories. Legitimacy theory mainly uses
to explain how companies motivate for disclosures related with society and environment.
This theory helps in explaining about the behaviour of company towards society. The
theory clearly explains about the relation between company and society. The aim of this
theory is to discuss why company's engaged in environment and social disclosure what
are the needs and what are the effects of environmental disclosure on community and
general public.
Organizational behaviour towards society helps in identifying the type of relationship
whether it is contributed or breakdown when company is not capable of bearing
environmental and social responsibility. Legitimacy theory use to explain the logical reason
which set principles and explains environmental disclosure. Legitimacy theory helps
company in motivating the employees.
The theory is based on the hypothesis that survival of company usually depends on the
approval of society. If the company fails to fulfil the demand of society then there is a
threat company will face for legitimacy and survival. Legitimacy theory is utilised mainly for
research purpose and provides concern towards society and determines the behaviour of
companies (Hummel & Schlick 2016).
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III. Improvements required in CSR Reporting

Yes, there is a huge scope for improvement. These are the following points that how they
can improve their CSR activity
1. Finding the right NGO - In organization CSR committee has much responsibility. His
one of the responsibility is finding the right NGO. It's called charity by third party. Many of
the company give his money to NGO and said them do the social work on our behalf. This
is good but as well as bad. Because many of the NGO are fake and false so firstly do the
research and then do charity.

2. Positive and kind hearted Members - A team and a team leader is responsible for his
all work so when an organization made a team they have to notice that the team members
are positive, enthusiastic and honest about his work. A kind hearted is the most important
thing in CSR because CSR is not a thing which we can do by investing a big amount we
can do it from small investments.
So from above points we can understand that there is too much scope of improvement
because Company Social Responsibility Activity has a very big area. We can do whatever
we want in this activity but the activity is profitable for society.

Example – Wesfarmers CSR Budget is very good. They have a budget of big amount but
the organizational CSR work is not countable. When company did a research and find the
reason behind this they found that the organization's CSR team is not good. They are not
responsible for his work. Every time they did the small mistakes in activities. They are
taking his work very lightly. That's why company is not doing well in CSR activity. Next
year company will change his team and then they got awesome results. And these results
are from low amount (Beck et al. 2018).
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Answer 3

Recommendation to Australian Financial Reporting Regulators

Based on my findings following are the two recommendations to the Australian financial
reporting regulators -
1. Changes in Policy - This is the important point. Finance regulatory change in his policy
is very must. They have to decrease the turnover eligibility for CSR Activity and made it
mandatory for every organization.
2. Supporting other countries - The second recommendation from my side is that give a
chance to organizations to give a charity or other help in research work of country's
laboratories. It created a value in world and also helps to government. Also make it
mandatory for the companies who are belong from other countries and want to set up his
business in Australia. Add it in government policy that you have to contribute minimum
amount in Company Social Responsibility Activity and fix a minimum certain amount so
that they can understand that it is mandatory and they also add it in his budget.
In recent days the whole world are suffering from a pandemic which is Covid -19 and every
country try his best in vaccine. Many countries also did a great job in new research about
Covid 19 so if Australia based Organizations give his helpful hand to research team they
can do his best (Yu et al. 2017).
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Conclusion
This assignment was defining the adoption of IFRS and CSR in the Australian company.
The chosen company for analyses the adoption of IFRS is Wesfarmers limited, and this
company has an increasing trend in their non-current assets and the intangible assets
which is also a part the non-current assets. The new factors of the IFRS is more
appropriately design for solve the current problems of financial accounting. The corporate
social responsibilities is has an increasing trend in the Australian company. And CSR has
an impact on the company financial reporting and provide the information about the future
of the CSR reporting and how it’s improved.
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References
Alzeban A, 2016, ‘Factors influencing adoption of the international financial
reporting standards (IFRS) in accounting education’, Journal of International
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Chalmers K, Clinch G, & Godfrey J M, 2011, ‘Changes in value relevance of
accounting information upon IFRS adoption: Evidence from Australia’, Australian
Journal of Management, vol. 36, no. 2, pp. 151-173.
Kvaal E, & Nobes C, 2010, ‘International differences in IFRS policy choice: a
research note’, Accounting and Business Research, vol. 40, no. 2, pp. 173
Bahadır O, Demir V, & Öncel, A G, 2016, ‘IFRS implementation in Turkey: benefits
and challenges’, Accounting and Management Information Systems, vol. 15, no. 1,
pp. 5-26.
Houqe N, 2018, ‘A review of the current debate on the determinants and
consequences of mandatory IFRS adoption’, International Journal of Accounting
and Information Management, vol. 26, no. 3, pp. 413-442.
Advantage C, 2020, ‘,Corporate Social Responsibility. CSR and Socially
Responsible Investing Strategies in Transitioning and Emerging Economies, p.65.
Wang Z, & Sarkis, J, 2017, ‘Corporate social responsibility governance, outcomes,
and financial performance’, Journal of Cleaner Production, Vol.162, pp.1607-1616.
Ali W, Frynas J G, & Mahmood Z, 2017, ‘Determinants of corporate social
responsibility (CSR) disclosure in developed and developing countries: A literature
review’, Corporate Social Responsibility and Environmental Management, Vol.24
No. 4, pp.273-294.
Beck C, Frost G, & Jones S, 2018, ‘CSR disclosure and financial performance
revisited: A cross-country analysis’, Australian Journal of Management, Vol.43
No.4, pp.517-537.
Yu H C, Kuo L, & Kao M F, 2017, ‘The relationship between CSR disclosure and
competitive advantage’, Sustainability Accounting, Management and Policy Journal.
Hummel K, & Schlick C, 2016, ‘The relationship between sustainability
performance and sustainability disclosure–Reconciling voluntary disclosure theory
and legitimacy theory’, Journal of Accounting and Public Policy, Vol.35 No.5,
pp.455-476.