BUSN20019 Professional Project

Gregory, Uys and Gregory(2014) defines accounting as the systematic process of recording, reporting and analyzing financial transactions in the business organizations. The finance departments and the apex management bodies of the organizations then analyze the financial transactions.

 The main accounting regulatory in Australia-AASB:

The Australian Accounting Standards Board(AASB) is the body of Australian Government which develops and regulates financial reporting in all the public and private companies within Australia. Its jurisdiction applies to all the companies including the dairy companies. The financial accounting policies laid down by the Australian Accounting Standrads Board(AASB)  are legally binding on the entities under the Corporations Act  2001, state and central government bodies of Australia, private companies, public companies and even non-profit making organisations in Australia. The AASB 1053 Application of Tiers of Australian Accounting Standards establishes two tiers of accounting for making general purpose accounting statements(aasb.gov.au., 2017)  .

The Tier 1 incorporate the international Financial Reporting Standards(IFRS) including the interpretations of IFRS. The IFRS rules are followed by paragraphs which mention the applicability of IFRS according to the Australian standard accounting procedure which is suited to the Australian industrial sector. Publicly accounting profit making organisations are required to comply with tier 1 and follow IFRS. Tier 2 interprets the first tier with measurements, presentations and requirements of tier 1.  The members of the Institute of Chartered Accountants in Australia, Certified Public Accountants and the Institute of Public Accountants are empowered to take all steps to ensure that business entities within Australia comply with the AASB norms.

1.1.3. International Financial Reporting Standards:

The International Financial Reporting Standards(IFRS) are the financial accounting standards issued by the International Accounting Standards Board(IASB) to provide a common layout of accounting standards for the companies to follow all around the world. These internationally accepted accounting principles are very helpful to companies all around the world, especially the multinational companies that are able to record the financial transactions of their offices located in multiple location following one single accounting framework(IFRS., 2017). The main elements dealt with by IFRS are assets, liabilities, equities, revenue and expenses.

1.1.4. Dairy Industry in Australia:

The dairy industry in Australia occupies the third position in terms of agricultural commodities in terms of farmgate value and is the fourth highest export earners. The Australian dairy industry is attributed to high productivity and produced 9.54 billion litres of  milk.  Around ninety-four percent milk produced in Australia are consumed in the domestic market. The pie chart below shows the production of food products including dairy products in Australia 2012-13. This shows that that the country has a huge dairy industry, which is very profitable. The demand for milk production is so high in Australia that the country has to import milk products from other countries. The industry has become profitable and extremely competitive. Three big diary companies in Australia are Nestle, Australia, Murray Goulburn Cooperative Company Limited and Bellamy, the main company of the study.

1.2 Brief background including professional context:

The background of the study lies in the accounting practices and issues faced by the dairy companies in Australia. These practices are impacted very several professional contexts like laws regarding the accounting standards especially pertaining to the dairy industry. The dairy industries in Australia are the third largest agricultural industry in the country with a gross value over $4 billion. Australian dairy companies produce high quality dairy products and export a robust quantity of dairy products annually. This shows that the companies engage in a robust amount of financial transactions, which makes accounting practices important part of the daily operations. The paper takes into account the accounting practices and issues taking Bellamy as an example.

The accounting policies followed in the dairy companies in Australia differ with reference to the controlling bodies. Bellamy which is an Australian dairy producing company prepares its financial statements in accordance to the guide lines of the Australian Accounting Standard Board(AASB). Nestle Australia, which is the Australian subsidiary of Nestle follows International Financial Reporting Standards(IFRS) to conduct financial reporting in all its markets. Murray Goulburn Cooperative Company Limited follows IFRS in accordance to the Australian standards. This multiplicity of accounting practices creates issues and makes the accounting in the dairy companies in Australia complex. The disparity becomes more intense during recording of financial transactions between these companies following different accounting procedures. They also face a certain issues owing to their large scale operations and complexity of the nature of the transactions.

1.3.1. Presence of various types of commercial organisations in Australia:

According to Estrin, Mickiewicz and Stephan, U. (2013), the economy of Australia is one of the most developed markets in the world with a GDP of AUD $ 8.9 trillion. The country is one of the largest mixed markets with presence of large number of commercial and non-commercial organisations. Fowler(2013) states that this economic prosperity of Australia has resulted in presence of a large number of commercial organisations.  There are Australian public companies, private limited companies, partnerships, joint ventures and sole proprietorships. There are large number of government companies owned by central and state governments. According to Shi et al.(2014) the Australian market has also attracted a large number of multinational companies like Nestle from other countries. Australia also has its indigenous multinational companies operating in several economies. The presence of these companies results in more products and higher employment generation in the country. Smith (2017) contradicts this and state that the multiplicity of the types of companies and accounting standards make accounting in the dairy companies extremely complex. This hinders dynamic decision making process based on the accounting statements.

.3.2.Accounting in Australia’s dairy companies:

Klychova, Faskhutdinova & Sadrieva(2014) states that accounting of dairy companies is very complex and robust due to the large number of operations. The dairy companies obtain raw materials like milk from farmers, fixed assets like machinery and buildings, employ a large number of employees and enter into business transactions with large number of customers. This shows that the volume of financial transactions is huge. As pointed out by Shi et al.(2014), Australia’s booming and highly profitable dairy market attracts government, public and private companies. The dairy market of Australia also has presence of multinational diary companies like Nestle, the world biggest food manufacturer and seller based in Switzerland. All these companies follow different processes of financial reporting though all of them confirm to IFRS.

Bellamy is an Australian multinational public limited company which manufactures food and beverage. Its follows a financial accounting standard laid by AASB while Nestle follows IFRS norms and does not follow AASB. Murray Goulburn Cooperative Company Limited is the largest processor of milk in Australia and follows a cooperative format. The cooperative follows IFRS policies and gives it preference in accounting over AASB. This analysis shows that financial reporting in Australian dairy companies in not uniform and varies from company to company. While delving into this differences in accounting policies used by different companies Barkemeyer, Preuss and Lee(2015) state  that multinational companies maintain uniform financial reporting procedure to maintain transparency and clarity while recording financial transactions taking place in the geographically distributed branches. For example, Nestle Australia is the Australian subsidiary, which is present in more than a hundred countries across Europe, North America, South America, Asia, Africa and Oceania.

The company follows International Financial Reporting System in its accounting procedures so that it can maintain uniform system of accounting in its geographically dispersed branches(nestle.com., 2017). Robinson, Stomberg and Towery(2015) analyses this accounting procedures followed by Nestle and state that this trend of IFRS is followed by most of the multinational companies in the world. It can be  pointed Bellamy too is a multinational company with its headquarters in Launceston, Australia and listed on the Australian Securities Exchange. The company has a very limited international presence compared to Nestle  and is presented in  China, Hong Kong, Malaysia, New Zealand, Singapore and Vietnam outside Australia(bellamysorganic.com.au., 2017).

Frias?Aceituno, Rodriguez?Ariza and Garcia?Sanchez(2013) point out that this shows it is more appropriate for Bellamy to follows Australian standards of accounting because its main market is concentrated within Australia with very limited internal presence compared to the global presence of Nestle. Murray Goulburn Cooperative is a the largest cooperative in the dairy industry in Australia and finds it more appropriate to use IFRS(mgc.com.au., 2017). Andrews(2014) points out that since these cooperatives fall under tier  1 of AASB, they follow IFRS. Thus, it can be inferred from this discussion that there are different types of entities in the Australian dairy market and they follow different financial accounting principles. The financial reporting norms depend on several factors like their type(public or multinational) and size of operations.

1.3.3. Difference between IFRS and AASB:

The Australian Accounting Standards Board(AASB) sets financial reporting norms for the companies in Australia while confirming to the International Financial Reporting System(IFRS). There lies differences between these two standards in spite of the fact that the former sets policies according to the guidance of the latter. The first point of difference between the IFRS and the AASB lies in the procedure  the companies require to follow while presenting the financial statements. The IFRS requires the companies to present income statement, balnce sheet, cash flow statement and statement of changes of equity while the AASB does not prescribe the fourth statement. The second point of difference between the two standards lies in recording of inventories.

The IFRS follow several methods while calculating of inventories like LIFO(last in first out) and FIFO(first in first out) while AASB does not allow LIFO method while calculating inventories. The third point of difference between IFRS and AASB lies while preparation of income statement. The IFRS, since followed globally permits changing of accounting policies to incorporate the legal frameworks of the countries while the AASB permits changing of accounting procedures only if there is a need to incorporate financial transactions of another country. This analysis shows that the two accounting standards follow different policies though the AASB has to comply with the IFRS.

1.3.4. Problems caused due to multiple accounting standards:

The above discussion points out that the Australian companies like Bellamy and Nestle Australia follow AASB and IFRS respectively. It also points out that there exists marked differences in the accounting treatments according to the two standards namely, AASB and IFRS. According to Young & Zeng (2015) the first problem due this multiplicity of accounting standards is lack of comparability. The multinational companies like Nestle are present in multiple countries like Australia with their individual accounting standards. This prevents these companies from comparing between the financial transactions related to the companies taking place in different markets. This forces these companies to follow IFRS over the accounting standards like AASB prevailing in different countries like Australia.

Wang(2014) further strengthens the claims of Young and Zeng pointing out the second issue caused due to multiple accounting standards. They point out that the professionals like the chief financial officers and the financial managers in the multinational companies require to analyze the financial statements like profit and loss accounts and balance sheets to take major business decisions. Following of multiple accounting standards makes this comparison difficult due to treatment of similar items like inventory differently according different accounting standards. Christensen et al(2015) supports the claims of these three authors and state that the multiplicity of accounting standards impacts the quality of accounting and hinders the top management bodies in the companies from making accurate decisions.

Macve(2015) points out to the third impediment caused due to use of multiple accounting standards which is measuring of historical costs. First of all historical costs consider the initial prices at which assets were acquired by the companies. The historical cost method does not recognise the change in the value of the asset and maintenance costs incurred to maintain the assets. Some accounting standards like IFRS considers historical costs while other standards do not. This results in inappropriate accounting and prevents the top management bodies from taking appropriate business decisions based on the faulty accounting systems. Munoz, Zhao and Yang(2017) in support of these claim state that following multiple accounting standards and their various accounting treatments leaves spaces for mistakes and frauds which is the fourth issue. It helps the companies in suppressing financial transactions intentionally by taking advantage of certain accounting standards and breach IFRS rules. Thus, multiplicity of accounting standards leads the companies from resorting to fraudulent accounting practices to derive undue advantages like abating paying of taxes.

1.4. Research aim and objectives:

The aim of the research is to study the different types of companies like public and multinational companies present in Australia particularly with reference to the diary industry. The paper further aims to delve into their accounting practices according to two standards prevailing in Australia namely, the International Financial Reporting System(IFRS) and the Australian Accounting Standards Board(AASB). The researcher then went onto study the difference between these two standards based on companies following them. Then finally, the researcher pointed out to the issues caused due to following different accounting standards in different company.

1.5. Research questions:

The following are the research questions which the paper has addressed:

1. What are the different types of companies functioning in Australia particularly with reference to the dairy industry?
2. What are the two types of accounting standards prevailing in the Australian dairy companies?
3. How are the AASB and IFRS linked?
4. What are the differences in treatment of different accounting items like income as per these two standards?
5. What are the main issues caused by using multiple accounting standards?

The general approach followed while conducting the research is qualitative in nature. The researcher has consulted several qualitative sources like books, articles and journals to gain information on the topic and analyse them. The number of companies in Australia is so huge that quantitative approach like surveys would have been inappropriate and not deemed fit. That is why the researcher selected qualitative approach as the appropriate approach of data collection.

2.2 Population and Sampling:

The researcher has considered three companies present in Australia as the samples to conduct the study. The three companies selected as samples for the study are Bellamy which is multinational Australian dairy company, Murray Goulburn Cooperative which is a dairy cooperative in Australia and Nestle Australia, the Australian arm of Nestle, the world’s largest food manufacturer with its head office in Switzerland. This considering of three different types of companies following different accounting standards has enabled the researcher to analyse their financial reporting policies to bring the difference between AASB and IFRS.

2.3. Analytical Approach:

The researcher has followed qualitative analytical approach to conduct the research. He has analysed the types of companies functioning in the Australian dairy sector and the two accounting standards they follow namely, IFRS and AASB. This analytical approach is appropriate because it has enabled detailed comparison between IFRS and AASB and the problems caused due to this multiplicity of accounting standards.

The above analysis of the various types of companies functioning in the Australian market particularly in the dairy market and the multiplicity of the accounting standards they follow bring out certain important results. First, the Australian dairy market is extremely profitable which has several types of organisations functioning and competing in it. The market has also attracted multinational companies from other countries, which have made the market even more competitive. It can also be pointed out that there are Australian companies, which have ventured into foreign markets. Secondly, the companies function according to their own business requirements and follow two different accounting standards within Australia namely, IFRS and AASB. The IFRS and the AASB have their own ways of recording and reporting financial statements even in case of similar items like presentation of income statements. Third, these differences of treatments of accounting items lead the different companies in the Australian dairy market to follow either of these standards.

Finally, this following of different account standards create several problems. First, the multiplicity of financial reporting processes based on different accounting standards makes comparing of financial statements difficult. Secondly, the professionals like the top managers of the companies face problems in analysing these statements based on different accounting standards. This prevents them from making business strategies based on these statements. Thirdly, the treatments of historical costs in different accounting standards make accounting and their reporting extremely complex. Fourthly, this multiplicity of accounting standards gives the companies scopes to resort to frauds like abating taxes by suppressing certain transactions.

Conclusion:

The above discussion can be concluded by saying that there are multiple types of commercial organisations in Australia, particularly in the dairy market. These companies follow two different accounting standards while carrying out financial reporting namely the International Financial Reporting System or IFRS and the Australian Accounting Standard Board or the AASB. The dairy market in Australia is very competitive and profitable owing to these large numbers of companies. These companies follow different accounting standards like IFRS and AASB while preparing and presenting their financial statements.

This multiplicity of accounting is dependent on various factors like the type of company and its size of business like national or international. However, the diversity of the financial reporting creates a number of issues for the companies and their top management bodies. Some of these problems are lack of comparability and difficulty faced by the top management in analysing these financial statements. These issues as a result impede appropriate decision making by the top management of the companies. The following recommendations can be made to the companies in the light of the above discussion:

1. It can recommended that the companies based in Australia especially the dairy operating within the Australian market should abide by the Australian Accounting Standard Board norms while financial reporting in accordance to IFRS. This will enable the government to monitor their financial reporting more transparently and this would create their positive image before the government. It would enable the government to provide them more facilities which would ultimately boost the business of these companies.
2. It can also be recommended that the multinational companies which enter the market of Australia to follow the AASB as well at least while reporting transactions pertaining to the Australian market. This would help them to carry on and record transactions with the companies in Australia following AASB more transparently. As a result they would be able expand their business by partnering with the resident companies in Australia which would lead to their business growth.

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