Academic journal article Australasian Accounting Business & Finance Journal

The Adoption of 'International Accounting Standard (IAS) 12 Income Taxes': Convergence or Divergence with Local Accounting Standards in Selected ASEAN Countries?

Academic journal article Australasian Accounting Business & Finance Journal

The Adoption of 'International Accounting Standard (IAS) 12 Income Taxes': Convergence or Divergence with Local Accounting Standards in Selected ASEAN Countries?

Article excerpt

1. Introduction

This article concerns one stage of a two-stage qualitative study of the socio-economic impacts of the convergence of International Financial Reporting Standards (IFRS) with local accounting standards on companies in selected Association of South East Asian Nations (ASEAN). The purpose of this article is two-fold. Its first purpose is to present the methodology, findings, analysis and conclusions from the Stage one research, regarding the socio-economic impacts of the convergence of IFRS with local accounting standards on the ASEAN countries of Singapore and Malaysia.

Accounting standards are one starting point for tax compliance and income taxes form part of financial statements, including tax-related note disclosures. Thus, the second purpose is the positing of a future research plan for a specific accounting standard, International Accounting Standard (IAS) 12: Income Taxes and the extent of its convergence and/or divergence from the aims of the International Accounting Standards Board (IASB) for equivalent accounting standards in selected ASEAN countries and Australia. Stage two of the research project (and related preliminary interview findings) is positioned at end of this article, which follows the Stage one findings and conclusion. IAS 12 has been selected based on feedback from respondents in Stage one.

ASEAN countries4 are being assisted by major development financing institutions, including the World Bank and the Asian Development Bank, mainly due to the development of global capital markets, the growth of multi-national enterprises and the Asian financial crisis in the mid-1990s (Briston 1990, 195-216). As investors and creditors require up-to-date financial statements and reports, the professional accounting practices of ASEAN countries are being increasingly scrutinised. ASEAN countries are thus under pressure to adopt a uniform set of accounting standards. Convergence of local accounting standards with IFRS is now one of the rising concerns among stakeholders with interests in ASEAN countries (Yapa 2012).

In June 2011 a forum was held in Bali, Indonesia with the theme of, 'Towards One Global Standard: the challenges and opportunities of IFRS adoption in Asia-Oceania Region'.5 Delegates from sixteen countries attended the forum to deliver papers and debate issues relating to adoption of IFRS. The presentations and panel discussions highlighted the importance of benchmarking, collegial work among standard setters with other regulatory bodies (including taxing authorities); and professionals to support for IFRS convergence/compliance in the region. Discussions covered the need for tax preparers to understand any differences between the Generally Accepted Accounting Principles (GAAP) and IFRS reporting methods. Thus, along with retraining financial accountants in a new accounting method, organisations will need to ensure other internal preparers, such as tax accountants, understand the different methods.

Access to global capital is problematic without the existence of an institutionalised set of accounting practices. Since 2005 most listed companies located in the European Union, Australia, and New Zealand have prepared their consolidated financial statements in accordance with IFRS (Ali 2005). According to the International Accounting Standards Board (IASB), about 150 countries have adopted IFRS. The year 2012 was when many countries in the Asian region had to formally adopt IFRS, and their regulators and accounting standard setters will face the real challenges (as opposed to theoretical ones) of adoption. The aim of harmonisation of local standards with IFRS is to reduce differences in accounting practices among countries (Bailey and Wild 1998; Banerjee et al. 1998; Burns 2000). Mueller (1965, 1967, 1968) has initiated the thesis that accounting is a product of the environment in which it operates. His work has drawn the attention to the need to explain and assess the status of global understanding of IFRS practices and their impact (Carlson 1997; Perera and Baydoun 2007; Perera 1975; Weetman and Gray 1991). …

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