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... r friendliness and utility have been sacrificed on the alter of harmonisation with international standards. To be more particular with respect to changes Ravlic (2002) discovered from Prentice that items, such as abnormal items were hardly being reported on the face of the Statement of Financial Performance, therefore companies were not truly showing the impact of these items. Moreover, what profit after tax was in comparison to sustainable cash flows. A more specific example why the trilogy standards have been scrutinised can be seen in the evidence of the E&Y Survey. With respect to the companies reporting their margins on sales, there was a wide range of gross margin amounts within particular industries that were not meaningful.
From this, the report says the problem lies in the way companies calculate their cost of sales. As the standard requires disclosure of the cost of sales, Kavanagh (2002) adds, when revenue from the sales of goods is reported; the definition of the cost of sales refers to the carrying amount of inventories, however the standards are silent on the application of the cost of sales to providers of services, as distinct from goods. Kavanagh (2002) quotes Picker of E&Y by stating they believe the AASB should consider the applicability of the cost of sales to service entities in any future revisions to AASB 1018. The abovementioned is an example on how the trilogy standards have bought confusion and varying interpretations within the profession.
Kemp; (2001) Knapp; (2001) add that apart from the generic problems associated with the trilogy standards, some organisations do not like having to disclose cost of sales as it gives away too much information to the companies competitors. According to Kemp; (2001) Knapp; (2001), this is principally a problem for an entity that is a pure play in a product or service, where the cost of sales data of their competitors is clouded up by diversified operations. Kemp; (2001) Knapp; (2001) also explain how large listed entities may often have other movements in equity and therefore have total changes in equity other than as the bottom line, other companies will have different bottom lines. To be more specific Kemp; (2001) Knapp; (2001) draw on an example where, a single entity with no extra-ordinaries could arguably use profit from ordinary activities after related income tax expenses or net profit or net profit attributable to members of the parent entity. The problem within this issue is which of these three should be chosen. The evidence gathered by both E&Y and the ASIC give reasons to suggest why the trilogy standards have been scrutinised for creating discontent and confusion.
The examples above are few of many and in recent times Exposure Drafts (ED) have been issued to make amendments to the trilogy. An example of this is ED 105 whereby the AASB intends to issue this ED as revised Accounting Standard AASB 1018 Statement of Financial Performance. Question 3. Do the trilogy standards meet the requirements of SAC 3 Qualitative Characteristics of Information? SAC 3 identifies the characteristics that financial information should have to meet the objectives in SAC 2 whereby there are dependant users of financial reports. As SAC 3 suggests, Gifts should be relevant and reliable so the users of the reports can get a true and fair view of the reporting entity.
However, confusion and misinterpretation by the preparers of the financial reports because of the trilogy has questioned whether the information is either relevant or reliable. By drawing on the issues arising from the trilogy, it is quite evident that the two characteristics are not fully and / or consistently satisfied. For instance, the lack of definitions with respect to significant items has allowed entities to interpret the definition independently. Therefore, any information disclosed in respect to this issue may be unreliable when comparing entities in a similar industry.
Therefore Parker; (2002 b) Porter; (2002) (p. 67) define SAC 3 whereby, relevant information is information that influences the economic decisions of users and assists with their assessment of the accountability of those responsible for governing the entity, the trilogy standards would need be consistent and interpreted in accordance with standards that are not transparent. In more detail, with respect to cost of sales, figures provided by the E&Y survey showed that a number of the companies surveyed reported gross figures that were not meaningful, or in other words irrelevant. Therefore, this behaviour was deemed a consequence of the trilogy standards, so it is evident that the standards in such instances allow information to not be relevant. The second issue concerning SAC 3 is that of reliability. Parker; (2002 b) Porter; (2002) (p. 67) describes reliable as information that presents faithfully the transactions and other events, which is neutral and free from undue error. At the present, the ASIC has found in a report of 80 companies there where instances where it had to justify the interpretations made.
In other words, the ASIC had to validate the methods used by the reporting entities when the entities used the trilogy standards. As there were many interpretations, it could be argued that the reports may not have provided faithful and neutral information free from undue error. An instance of this can be seen in how extra-ordinaries could be included in either profit from ordinary activities after related income tax expenses, net profit or net profit attributable to members of the parent entity. Therefore, the information disclosed may vary in the levels of reliability as there are three alternatives given to the users of the financial reports. Nonetheless, the AASB standards are prepared in accordance with SACs, so the fundamental characteristics of standards aim to meet all SAC requirements.
The abovementioned issues are problems that have arisen from the trilogy standards due to parody of the definitions and lack of detail within the standards. Thus to argue that the trilogy standards do not satisfy SAC 3 on face value is categorical as shown above, however the professional accounting bodies have recognised the contradictory nexus so they have addressed the issues with exposure drafts. Conclusion The overall aim of the trilogy standards is to align Australian standards with the International Harmonisation Program and to move towards a balance-sheet emphasis. The AASB have been following a program to bring Australian standards closer to the overseas accounting bodies that are aligned with the International Accounting Standards Board (IASB). The aim is so financial information between all counterparts concerned can be compared so that preparers of the information may benefit from overseas capital investment to their firms. The balance sheet emphasis consigns itself to the SACs whereby a focus is put towards whether items satisfy the definitions of an asset and a liability rather than matching income and expenditure to arrive at profits.
Therefore, the trilogy has many bona fide characteristics and besides the early dissatisfaction and confusion; the accounting profession has made many amendments through exposure drafts. Ultimately the trilogy will aim to satisfy most characteristics of the SACs with a greater degree of significance, thus allowing users and preparers a more effective and efficient tool with respect to disclosure. Reference List 1. Parker, C. 2002, Assessing the trilogy, Australian CPA, Melbourne, Australia. 2. Adam-Smith, M. 2001, Changes to the Statement of Financial Performance for 30 June 2000 financial reports, Fasttrack, Grant Thornton, Melbourne, Australia. 3. Curtis, R. 2001, The Trilogy Standards Audit and Assurance, WHK, Sydney, Australia. 4.
Kavanagh, J. 2002, Aasb's trilogy under fire, Feb 28 -March 6, 2002, BRW, Sydney, Australia. 5. Ravlic, T. 2002, New Rules Make Accounts Harder To Fathom, 7 / 1 / 2002, Sydney Morning Herald, John Fairfax Group Pty Ltd, Sydney, Australia 6. Kemp, S. 2001. Knapp, J. 2001, Testing the Trilogy, CACHARTER, Sydney, Australia. 7.
Parker, C. (2002 b) Porter, B. (2002), AUSTRALIAN GAAP, 6 th edition, Parker Publishing, a Division of Account net Pty Ltd, Melbourne, Australia.
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