As industry became globalized, it became important for countries to establish a common accounting language for the purposes of issuing financial reports. The International Financial Reporting Standards (IFRSs) became that needed common, global accounting language. The European Union was the first to try and create harmony in financial reports through IFRSs, but soon countries around the world began adopting IFRSs as well. What's more, countries soon began to implement IFRSs for domestic financial reporting, rather than just global financial reporting. Australia was one of the first few countries to use IFRSs for its domestic needs along with the countries in the European Union.
It was in 2001 that the Financial Reporting Council (FRC) directed Australia to begin adopting IFRSs, starting January 1, 2005. Under the Australian Securities and Investment Commission Act of 2001, the Australian Government agency known as the Australian Accounting Standards Board was created to adopt IFRSs for domestic purposes, and the board initially made a number of changes to eliminate the accounting policy options, meaning the policies and procedures for reporting financial statements, as well as eliminating some disclosures. However, these changes were repealed, and Australia now has two tiers of reporting requirements to fit with IFRSs. Tier 1 is the Australian Accounting Standards, and Tier 2 refers to the "Reduced Disclosure Requirements" under the Australian Accounting Standards ("IFRS Application Around the World Jurisdiction Profile: Australia").
Australia's adoption of IFRSs has several benefits for Australia. First, it can increase capital in Australia by reducing the cost of making financial reports. It reduces the cost of financial reports because Australia's domestic financial reports already match international reporting standards. A second benefit is that it helps fill in any gaps the Australian Generally Acceptable Accounting Principles (AGAAP) have when it comes to reporting financial instruments, meaning contracts that confer either financial assets or financial liabilities ("IFRS Adoption in Australia").
There are also several weaknesses with respect to Australia's adoption of IFRSs. One weakness is that Australia no longer has the guidance of AGAAP for things like employee benefit accounting. Another weakness is that since Teir 2 offers "Reduced Disclosure Requirements," the financial statements are less comparable. A third weakness concerns the amount of capital it did cost the country to change to IFRSs ("IFRS Adoption in Australia").