An historical review of quality in financial reporting in Australia

Purpose - Australia's early adoption of international financial reporting standards (IFRS) in 2005 was influenced by the argument that the quality of financial reporting would be improved as a result. The purpose of this paper is to provide an historical review of quality in relation to financial reporting in Australia by investigating how the qualitative characteristics of relevance, reliability, comparability and understandability developed in Australia between 1961 and 2004. Design/methodology/approach - This paper reviews the relevant academic and professional literature during the period as well as reporting on a survey of academics and others who contributed to debates about the characteristics of accounting. Findings - In Australia the notion of “quality” can be captured by relevance, reliability, comparability and understandability although the names and descriptions of these elements have been debated over a 40‐year period. The paper contends that the exact meanings of those elements in relation to financial reporting remain unresolved, in spite of their adoption by the AASB Framework (2004) as the qualitative characteristics of accounting information. Research limitations/implications - Future research into the qualitative characteristics in Australia, which include questions such as the extent to which certain reporting practices or standards meet the requirements of one or more of the qualitative characteristics could be based on the historical development of these characteristics, as described in this paper. This paper also identifies critical areas that require further dialogue between researchers, standard setters and users of general purpose financial statements. Originality/value - This paper describes links between a comprehensive list of attributes of accounting information that have been considered important over the past 40 years, and the four qualitative characteristics adopted by the AASB Framework. It also provides a history of contemporary accounting dilemmas, and reveals a lack of resolution to issues associated with each of the qualitative characteristics.