The history of accounting standard setting in Australia has evolved over the years as a function of institutional change and government regulatory efforts.
A professional activity initiated and driven by the accountants’ association to promote consistency in financial reporting soon grew and evolved into a system that has become enforceable and now follows international standards. This has been a function of the evolution of the Australian capital market and the quest to ensure greater investor protection on the part of the Australian government and the Australian Securities and Investments Commission.
Early Developments: Pre-1960s Foundations
Before the 1960s, Australia lacked a formal system of accounting standards. Companies prepared financial statements based largely on customary practice, professional judgement, and guidance issued by accounting bodies. The Institute of Chartered Accountants in Australia (ICAA), established in 1928, and later the Australian Society of Accountants (ASA), played advisory roles, but compliance remained voluntary.
This period coincided with limited public shareholding and relatively small capital markets. As a result, financial reporting attracted little regulatory scrutiny. However, by the late 1950s, industrial expansion and rising investor participation exposed inconsistencies in reporting. Studies during this era revealed significant variation in asset valuation and income measurement across firms, which weakened comparability and investor confidence.
The Role of Professional Bodies: 1960s to Early 1980s
The formal standard-setting initiative only gained momentum in the 1960s. In 1966, ICAA and ASA established the Australian Accounting Research Foundation, an organisation whose mandate was directed at issuing accounting standards or statements of accounting concepts. These standards, now referred to as Australian Accounting Standards or AAS, were the first systematic attempts towards harmonisation of financial reporting.
Though the AARF improved consistency, its standards did not have any legal backing. Companies could decide whether to follow it or not; there was, therefore, a limitation in enforcement. Part cases in the 1970s demonstrated that there was partial adoption; particularly, the listed ones needed credibility in capital markets. On the other hand, the entities that were smaller by nature often just looked over the standards, which created questions in regard to reliability and transparency.
Government Intervention and Legal Authority: 1980s Reforms
Failures in corporate subsidiaries in the late 1970s and early 1980s, such as large business groups, served as catalysts for regulatory reform. The inadequacies in disclosure and accounting standards identified in public inquiries that followed included poor accounting standards. The Australian government became more proactive in this period.
A major watershed occurred with the formation of the Accounting Standards Review Board (ASRB) in 1984. Accounting standards acquired the status of law for the first time with the passage of the Corporations Act. It became mandatory for firms to comply, and accounting standards became the law of the land.
Reporting discipline received an enhanced fillip in this regard. Studies in the late 1980s suggested greater compliance levels, together with enhanced inter-industry comparisons. It also marked the acknowledgement that the preparation of accounts has always had an important public interest component, apart from its professional interest overtones.
Creation of the Australian Accounting Standards Board: 1991
In 1991, the Australian Accounting Standards Board (AASB) replaced the ASRB as the national standard-setter. The AASB operates as an independent government agency; it was charged with the duty of issuing accounting standards that apply to both the public and private sectors.
The AASB adopted a conceptual framework approach, emphasising principles such as relevance, faithful representation, and reliability. This era also witnessed increased harmonisation activities with other regulators, such as the Australian Securities and Investments Commission (ASIC). Towards the mid-1990s, Australia boasted a highly formalised accounting standard-setting process within the Asia/Pacfic region.
International Harmonisation and IFRS Adoption: 2000s
The globalisation of capital markets led to a paradigm shift in accounting practices in Australia in the early 2000s. There was a phenomenal rise in cross-border investments, and foreign investments soared to AUD 500 billion by 2004. Shareholders wanted comparable financial information.
Australia responded by committing to use International Financial Reporting Standards in its financial reporting system. Starting from 1 January 2005, financial statements for all reporting entities had to be prepared based on International Financial Reporting Standards issued by the International Accounting Standards Board and adopted in Australia by AASB.
This was a turning point. There was a transition from the development of their unique national standards to aligning with global benchmarks in Australia. Academic research showed lower costs of capital as well as more accurate analyst forecasts following its adoption. Was this alignment required? There is evidence that it helped enhance their position in global markets.
Contemporary Framework and Ongoing Evolution
Today, the AASB publishes Australian Accounting Standards fully converged with IFRS, with only additional guidance in areas where circumstances exist. The Standard-setter also addresses reporting in the public sector with Australia-specific standards to reflect the unique context of government reporting.
The current trends and developments are sustainability and non-financial reporting. Notably, climate-related reporting has been adopted in the standard-setting agenda, as emphasised by global regulators on the disclosure of environmental, social, and governance practices. Over 70% of large Australian companies disclose climate-related information in annual reports, according to the Australian Securities & Investments Commission.
Conclusion
The history of accounting standard setting in Australia demonstrates a steady progression from professional self-regulation to legally enforceable, internationally aligned standards. Each phase responded to economic realities, corporate behaviour, and investor needs. From voluntary guidance to IFRS adoption, Australia’s experience highlights the role of accounting standards in protecting public interest and supporting efficient markets.
