Comparative Analysis Of Corporate Reporting And IFRS Convergence Impact On Financial Reporting Quality

Identification of Companies

Corporate reporting may be considered to be one of the most critical and success-critical aspects of business studies as the same includes the consideration of lots of factors that are both internal as well as external to the business. An effective corporate reporting ensures the brand value and investor’ expectations amidst the external stakeholders of the business (Carmona, Salvador and Trombetta. 2008). On the other hand, a falsified and erroneous financial reporting may significantly hamper the corporate image and consequently equity holders’ information need about the financial health and results of the operations of the business. The given paper deals with the importance of effective corporate reporting from the perspective of organizations. At the very beginning of the study, the researcher, in the given case, attempts to analyse the case from the reference of real-world examples of four companies followed by the justifications for choosing the selected companies for the research. In the next part of the study, the researcher explains the process of how the convergence of IFRS will lead towards the greater value creation. Finally, the researcher wraps up the discussion by way of concluding note.

For the purpose of analysis of the implication of corporate reporting in line with the pronunciations made in the IFRS regime, the four different companies have been chosen in the instant paper. The brief details of those companies are listed herein.

The researcher has considered of selecting four companies from two different countries; one is the home country i.e. Sri Lanka and another in Australia. Two companies are being chosen from each country. All the four companies belong to the same industry which is banking and insurance. For better clarity, one banking corporation and one insurance company are being chosen here.

The first company is Amana Bank Plc. This company is a banking corporation based in Sri Lanka. The second company is AIA Insurance Lanka Plc which is a Sri Lanka based insurance house. It is needless to mention that both the companies are listed in Colombo Stock Exchange i.e. CSX (Cse.lk, 2018).

On the other hand, the researcher has identified Australia and New Zealand Banking Group Limited (ANZ) which is a bank of Australia. Also, the banking and insurance company named AMP Limited has been chosen. Both the companies are listed in the Australia Stock Exchange  i.e. ASX (Asx.com.au, 2018).

The analysis of annual reports of each of the four companies for the financial year 207 may reveal the fact that all the financial statements have been prepared in a different manner. For example, the financial statements of Amana have been prepared on the basis of Sri Lanka Accounting Standards (SLFRSs and LKASs) as laid down by the Institute of Chartered Accountants of Sri Lanka (Amanabank.lk, 2018). Such reporting is in compliance with the requirements of the Companies Act No. 07. AIA, on the other hand, has also followed the same accounting standards for the preparation and presentation of financial statements as per their annual report 2017 (Aialife.com.lk, 2018). In this context, it may be interesting to note that the financial statement of the company has materially converged with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).  However, there is no reference to IFRS in the annual report of the AIA group (Aialife.com.lk, 2018).  

Comparison on the Basis of Preparation of Financial Statements

On the other hand, financial statements of ANZ has been prepared in accordance with the Australian Accounting Standards (AASs) and also the other directives and guidelines as issued by the Australian Accounting Standards Board (AASB). In addition, the corporate reporting of any Australian company is governed by the compliance requirements as laid down in the Corporations Act 2001 and ANZ is also no exception to the same. In a similar manner, the financial statements of AMP Limited have also been prepared in line the said legislation as well as the AAS as issued by AASB (corporate.amp.com.au, 2018). However, both the companies have mentioned the reference to IFS in their annual report for the year 2017. In other words, the compliance requirements of IFRS are being met by these two Australian entities.

The analysis, therefore, may disclose the fact that the IFRS is being complied with base don the country. There are instances where the IFRS is readily implemented like Australia and also there are countries where the adoption has not yet taken much consideration like Sri Lanka.

In this context, it may be noted that the financial statements which are to be prepared in line with the FS must follow the conceptual framework as prescribed under IASB directives. Such a framework should consist of the basic and primary financial statements like Statement of Financial Position, Comprehensive Income Statement, and Statement of Changes in Equity Cash Flow Statement and Notes. The in-depth view of those four annual reports establishes the fact that all the four financial statements consist of those critical components.

The process of accounting has been governed by the regulators and standard setters in the field. Different accounting standards are in place for the purpose of providing overall guidance and directions for management to adopt accounting in various situations (Carmona, Salvador and Trombetta. 2008). Generally, the issue of accounting occurs in terms of recognition, measurement and disclosure of related accounting transactions. The issue arises because different countries have their own GAAP (Generally Accepted Accounting Principle) and the treatment of accounting transactions vary widely in each GAAPs. The IFRS introduces common sets of accounting standards which may be universally applied for all types of accounting countries regardless of the country barriers.

There are multiple benefits that one may think of IFRS. Such benefits primarily revolve around the fact that the IFRSs provide a uniform platform for the accounting professionals to record transactions in a comparable fashion. IFRS assimilates all the conventional GAAPs and creates a common set of accounting regulations which enhances the reporting quality in terms of comparability and lucidity also. Besides, it may also be noted that such uniform sets of accounting standards uplift the accounting profession as well as the process of accounting to a global level. The growth of international business significantly paves the way for economic growth within the country and the credit for the same primarily goes to IFRS. To put it differently, it may also be ideated that the convergence towards IFRS makes the financial reporting more worthy to the foreign investors in terms of their own understandability which, in turn, directly benefits the country in the form of foreign direct investment (FDI) flowing within the nation (Carmona, Salvador and Trombetta. 2008).

IFRS Convergence: Initiative towards Improved Quality of Financial Reporting

There involves a relationship between the political power backdrop and the accounting system adoption. It has been identified politically more powerful countries like European countries are less likely to adopt IFRS than any non-European less powerful countries. The USA, for example, has not adopted IFRS and US GAAP has been persisting in their corporate system. It may also be noted that a country may be more responsive towards the adoption of IFRS if its trade partners or suppliers or any vendors, be it within or outside countries, who have adopted IFRS (Indrapurkar, 2018).

Harmonisation of accounting standards is clearly an honest effort to make the corporate reporting glocal (global and local) and hence the scope and purview of the accounting have increased a lot. With such an increase in scope, there come the challenges in implementing such harmonisation in a systematic manner. Researchers and business persons including Government have identified that such convergence should be conducted in a phased manner as there involves a change in the psyche as well in terms of previous notion being cut and new concept being introduced. People are generally reluctant to change and hence, the implementation of IFRS will have to go through those challenges (Carmona, Salvador and Trombetta. 2008).

Finally, it may be concluded that the IFRS is a principle-based accounting approach and hence, the inner flexibility as built within the conceptual framework of IFRS will be able to grasp all the nitty gritty of the accounting worldwide (Indrapurkar, 2018). The standards setters will have to be vigilant in terms of any implementation challenges and should come up with the necessary directives and legislation in order to overcome any issues that may creep up subsequently in the post-implementation period (Carmona, Salvador and Trombetta. 2008).

Conclusion

Based on the discussion and analysis performed in the preceding sections of the report, it may be construed that financial reporting plays an important and critical consideration for the management of a business. Since the accounting may be termed to be the corporate language, an efficient annual report prepared in accordance with the global stands of accounting is the need of the hour. Today’s complex business world has witnessed many technical and legal frameworks which every business must abide by and hence the corporate reporting should be construed to be the understandable and comprehensible for the stakeholders associated with such reporting. The users of financial statements must feel comfortable in reading the financial data and the language barrier should not be a constraint here (Indrapurkar, 2018). That is the reason why IFRS has been evolved. The management should make every effort to enhance the quality of financial reporting by way of implementation of IFRS in their accounting process. Finally, it may be concluded that a well-thought and efficient corporate reporting which is IFRS complaint will surely boost up the quality of corporate reporting and contribute towards the attainment of the corporate goal of sustainability in the long-run among the industry and society as a whole (Indrapurkar, 2018).

References

Aialife.com.lk. (2018). Annual Report. [online] Available at: https://www.aialife.com.lk/content/dam/lk/en/about-aia/media-centre/aia_sri_lanka_annual_report_2017.pdf [Accessed 29 Nov. 2018].

Amanabank.lk. (2018). Annual Report. [online] Available at: https://www.amanabank.lk/images/pdf/annual-report-2017.pdf [Accessed 29 Nov. 2018].

Asx.com.au. (2018). The official list. [online] Available at: https://www.asx.com.au/asx/research/listedCompanies.do [Accessed 29 Nov. 2018].

Carmona J, Salvador H and Trombetta M, (2008). On the Global Acceptance of IAS/IFRS Accounting Standards: The Logic and Implications of the Principles-Based System. Journal of Accounting and Public Policy, 27(6)

corporate.amp.com.au. (2018). Annual Report. [online] Available at: https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/Investor_and_annual_reports/2017_annual_report_20_march_2018.pdf https://www.asx.com.au/asx/research/listedCompanies.do [Accessed 29 Nov. 2018].

Cse.lk. (2018). CSE – Colombo Stock Exchange. [online] Available at: https://www.cse.lk/home/listByAlphabetical#home%2FlistByAlphabetical [Accessed 29 Nov. 2018].

Indrapurkar, K. (2018). Convergence with IFRS: Hopes and Challenges. [online] Indianmba.com. Available at: https://www.indianmba.com/Faculty_Column/FC1083/fc1083.html [Accessed 29 Nov. 2018].