Discuss about the IFRS and Quality of Financial Statements-Free-Samples for Students.
In several cases, the listed organizations have more than one subsidiary and for such reasons these companies are obligated to a double reporting. This is needed to develop two different sets of financial statements that includes an individual level and also a group level (Li, Sougiannis and Wang 2017). Moreover, in the recent years, the listed organizations had to implement IFRS for generation of their group accounts along with European directives for personal accounts. The research will focus on analyzing the ways in which consolidated statements quality enhancement takes place from necessary IFRS adoption (Tschopp and Huefner 2015). The results of the research will also explain that implementation of IFRS can result in better compliance with OECD corporate governance principle that is associated with high quality transparency and disclosure. Such issue will also be addressed by this research regarding ascertainment of an increase in quality surplus offered by group accounts. This is in comparison to individual accounts of the parent organization and considering that implementation of IFRS became necessary in generation of consolidated financial statements (Weetman 2017).
Issue
Many critics of IFRS argued that there exists less evidence that standards have resulted in accounting quality improvements. Several arguments are there regarding the fact that IFRS will enhance quality. Numerous explanations have been provided regarding the reasons that IFRS has low quality than the domestic standards and the principal based standards might be interpreted in both the ways (Ball, Li and Shivakumar 2015). This also includes certain features of financial reporting system rather than standards that might decrease chances of quality improvements. IFRS is implemented in the common law nation in which the IASB structure is identical to the local networks. Another issue that will be addressed in this research incudes analyzing the institutional and enforcements that are not strong and it is likely that drastic changes might not be observed in accounting quality. It is also observed that certain issue also exists regarding the prediction of the companies regarding the fact that IFRS might enhance quality that might not come true. There can be certain causes for low quality IFRS than domestic standards (Leuz and Wysocki 2016). Moreover, principle based standards or certain financial reporting process might be interpreted in many ways rather than the standards that can decrease quality improvements.
Practical Motivation
The research will have number of practical motivations. The research will facilitate major players and the regulators in analyzing the efficiency of the financial reporting process that includes training and development for new members and practitioners (Beuselinck et al. 2017). The research will also explain the due diligence for accounting standards along with overall professional and institutional company conducts for better application of standards. Another motivation for this research is that this will serve as a vetting process for IFRS. The findings of the research will indicate positive impact which will be in the direction of ensuring IFRS as a quality standard (André, Filip and Paugam 2015). The findings will also indicate that there are no quality enhancements and for such reasons the results might focus on the missing link for which IFRS is not able to offer promised advantages.
Theoretical Motivation
There is numerous theoretical motivation of the current research. The results of this research will facilitate in gaining additional viewpoints regarding IFRS literature from an advancing economy (Perera and Chand 2015). This is considering the fact of financial statement along with market impact of IFR implementation. The empirical evidence has not been evaluated before in a part where managerial behavior and market structures are different from developed world and in this most of the studies rely upon. Moreover, the current research will be the first to extend the literature on earnings quality along with value importance through employing a specific sample. The major theoretical implication of this study is that it will analyze the institutional structures related with accounting profession from a long time.
This can facilitate in determining how quality has emerged within the common law nation (Vidal-García and Vidal 2016). This can strengthen literature on the function of institutional and professional structures within accounting quality concerns. The theoretical approach of the research is also focused on explaining the conceptual underpins from an international perspective as they might be applicable in the study.
IFRS and Accuracy of Forecast
According to Tschopp and Huefner (2015) there is an assumption regarding the fact that high quality accounting is indicated in superior quality forecast conducted by the financial analysts. These researchers also argue that analysts are deemed to be the most vital and influential financial report users. They also serve as the most vital information intermediaries among the companies along with investors. Li, Sougiannis and Wang (2017) indicated that the company’s ability of information processing along with resource access facilitates the analysts to be viewed as users of accounting information. It is less likely that the investors might misunderstand the implications related with such information. For this reason, if the financial analysts attain access to superior quality of financial reports, they might be capable to make great predictions that is gauged as accuracy of higher forecast. Tschopp and Huefner (2015) offered instances of relationship among disclosure and reduced information asymmetry. Companies that has policies of information disclosure enjoys a high quality analyst supported by better earnings forecast, decreased forecast dispersion along with less volatility in forecast revisions. Companies that offer firm based information are related with highly suitable earnings forecast along with maintaining less dispersion in forecast.
Tschopp and Huefner (2015) signified that the accounting standard that is followed impacts the accounting quality. The relationship supports the introduction of an innovative accounting standard that can impact a company’s accounting quality based on the margin. Emergence of IFRS has necessitated change in the accounting standard for several member nations and moreover such change might be signified in the accounting quality. The emergence of IFRS resulted in change of accounting standards for most of the member nations and it resulted in shift towards asset valuation as per fair value. Li, Sougiannis and Wang (2017) evidenced that such shift might indicate that IFRS offers a better image of the company’s economic value for such value of asset changes might be considered on a regular interval. Fair value account is observed to offer managers with high discretion in accounting that can decrease the accounting quality due to improved earnings management. André, Filip and Paugam (2015) have attempted to contract the measured quality basically with respect to value importance, earnings management and timely IFRS recognition loss related with previous standards.
The Relative IFRS Impact
Weetman (2017) evidenced that the last decade has observed introduction of several researches that explains the impact of institutional and legal settings on accounting quality. In most of the situation, the research is relied on an anticipation that such settings have a considerable effect on accounting quality. This can further impact the capability of the analysts to make effective forecasts. Li, Sougiannis and Wang (2017) studies of has segmented all the company based characteristics along with relevance of reporting company incentives as major factors contributing to IFRS success. These researchers also focused upon relevance of companies reporting incentives that is impacted by legal institutions, operating characteristics and market forces. For such reasons, Weetman (2017) considers it reasonable to anticipate certain nation specific financial culture and business, accounting culture, regulatory and auditing culture which might impact the IFRS implementation success.
For this reason, it is estimated that IFRS emergence can have drastic impact on quality of accounting within distinct institutional and legal settings. For example, one variable aspect is enforcement strength of accounting standard that impacts managerial discretion. Li, Sougiannis and Wang (2017) recognized that some common law nations have better enforcement processes than the code law nations. The literature on international accounting also signified that accounting quality is increased in nations that has common law origin. The enforcement process is anticipated to impact the required quality of financial reporting in consideration to IFRS. Research conducted by Weetman (2017) also signified that there are some likely advantages of IFRS introduction that is quite complex to achieve devoid of existence of suitable mechanisms of enforcement. These researchers also revealed a vital factor related with accounting standards quality that was used before in the given nation. In case the standard is observed to have low quality, some positive impacts of changing a standard indicates a company’s economic value to be more important. André, Filip and Paugam (2015) explained that the intensity of differences among the IFRS and the local GAAP have been replaced and this is observed to be significantly different. For this reason, it is reasonable to explain IFRS impact on analyst performance that is different in numerous nations.
Quality of Financial Reporting Measurement
Perera and Chand (2015) explained that value relevance model is suitable in analyzing quality of financial reporting information through taking into consideration the relationship between accounting figures and reactions of stock market. The stock price is estimated to indicate market value of the company and accounting figures signify company vale relied on accounting techniques. Beuselinck et al. (2017) gathered there is a situation where two of these concepts gets correlated including accounting information changes with respect to a company’s market value changes. In such case earnings information offer important and suitable information. In contrast, Leuz and Wysocki (2016) stated that accrual methods and literature on value relevance have a faithful reliability that is consistent for the reason that such notions are explained as fundamental qualitative characteristics. Moreover, such literature does not differentiate between reliability and importance which does not indicate whether or not tradeoff was conducted when generating accounting figures. Moreover, the stock market might not be totally effective. For this reason, share prices might not indicate the company’s market value in an accurate manner.
Beuselinck et al. (2017) indicated that methods that operationalize the qualitative characteristics focus on evaluating the quality of distinct aspects of information simultaneously in making sure the decision usefulness of financial reporting information. These researchers also developed questions indicating to different qualitative characteristics useful for evaluating the quality of information. Moreover, certain research signifies that qualitative characteristics might be made operational, their operationalization is not complete and center totally on faithful and relevant information. According to Leuz and Wysocki (2016) understandability, timeliness and comparison are deemed to be less vital than faithful and relevant representation. For certain comprehensive evaluation it is vital to encompass them within the analysis. Additionally, the overall report might be taken into consideration as financial reporting includes both the financial and non-financial information.
Conceptual Framework
IASB and FASB indicated their commitment regarding development of a common set of superior quality accounting standards that might be employed all through the world. Due to such reasons, Ball, Li and Shivakumar (2015) considered the consequence of the joint project in order to converge IFRS based on principles along with rules based GAAP. Both of these accounting standards have considered to develop a conceptual framework that encompass the financial reporting objectives along with associated qualitative characteristics. Certain accounting standards are deemed to be relied on such characteristics.
The research is relied on the anticipation that institutional and legal settings is deemed to have considerable effect on accounting quality (Akgün 2016). The research will also focus on company specific characteristics along with relevance of reporting company incentives to be salient factors in the IFRS success. The research focus on the anticipation that increased quality accounting might be indicated within superior quality forecast by the financial analysts. In order to address the research question following hypothesis needs to be tested:
The better the implementation of the necessary accounting standards, the more the IFRS introduction is expected to increase the accuracy of the forecast.
For the reason that an increased array of emotional and cognitive biases that impacted, measured and was recognized in various manner, it is not easy to test such hypothesis on the biases together (Adeyemo et al. 2017). The research will also center on endowment and loss aversion bias and it is also predicted that such to be emotional biases. This will considerably be different impacting the decisions at the group and individual levels.
Following an identical conceptual framework presented in the research, it will begin at the personal level studying the emotional decisions of every member of the group. The research will also focus on realizing the characteristics along with all the group member’s emotions (Du, Givoly and Alhusaini 2017). The research will also explain the ways in which the emotions and characteristics of group members are associated to form an effective combination. Participants selected for the research will be different as per their prior knowledge base, previous investment experience and will encompass both professional along with non-professional investors.
Conclusion
The research will focus on analyzing the ways in which consolidated statements quality improvement takes place from necessary IFRS adoption. The results of the research will also explain that implementation of IFRS can result in better compliance with OECD corporate governance principle associated with high quality transparency and disclosure. The research proposal also indicated that there is numerous theoretical motivation of the current research. The results of this research will facilitate in gaining additional viewpoints regarding IFRS literature from an advancing economy. This is considering the fact of financial statement along with market impact of IFRS implementation. IASB and FASB indicated their commitment regarding development of a common set of superior quality accounting standards that might be employed all through the world. Both of these accounting standards have considered to develop a conceptual framework that encompass the financial reporting objectives along with associated qualitative characteristics. Certain accounting standards are deemed to be relied on such characteristics
References
Adeyemo, K.A., Ajibolade, S.O., Uwuigbe, U. and Uwuigbe, O.R., 2017. Mandatory Adoption of International Financial Reporting Standards (IFRS) by Nigerian Listed Banks: Any Implication for Value Relevance?. International Journal of Accounting Research, 3(1), pp.21-33.
Akgün, A.?., 2016. Quality of the Financial Reporting within the IFRS: Research on Determining the Attitudes and Evaluations of Financial Information Users. Muhasebe ve Finansman Dergisi, (69).
André, P., Filip, A. and Paugam, L., 2015. The effect of mandatory IFRS adoption on conditional conservatism in Europe. Journal of Business Finance & Accounting, 42(3-4), pp.482-514.
Ball, R., Li, X. and Shivakumar, L., 2015. Contractibility and transparency of financial statement information prepared under IFRS: Evidence from debt contracts around IFRS adoption. Journal of Accounting Research, 53(5), pp.915-963.
Beuselinck, C., Joos, P.P., Khurana, I.K. and Van der Meulen, S., 2017. Which Analysts Benefited Most from Mandatory IFRS Adoption in Europe?. Journal of International Accounting Research, 16(3), pp.171-190.
Du, K., Givoly, D. and Alhusaini, B., 2017. The Impact of the Codification of Accounting Standards on Compliance and Reporting Costs, and its Usefulness for Empirical Research.
Leuz, C. and Wysocki, P.D., 2016. The economics of disclosure and financial reporting regulation: Evidence and suggestions for future research. Journal of Accounting Research, 54(2), pp.525-622.
Li, S., Sougiannis, T. and Wang, I., 2017. Mandatory IFRS Adoption and the Usefulness of Accounting Information in Predicting Future Earnings and Cash Flows.
Perera, D. and Chand, P., 2015. Issues in the adoption of international financial reporting standards (IFRS) for small and medium-sized enterprises (SMES). Advances in Accounting, 31(1), pp.165-178.
Tschopp, D. and Huefner, R.J., 2015. Comparing the Evolution of CSR Reporting to that of Financial Reporting. Journal of Business Ethics, 127(3), pp.565-577.
Vidal-García, J. and Vidal, M., 2016. IFRS harmonization and foreign direct investment. In Analyzing the Relationship between Corporate Social Responsibility and Foreign Direct Investment (pp. 31-48). IGI Global.
Weetman, P., 2017. Financial reporting in Europe: Prospects for research. European Management Journal.
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