Impact Of International Accounting Standards Adoption On Accounting Firms

Impact of the adoption of IAS 38 around the world

Discuss About The Adoption International Accounting Standards?

Different nations have their different ways and methods of running their local affairs. However, the world has become more unified than it was several decades ago. Unlike how it was many years ago when a nation had the power to only rely on its local requirements, today, there are global standards in almost every field. Accounting is one of the fields why global requirements must be followed. Though there are challenges for the local bodies to submit and adhere to the global requirements, the requirements ensure that the world is moving towards the same direction. Therefore, for all nations with the interest of being part and parcel of the global success, there is no other choice but to submit to the rules and to ensure that every requirement is implemented at a local level. IAS 38 is in place to ensure that there are specific requirements which must be met when it comes to identifying an intangible asset. The adoption of IAS 38 has different effects on the nations which choose to do so.

The world has become more diverse in the modern world than it has ever been before. However, it does not mean that every nation has changed to accommodate the diverse global citizens. Each nation; even the most civilized and democratic have their local mechanisms which help them in ensuring that the local affairs are looked after (Paananen & Lin 2012, p. 48). Therefore, it is apparent that any global requirement comes with its effect if it is to be implemented at the local level. However, there is a need to know those nations are different when it comes to the matters of accounting. There are nations whose local requirements are close to IAS 38 requirements (Cheung et al. 2014, p. 251). Nations with almost similar requirements do not have so many adjustments to make to meet the requirements of IAS. At the same time, there are nations which have local structures which have different requirements and such nations are faced with a difficulty in implementing IAS 38 (Gallery et al. 2012, p. 260). The impacts of IAS 38 depends on the local mechanism of a nation and the accounting industry. Adoption of the IAS 38 has two impacts on accounting firms. The first impact is associated with the management of the firms and the second impact is associated with the financial statements of the firms. There is also need to know that the impact has both negative and positive results on the firms affected.

The impact of IAS 38 adoption on management

The management of any given firm plays a crucial role in making sure that the operations of the specific organization are efficient and effective. When it comes to the impact of IAS 38 adoption on the management, there are both positive and negative impacts. At the same time, the impacts are divided into two different categories; pre-adoption and post-adoption (Cordazzo 2012, p. 123). In pre-adoption, the impacts are associated with the process of making sure that the organization adheres to the IAS requirements. However, when it comes to the post-adoption stage, the company has already adopted the requirements, and the impacts are evident (Nobes 2016, p. 241). The positive results or impacts are associated with the post-adoption process while the negative impacts are associated with the pre-adoption stage.

IAS 38 demands for a firm to implement the requirements fully. Full implementation of the requirements means that the firm has to either change its management or has to bring in professionals with the IAS 38 knowledge (Callao et al. 2017, p. 150). Implementing new requirements might affect the processes of the firm or disrupt its growth. In accounting, just one requirement is likely to come along with many consequences. Implementing requirements which were not in place before means that the management might get confused in the process and that can negatively affect the firm.

Post-adoption of IAS 38 comes with numerous benefits. At this point, the firms have already adopted the new global accounting requirements thus making them part and parcel of the global accounting community (Chalmers et al. 2016, p. 245). The impact of IAS at the post-adoption stage is from different perspectives. The first perspective is associated with the way the consumers in the industry view the firm and the second perspective is the way the operations of the firm start taking shape and fitting in the global world perfectly. One of the reasons why there are global requirements in different industries is for the stakeholders to have the key to access the global market. For example, when an accounting firm in Australia meets the IAS 38 requirements, it has the capability to serve clients in Canada or the United States without difficulties (Stolowy 2012, p. 149). Therefore, if a firm can adopt the IAS 38 requirements, then, the impact is likely to be positive since it makes it easy for the firm to operate in any global market.

The impact of IAS 38 on financial statements

Organizations cannot survive without the clients (Covrig et al. 2017, p. 50). Therefore, when an organization creates a good image or impression before the customers, it is likely to increase its profits due to the increased number of the customers. For example, there are companies like Coca-Cola and Wal-Mart which have branches in different regions in the world. A company like Wal-Mart would likely look for an accounting organization which has met the global standards to work with, and that puts the accounting firms which have adopted the IAS 38 in an advantageous position. Therefore, the post-adoption stage proves to have a positive impact on local firms.

Financial statements of any given firm are dictated by efficiency and productivity of an organization. When an organization is efficient in its operations, it is likely to decrease wastage, increase its customers and enhance accuracy thus having a positive impact on its finances (Lantto & Sahlström, 2012, p. 350). When it comes to the adoption of IAS, there is a need to be enlightened that the process does not only entail adopting requirements. IAS comes in with a lot of credible and reliable accounting information which helps the accounting firms to be more enlightened on how the global accounting takes place (Daske et al. 2013, p. 500). The information is not only at the disposal of the company and its staff, but it is also available for the clients who might have the interest to work with the accounting firm. Accuracy in organizations which have adopted IAS has been one of the benefits which many organizations have attested to gain (Oliveira 2013, p. 252). At the same time, there is a need to understand that economic effects are likely to a firm which has complied with the IAS. Putting into consideration that this is a firm that agrees to the terms of the global accounting requirements, the global economic effects are as well likely to affect its financial statements. Therefore, it is apparent that the adoption of the IAS 38 has both negative and positive effects.

Conclusion

IAS 38 requirements provide a good opportunity for the organizations willing to be team players in the global accounting arena. However, it is apparent that the adoption of the requirements does not come without impacts on the firms trying to adopt and implement the requirements. Just like in other strategies, the adoption and implementation of the IAS 38 have both positive and negative impacts. In the business world, change is inevitable, and this is because the global world is changing fast and for an organization to target the global consumers it has to keep up and adopt global standards. In the process of implementing IAS requirements, there are different changes which a firm must make, and this is because the firm was earlier guided by the local accounting requirements. In the process of fitting in the IAS into the local operations, restructuring the management might take place, and that might be a cause of disruptions in the firm processes. Therefore, the adoption at this specific stage has a negative effect on the firms. However, there is a need to know that the adoption of IAS comes in to assure that firm that it has the capability to operate at a global level rather than a local level. Therefore, upon the adoption and implementation of the IAS 38, a firm has the opportunity to dine with other global organizations on the accounting industry table. There is also need to note that the impact of the IAS 38 can be dictated by the firm’s requirements. Some firms have requirements which only need a few modifications to fit into the IAS, and that means that the impact is not as dire as in firms which have requirements which are contrary to the requirements of the IAS 38.

References

Callao, S, Jarne, J. and Laínez, J 2017, ‘Adoption of IFRS in Spain: Effect on the comparability and relevance of financial reporting’, Journal of International Accounting, Auditing and Taxation, 16(2), pp.148-178.

Chalmers, K, Clinch, G and Godfrey, J 2016, ‘Adoption of international financial reporting standards: impact on the value relevance of intangible assets’, Australian Accounting Review, 18(3), pp.237-247.

Cheung, E, Evans, E and Wright, S 2014, ‘The adoption of IFRS in Australia: The case of AASB 138 (IAS 38) Intangible Assets’, Australian Accounting Review, 18(3), pp.248-256.

Cordazzo, M 2012, ‘The impact of IAS/IFRS on accounting practices: evidence from Italian listed companies’, Séminaire DEMA/ERM.

Covrig, V, Defond, M and Hung, M 2017, ‘Home bias, foreign mutual fund holdings, and the voluntary adoption of international accounting standards’, Journal of Accounting Research, 45(1), pp.41-70.

Daske, H, Hail, L, Leuz, C and Verdi, R 2013, ‘Adopting a label: Heterogeneity in the economic consequences around IAS/IFRS adoptions’, Journal of Accounting Research, 51(3), pp.495-547.

Gallery, G, Cooper, E and Sweeting, J 2012, ‘Corporate disclosure quality: lessons from Australian companies on the impact of adopting International Financial Reporting Standards’, Australian Accounting Review, 18(3), pp.257-273.

Lantto, A, and Sahlström, P 2012, ‘Impact of International Financial Reporting Standard adoption on key financial ratios’, Accounting & Finance, 49(2), pp.341-361.

Nobes, C 2016, ‘The survival of international differences under IFRS: towards a research agenda’, Accounting and business research, 36(3), pp.233-245.

Oliveira, L, Rodrigues, L and Craig, R 2013, ‘Intangible assets and value relevance: Evidence from the Portuguese stock exchange’, The British Accounting Review, 42(4), pp.241-252.

Paananen, M and Lin, H 2012, ‘The development of accounting quality of IAS and IFRS over time: The case of Germany’, Journal of International accounting research, 8(1), pp.31-55.

Stolowy, H, Haller, A and Klockhaus, V 2012, ‘Accounting for brands in France and Germany compared with IAS 38 (intangible assets): An illustration of the difficulty of international harmonization’, The International Journal of Accounting, 36(2), pp.147-167.