Impacts Of IAS-38 On Financial Statements, Organizational Management, And Business Productivity

Discussion

Discuss About The Journal Of Accounting And Economics Studies?

IAS-38 is an intangible asset outline that lists the requirements for managing intangible assets. It helps a business recognize, make use of and allocate any intangible assets into the business’s production system. Intangible assets are those without physical or material touch, i.e. they are non-monetary. The IAS enable a business evaluate the assets according to its policies and rules. The introduction and adoption of the IAS into the accounting practices of a business will certainly cause changes. Adoption of the IAS is one of the most significant practice in the modern business world. Recently, most companies have started using the IAS policies and rules in managing and modifying their accounting operations. The reason for this is the fact that the accounting policies change with improvement in technology and desire for general business development and growth (Achim and Chi?, 2014). This means that with the improvement in the world’s aspects, the business world also desires improvement. Most businesses expect the adoption to cause more positive changes or effects than negative effects. For instance, the businesses expect positive effects in their productivity, their decision making processes, management methods and techniques, their investments activities, their performance measures or performance indicators, increase in productivity, financial statements reports to name just but a few. On the external world, the businesses anticipate an improvement in economic change, increase business value, better business brand and name value among other things (Beke, 2011). However, the main issue that makes businesses adopt the IAS system is to improve its financial management practices. This is simply because most of the policies and rules governing IAS relate to financial control and management. They are likely to affect a business’s financial status that any other aspect of the business. Therefore, this is the main purpose for using IAS in a business (to manage financial status of a business, i.e. either tangible or intangible financial factors or assets.

Impacts of adoption of AIS- 38 around the World

The use of IAS-38 is the same for many countries but the impacts are different in each country as well as in every organization. However, the impacts lie entirely along the accounting or financial status of a business organization. The following are some of the impacts:

The application of intangible assets in any business organization leads to interference and causes disruption to the financial statement records analysis. The adoption of these rules is set to change issues like the shareholder’s equity, goodwill value or measure and the organization’s net income (Nicoleta et al, 2011). These aspects include most business’ intangible assets. The financial statements should be present and show the value and status of a business’s financial position. These statements include the financial position statement, the profit and loss account statement, and the cash flow statement. According to Hung and Subramanyam, 2007, all of the above statements change but the statement of financial position change more than the rest. It is supposed to indicate the value of the tangible and intangible assets of the business. However, due to the adoption of the IAS rules in the business, these assets values change. In most cases, the total assets and the book value of equity is higher when done using the IAS. On the other hand, when in normal case or other rules, the total assets are mostly less than their value. In addition to that, most researchers have found that the use of IAS can lead to a change in the economy indirectly. Apparently, even though the impact on financial statement is direct that of economic change is indirect. In general, it is clear that the IAS insists on fair values as well as on valuation of a business’s balance sheet.

Impact on the analysis of the company’s financial statements

When businesses adopt the IAS rules and regulation, they management team usually has more control and power over the organization in general. This means that the managers become more responsible and accountable for the business operations (Zéghalet al, 2011). The adoption encourages the management to improve its communication techniques because in case of any change, there must be an explanation offered by the managers to the owners or stakeholders. The fact that there is clear, relevant, understandable and reliable information for the managers to use, they are then able to make very wise and effective decisions especially those that relate with the organizations financial status (Renkas et al, 2015). This is simply because the adoption encourages the documenting of actual, correct and valid data on all business aspects for future use (Palea, 2013). For instance, with the IAS adoption, the business can report reliable data on business profit or revenue levels, expenses, asset value, business liability position and its equity status. The management gets the opportunity to do an excellent job with the adoption of the IAS that leads to better investments opportunities as well. The adoption can take part in creation partnerships and mergers for businesses. Most business organizations do not value partnership and not gaining anything from any process, especially when businesses are in partnership with another (Renkas et al, 2015). Therefore, the adoption of the IAS creates an opportunity for both businesses to come together and learn from each other. Through the adoption, a business is capable of widening and expanding its business operations further in the future.

A business’s productivity levels influenced by the use of IAS: When businesses make use of the IAS effectively and efficiently, its productivity becomes hence better economy and wealth as well. The businesses that use IAS have an effect on a countries economic change in an indirect way. The relationship between IAS and productivity considered as the relationship between IT and Productivity. The IAS involves the use of professional accounting rules and techniques that ensure good quality, effective and efficient information for the business (Csebfalvi, 2012). In that case, the use of IAS ensures clear, reliable and valid information documentation especially the financial information that helps the investors, financiers, business partners, creditors and suppliers among others. The use of IAS will ensure effective use, utilization and allocation of the businesses finances. This includes in operations like investment opportunities, human resource hiring or employee rewarding, technological improvements among other things. This kind of business operations are the ones in charge of contributing to business productivity. On the other, they make use of the organizations resources and finances, i.e. the assets and revenues. Therefore, when a business uses the IAS rules and regulations effectively, it will be simply be increasing its productivity. In addition, any business that is productive indicates that its incomes or revenues are also high and investments productive. IAS policies control these incomes, revenues and investment levels and values. Therefore, with the use of IAS, a business will certainly be able to control and manage all of its finances (Fera, 2016). With that in mind, it is clear that the use of IAS in a business can affect its productivity. In other words, it can increase its productivity if used in the right manner or decrease its productivity when used in the wrong manner.

Effect of Organizational Management and Decision Making Process

There is a positive relationship between the impact of IAS use and a business’s performance and strategic practices. The performance measures of a business are the indicators that businesses use to determine their performance levels. The performance measures are responsible for evaluating the effectiveness and efficiency of every manager’s action (objective and goal set). Therefore, it is comparing what a business achieves with its originally set goals and objectives, which means that the performance measures are the control and guiding aspects (Pálka et al, 2011). This comparison is the one that assess the financial and non-financial performance of the organization. Therefore, the use of IAS will certainly affect the both the financial and non-financial practices and performances of a business organization. Then measuring business performance, a budget is one the key aspects to consider. Every business makes an annual financial plan for the operations of the business in the next year. This plan is composed of both the asset and financial valuation, which are the aspects that change caused by the use of IAS (Yurisandi and Puspitasari, 2015). In addition to that, the adoption of IAS affects the performance measures of a business because they change the characteristics of recording, analyzing, evaluating and valuing the aspects used in determining business performance (Lara et al, 2008). To be specific, the use of IAS affects the management accounting of a. organization. This is an important issue and practice in measuring business performance. Furthermore, IAS modifies the characteristics of these measures to fitting into its rules and policies. It is clear that adoption of IAS can affect the performance measures of a business by changing their characteristics and policies and makes them fit into its own policies.

Conclusion

From the research and the information found in the journals, the adoption of IAS in business accounting operations can bring great effect. This is simply because the policies and rules listed by the IAS at most times are different from those that guide business operations. However, the main effects relate to operations that depend on an organization’s financial support. The IAS policies mostly change the techniques and methods of handling a business’s assets and finances. On the other hand, other impacts include aspects like, productivity increment, Increase in business performance, changes in the management methods and processes, change of an organization’s performance measures. Therefore, when the IAS policies involved in a business in an effective and efficient manner, it will certainly bring positive change to the business and vice versa.

References

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