1. Meaning of IFRS
The IFRS also known as the International Financial Reporting Standards are the standards issued by IFRS foundation and the IASB in offering common global language for the organization affaires so as an organization accounts are clearly understandable as well as comparable across the international boundaries (De George, Li & Shivakumar 2016). Besides, the IFRS are consequence of the growing international shareholding as well as trade and are specifically significant for organizations that have their business or operations in numerous nations. In other words, the IFRS are rules followed by the accountants in maintaining the books of accounts that are relevant, comparable, reliable and understandable as per user external or internal (Lourenço, Branco & Castelo 2015). Basically, the IFRS are the set of international accounting standards indicating how specific forms of the transactions or dealings as well as other activities ought to be reported in the financial statements. They are usually issued by IASB and specify exactly how the accountants should report and maintain their accounts. They are also the rules established to have mutual accounting linguistic so as accounts and businesses could be assumed from organization to organization and nation to nation (Brown 2013). They are aimed at maintaining transparency and stability all across the financial world. This permits individual investors and businesses to make some educated and comprehensive decisions, since they are in a position to view exactly what is happening with an organization where they wished to invest. Formerly referred to International Accounting Standards, the main goal of the IFRS is to accomplish transparency and uniformity of the accounting principles which are deployed by organizations for the financial reporting across the globe (De George, Li & Shivakumar 2016).
2. Factors That Are Causing Some Concerns on the Effect of the Adoption of the IFRS
Several countries require the IFRS while preparing the financial statements. Despite the adoption, there are several factors that are causing major concern on the effect of adoption of the IFRS. The adoption of IFRS requires organizations to recognize, disclose and present financial information in a very transparent manner (De George, Li & Shivakumar 2016). The second factor causing some concerns on the prospects of the adoption of the IFRS is the use of the fair value accountings that necessitates liabilities and assets reassessments to be clearly approved over profit and loss both the upsurges in incomes as well as leverage processes of the unpredictability and takes significantly more exertion to execute (Lourenço, Branco & Castelo 2015). The third factor is the fact that IFRS do not offer more insight into organization risk than the existing accounting standards.
(a) Whether there is any empirical evidence in support of the factor
i. The first factor: organizations are needed to recognize, disclose and present the financial information in a diverse manner
There is some empirical evidence in supporting this aspect. For instance, adoption of the IFRS within Australia also necessitates or calls for the organizations to recognise, the share-based dealings, which was not done previously. In fact, accounts of organizations adopting the IFRS vary from those of organizations utilizing diverse national accounting standards (De George, Li & Shivakumar 2016).
ii. use of the fair value accountings that necessitates liabilities and assets reassessments to be clearly approved over profit and loss both the upsurges in incomes as well as leverage processes of the unpredictability and takes significantly more exertion to execute.
There is empirical evidence that the fair value of the accounting produce more volatility. For instance, in a study by Chand Patel and Day (2008) examining fair value of the US banks’ investment stocks established that the fair value-based earnings were more volatile compared to the historical-based earnings. Therefore, use of the fair value accounting result in complaints that it sometimes introduces some volatilities in the reported profits or earnings, as the revaluations ought to be clearly brought in the profit and loss statements.
iii. IFRS do not offer more insight into organization risk than the existing accounting standards.
There is some empirical evidence on the above factor which could include type of the risk being disclosed and its effects on the financial position and profit of an organisation; difficulty in the risk in comparison with audit of the financial reports which are primed under the national standards.
(b) Whether the analysis resulting from the above aspects to concerns on adoption of the IFRS naturalistic or scientific?
i. The first factor: organizations are needed to recognize, disclose and present the financial information in a diverse manner
The evidence utilised in this factors of concern is naturalistic in case it is evidence from organization’s individual accounts which underpins claims by the individuals in numerous scenarios. Such accounts have already been observed by different persons who have been concerned on the nature of variations needed under the IFRS (Lourenço, Branco & Castelo 2015). Nonetheless, in case the research study is already conducted, for instance by the academics, then this research is more likely to adopt scientific approach in analysing numerous organization’s financial reports or in modernisations of the organisation’s historical financial reports, in order to generate overall conclusion in an outlook that organizations are needed to recognise, disclose and present the financial evidence inversely from its present technique.
ii. use of the fair value accountings that necessitates liabilities and assets reassessments to be clearly approved over profit and loss both the upsurges in incomes as well as leverage processes of the unpredictability and takes significantly more exertion to execute.
Evidenced utilized as basis for this claim is usually naturalistic in case it is the evidence from organization’s individual accounts which underpins this claim by individuals in numerous scenarios. Such accounts are observed by the individual organizations who are concerned on the increase in the leverage and earnings volatility which is reported under the IFRS. Nonetheless, in case a research is carried out by scholars, then the research is probable to be following the scientific technique in examining numerous organizations’ financial reports or in rebuilding of the previous financial reports, to turn into overall conclusion, statistically verified, on an outlook that the unpredictability of the earnings and leverages increases once the IFR is adopted (Lourenço, Branco & Castelo 2015).
iii. IFRS do not offer more insight into organization risk than the existing accounting standards.
Evidenced used as basis in support of this claim is usually naturalistic in case it is the evidence from an individual learning to auditing or prepare organisation’s accounts which underpins this claim by an individual in numerous scenarios (Lourenço, Branco & Castelo 2015). Nonetheless, in case the study has been carried out by academics, then it is more likely to follow scientific technique in analysing time spend by the auditors or accountants in relation to several organization’s financial statements or the reconstruction of the previous financial statements or statements post- and pre-IFRS adoption (Howieson 2009).
(a) Whether agree or disagree with the change
The year 2005 is particularly significant milestone for numerous countries in terms of the mandatory IASB adoption. Therefore, I totally agree with the changes since adoption of AISB is said to trigger greater or higher investors’ capacity in making informed financial decisions, reducing confusion which might arise from existence of numerous means to measure the financial performance and status in different nations, resulting in decreased or lessened financial risks for the stockholders and lessens expenditure of the resources for organizations. Two, adoption of the AISB would result in reduced costs linked with preparation of the financial data in accordance with numerous sets of the standards (Howieson 2009). Third, the adoption of AISB would result in greater incentives for the international investment.
(b) The parties who stand to gain from adoption of the IASB standards?
According to Chapple (2014) a number of stakeholders would benefit or gain from implementation of the new IASB standards. One, investors stands to benefit through IASB standards adoption (Howieson 2009). Financial theory indicates that the investors might gain from the internationally diversifying their investment since performance of the individuals national capital are not properly correlated and the international markets usually present an opportunity that is not relatively available domestically. In this case, adoption of the AISB standards is said to reduce capacity of the investors in doing such since diversity create relatively much uncertainty as well as confusion as the investors try to assess and compare the financial statements from diverse nations. For instance, Chapple (2017) commented that variations in the accounting standards could fully obscure the comparisons of the equity values in between nations, between organizations or even between sectors.
Two, government would also gain through the implementation of the new IASB standards by 2005. Basically, government is said to gain most from this adoption related to increased propensity for the firms to internationalise their key operations, investment and financing activities all over the foreign stock exchange market, reliance on the foreign creditors and investors as well as development of the multinational group (Chapple 2014).
Three, accountants stand to gain from the adoptions of the AISB standards in that the increasingly complicated standards tend to restrict supply of the audit services as a result of increased cost of the entrance in the audit market, while at similar period increasing demand for the audit services. Basically, the firm accountants would be better placed in monitoring activities of their worldwide dispersed personnel base as well as develop the standardised personnel training programs. Use of the common base of the standards would further evade duplication of the resources across departments located within different nations, with particularly single set of the policy guideline being made.
Another group that is more likely to gain from this adoption is the organizations. Organizations might gain from the adoption through cost savings linked with removal of need to restate or reconcile the financial statements with the aim of meeting the foreign accounting standard needs (Howieson 2009). In essence, the standards result in improved capacity for the organizations to attract more finances from the foreign investors as well as lowering costs of the capital due to improvement in quality as well as comparability of the financial reporting.
(c) Parties to lose from adoption of the IASB standards
Auditors stand to lose with adoption of the adoption of the AISB standards since the standards restrict supply of the audit services as a result of increase in cost of the entrance to audit market while increasing demand for the audit services. In essence, the complexity of these standards further suggested improving qualitative outlook of profession, hence, offering justification for relatively higher prices (Howieson 2009).
References
Brown, P 2013, ‘Some observations on research on the benefits to nations of adopting IFRS,’ The Japanese Accounting Review, 3(2013), 1-19.
Chand, P, Patel, C & Day, R 2008, ‘Factors causing differences in the financial reporting practices in selected south pacific countries in the post-convergence period,’ Asian Academy of Management Journal, 13(2).
Chapple, S 2014, Adoption of International Financial Reporting Standards in Australia: structure, agency and unintended consequences.
Chapple, S 2017, ‘IFRS adoption in Australia: A strong structuration perspective,’ Accounting History, 1032373217741142.
De George, ET, Li, X & Shivakumar, L 2016, ‘A review of the IFRS adoption literature,’ Review of Accounting Studies, 21(3), 898-1004.
Howieson, BA 2009, ‘Agenda formation and accounting standards setting: lessons from the standards setters,’ Accounting & Finance, 49(3), 577-598.
Lourenço, IM, Branco, M & Castelo, D 2015, ‘Main consequences of IFRS adoption: analysis of existing literature and suggestions for further research,’ Revista Contabilidade & Finanças, 26(68), 126-139.
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