International Accounting Standards And Financial Reporting Quality

The high number of adopting IFRS nations emphasizes its importance and its advantages. In fact, the quality of accounting in the organizations that apply IFRS is higher than the organizations that don’t apply IFRS (Barth, Landsman & Lang, 2008) where they make comparisons in a 21 nations companies’ sample. So, it can be said that IFRS have an advantage of increasing the quality of accounting in the firms and organizations. Moreover, there is a good relation between IFRS adoption and the firm value (Karamanou & Nisgiotis, 2009). since this study examined firms after changing from the domestic system into the IFRS adoption and it is founded that firm obtain untypical returns after applying IFRS, it means

Reporting quality would improve under IFRS as the adoption of the standards listed above would reduce creative accounting practices and this would cause significantly negative impact on shareholders’ equity. Polychroniadis(2002)

The U.S Generally Accepted Accounting Principles and the International Financial Reporting Standards are the two major accounting standards used by accountants today. The GAAP is currently used only by firms in the United States, while the IFRS is used by firms in 110 countries, including those in the European Union. The U.S Securities and Exchange Commission is in charge of GAAP for public companies, while the Financial Accounting and Standard Board overlooks private companies. The standards for IFRS are set by the International Accounting Standard Board. The main difference that separates the GAAP and the IFRS is that the GAAP was constructed based on rules, while the IFRS was created based on accounting principles. Although there are many similarities in the way most things are done, there are also striking differences regarding the way financial statements are reported, including inventory valuation, balance sheets presentation, asset definition, etc. This paper seeks to identify some of the major discrepancies between GAAP and IFRS, and present arguments people have made for and against converging the two standards.

Coming back to convergence, for the past several years the IASB and IASC before 2001, have been working to develop high quality, easy to understand, and practicable International Financial Reporting Standards to serve investors & creditors, around the world in globalized capital markets to make investment decisions. When IASB took over from the IASC in 2001, few countries back then had accepted and practiced International Accounting Standards. Everything changed with the

Across the world, many businesses and markets have adopted the use of the International Financial Reporting Standards (IFRS). People and organizations in the business world are increasingly demanding conformity and this has necessitated the shift from the U.S Generally Accepted Accounting Standards to the IFRS. However, in the United States, there is still much reluctance to adopt this change and these has caused a lot of heated debate on whether the businesses and markets should conform to the rest of the world.

The purpose of this report is to address the complexity of financial reporting and how the International Accounting Standards Board (IASB) intends to do address this problem through its ‘Disclosure Initiative’.

Many companies are looking to adopt this standard for better quality accounting and reporting and so I will be looking into the issues with IFRS such as measurement and reporting of profit, implications of adopting IFRS, the reintroduction of the concept of prudence and other proposed changes to the conceptual framework.

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) oversee the standards for both the US GAAP (Generally Accepted Accounting Principles) and the IFRS (International Financial Reporting Standards). With the proliferation of global business and ever growing markets, an attempt has been made within the last ten years to align both standards the two standards. The US GAAP has always given the guidelines and steps for American companies to follow when preparing their financial statements. Whereas the IFRS has always been more of standardized language to use in accounting practices internationally. The following is a brief analysis of changes, differences and outcomes from this transition.

Before 2001, none of the major economies in the world requires the use of International Financial Reporting Standards (IFRS). However, since IFRS was adopted and required by the European Union (EU), IFRS is currently the most widely shared set of accounting standards with its application required or permitted by approximately 120 countries as indicated by the IFRS Resources (2015). IFRS, perceived as “a single set of high-quality, understandable and enforceable accounting standards” (IASB, 2007, p.4), shows its prevalence all around the world. Nevertheless, there are still some opponents against such harmonization. “The likelihood that any U.S. company will be forced to switch from using today’s version of U.S. Generally Accepted Accounting Principles (GAAP) to using today’s version of IFRS is absolutely zero”(2010), said the specialist in corporate financial reporting, Bruce Pounder, doubting the possibility of eliminating differences between IFRS and U.S. GAAP, not to mention sharing a single set of accounting standards in all countries.

In 2001, IASC was replaced by IASB as the board for setting these standards. This board consist of 14 experts having recent practical experience in setting accounting standards. They bought in the strategic working party, which took a new look at IASC’s structure. IASB bought in many structural changes. But one of the most notable change among that was replacing the part-time volunteer board with full-time member. The four main objective of IASB are

The advantages of implementing a common language of financial reporting all around the world, like IFRS, are thought to be many and all of them very significant. One of the most important is the enhanced comparability between the financial reports of different companies in different countries (Jeanjean and Stolowy,2008). By implementing IFRS internationally, investors will have the opportunity to compare international firms between them and help them identify the most appropriate investing opportunity for them. With diversity in accounting standards, an investor will find it very difficult to understand the differences between the different accounting standards (Hicks, 2012). Not being able to compare international companies, may lead to unfortunate investments as the investor will not be able to see and understand the differences between them. Also, by making the financial reports more comparable, the costs of comparing companies in different countries will be reduced (Jeanjean and Stolowy,2008 ). This is a significant benefit to an investor as when they have to compare international companies which use different accounting standards they might need to hire an analyst which can

There are many different types of accounting standards and principles in the business world. It would be difficult for financial markets to operate and compare reports with these different various standards. Therefore, the International Accounting Stands Board have developed a new way of reporting financial information. The International Financial Reporting Standards (IFRS) foundation and the International Accounting Standards Board (IASB) were established in 2001 in order to develop a set of high quality and acceptable financial accounting standards. ("IFRS - Organisation history", 2016). The aim of this report is to firstly summarise the significant changes in the Australian Accounting Standards Board (AASB 15) and how they address perceived deficiencies in the current standards. Then, it will highlight the future implications of adopting the AASB 15 for Australian companies.

(a)On 1 January 2005,all the stock exchange listed companies in Europe adopted the International Financial Reporting Standards (IFRS) written by the international Accounting Standards Boards. According to IASB, the setting body of IFRS, their primary objective is to develop a set of high quality, transparent ,understandable, global accepted financial standards in the public interest (IFRS 2015) . Furthermore, the statement made by European Commission also explained the benefits including the elimination of barriers to international trades, the increasing of transparency and comparability of company accounts, the improvement of comprehensive strength and the rapid promotion of economic growth (Commission 2002). Based on the public

By adopting IFRS it is expected that the investors and other users of financial statements will be beneficial, by lowering the costs of comparing alternative investments and increasing the quality of information. Investors are ready to invest in the company so company are also getting benefit from IFRS. The company who is involved more in foreign activities will be more beneficial by switching to IFRS. However, Ray j Ball has criticised about overall cost of the international standard. He argues that the implemented of the standards could be careless, and the regional difference in accounting could become hidden behind a label. He is also concerns that fair value important of IFRS and the impact of accountants from non-common law regions, where damages have been recognized in a less timely manner.

Accounting standard set has become debatable topics in regards its function in real business. The standards of accounting have been developed throughout years and many countries has applied different accounting standard. However, as business world has become interconnected, there is an urged in need to have one stand-alone of accounting standards that could use worldwide. Therefore, many countries developed convergence of their accounting standard into International Financial reporting standard (IFRS) by International Accounting Standard Boards (IASB). According to Barth et al (2008) International Accounting Standards Committee (IASC) and the next follower the International Accounting Standards Board (IASB) have a goal to develop an International standard of High quality financial reporting standards. The standard is become important in regards to financial statement users that should enhance the transparency and integrity of each account in the statement. The transparency and integrity have crucial roles towards the effectiveness of capital markets functions, allocation of capital efficiency, and global financial stability and economic growth stability (IASB, 2013).