International Financial Reporting Standards For Cross Border Capital Investments

Globalization has been changing the world. It has interconnected people, nations, and even businesses. Today´s business can share information to investors around the world thanks to the intelligent software of the actual society. Being more specific, the way in which investors and users evaluate businesses performance is through the information contemplated in their financial statements. These financial statements illustrate the current assets, liabilities, and stockholder equity a company has in order to help users take economic decisions. However, not all the companies are regulated to provide the same structuralized information around the world. Each country possesses its own accounting standard that regulates the preparation of financial statements of a company. In that way, companies’ information might differ between countries making the comparability between financial statements difficult to be implemented by users in order to assess the performance of foreign businesses. In view of the need of a globally accepted accounting standard that promotes uniform standards for worldwide financial reporting, the International Accounting Standards Committee (IASC), which then becomes replaced by the International Accounting Standard Board in 2001, was created (Cathey and Schroeder 130). The IASB issues International Financial Reporting Standards (IFRS) that stands as the set of accounting standards that prepare and present the financial

The purpose of this paper is to define accounting, and identify the four basic financial statements. The paper also explains how the different financial statements are interrelated to each other and why they are useful to managers, investors, creditors, and employees.

Literature review. The economic integration and globalization processes increased the need for accounting standards to be more reliable (p21 McCarthy, M., & McCarthy, R. (2014).). The accurate determination of income and

Gray identified four widely recognised accounting values that can be used to understand a nation’s accounting practices, which are professionalism, uniformity, conservatism and secrecy (Doupnik & Perera, 2015, p. 37). Professionalism verses statutory control is understood to be the difference between a nation’s preference for either individual professional judgement and self-regulation

As the complexity of our financial economy develops it is important that our accounting standards progress in accordance. Accounting is very important to the development of the global and local economies. Accounting is basically the gathering, summarizing and presenting of financial information of an entity to interested internal, external and possible investors. This information should be presented in a non-bias way so that other people are able understand.

Why do we study comparative accounting? Countries around the world have different aspects such as taxation, legal systems, culture and colonial influence that differ the way accounting is reported. Ultimately the need for fair presentation is the final objective to comparative accounting. Thousands of years ago when accounting was first practiced, each country practiced financial reporting according to the power and strengths in their country, regardless of how accounting was reported in neighboring countries. Nowadays, because the world is becoming more globalized and harmonized, standard-setters feel the need to report their accounting in a uniform way. The International Accounting Standards Board [IASB] was formed as a non-for-profit

Anglo-Saxon nations separate accounting profit and taxable income , while Austria and China prepare one set of accounts. This leads to overstatement from Anglo-Saxon countries and understatement from Austria and China caused by no change in the accounting values of statutory control, secrecy, conservatism and uniformity. Thus, comparability is limited as understatement means that all ratios are of limited value. A coping mechanism is implementing formal re-statements of financial statements. However, this is difficult to achieve due to cultural influences on accounting policy and

As technological advances force globalization and unified standards upon the world of accounting, the understanding of ethical systems and their role on business becomes a necessity. The goal of accounting is to provide users with reliable and accurate information that is independent and complete. However, if accountants around the world are not subscribing to the same ethical standards and theories, then the urgency to unify standards and practices between U.S. GAAP and the IFRS are no longer significant. With ethical theories being extensive in nature they can result in different outcomes and justifications making them the highest priority in accounting. Required education and training on each system is necessary to understand flaws and contradictions

The importance of information and work in the realm of accounting requires all accountants to remain consistent in standards and ethics. However, perception of an entire culture can shift as seen in the Arthur Anderson debacle in 2002 and the establishment of Sarbanes-Oxley Act (SOX). Also, there is the ongoing concern of global companies attempting to adhere to the same standards and ethics, when social standards differ around the world. Studies show that, “people from different cultures can be expected to hold different implicit theories, which lead to divergent cognitive processes and behavior” (Wong-On-Wing and Lui, 2013, p. 17). Therefore, having an understanding of each ethical system has never been more crucial in organizational culture in the accounting profession. “Accounting ethics incorporate social standards of behavior as well as behavioral standards that relate specifically to the profession”

Accounting rules and practices are wildly varied around the world today, and doing international business in that type of environment presents many difficulties. From language, cultural, and religious barriers to currency differences and accounting practices, it is difficult to see where businesses stand without a common standard to guide them. Some say that education, culture, and sometimes religious differences are the main factors for such variations (McGee & Bandyopadhyay, 2009). It would seem logical if all these differences could be harnessed into one set of accounting standards for everyone to use.

This paper follows the previous papers showing that there are needs for harmonization across the globe in order for accounting standards to not be affected in a negative way. The best way to make this happen is by adopting the same set of standards across the globe and stick by them. This paper will show how the adoption of these standards will benefit countries globally by using the United States alone as an example. As a matter of fact, the effects on U.S. reporting practices are likely to be limited. Nonetheless, there could be a significant impact accounting reporting processes and systems. Therefore our focus will be on the costs to implement the solution. The major out-of-pocket costs will probably occur during the transition phase,

“Accounting is said to be as old as any organized human activity. Dating back to Babylon and Humaraby’s book of law, over Greece and Rome and further on through history, there has always been a need to record events referring to purchase and sale, payment and collection. Such recording originally generated bookkeeping, which at the level of development of production forces was primarily in function of trade and banking. Its further development was according to changes in organization of business activity (Andrijasevic, n.d.).” According to Novicevic and Antic (1999), “until the 70s enterprises in West countries carried out their business in protected competitive conditions.” However, in today’s global economy, markets have become universal, with organizations viewing the world as a platform for carrying out their diverse trades’. To compete successfully in the global market, organizations/ businesses need to prioritize customer satisfaction parameters during business operations. To achieve this, they must concentrate on key success factors such as; costs efficiency, quality, cycle time, and innovativeness. “Quality has become one of the key competitive variables generating the need for evaluation of spending resources needed for the given level of quality by which the company can expect and achieve competitive advantage on the market (Gajic, 2005).”

The phenomenon of globalization has interconnected the world at all levels. The accounting system standardization through IFRS adoption worldwide is one of the steps that countries and multinationals have to deal with.

Moreover, Accounting standard has been made for a better measurement and reflect of firm’s economic position and performance. This International standard has become widely used and However, some researches and specially for those involve in world practices believed the accounting standards are not necessary to

The process of globalization in the financial markets has led to a growing emphasis on the standards that are to be maintained in the global market in accounting terms and has made increased efforts to acquiring the best standards which go along with all the internationally approved standards. The statements that are made in each country differ from each other according to certain laws, rules, standards, etc because the analysis and assessments about each transactions differ. Hence, this sometimes becomes very difficult to interpret because the methods of analysis are different which makes comparison, analysis and assessment quite difficult among different countries (Baker, 2008).