preview

The Pros And Cons Of IFRS

Decent Essays
The attraction of uniform accounting rules consequent on the potent force of globalization drives the widespread adoption of IFRS since 2005. It is indeed impressive that more than 100 counties have adopted IFRS to date; despite it is embraced in differing forms and to a varying degree. Among those, the European Union is a paradigmatic example of mandatory adoption with strong enforcement (with few modifications). The adoption of IFRS in the EU was marked by the enactment of the Regulation (EU) NO. 1606/2002 of the European Parliament and of the Council on the application of international accounting standards (also known as the Accounting Regulation) , requiring all European companies whose debt or equity securities trade in a regulated market…show more content…
For example, it was found an increase in market liquidity and a decrease in cost of capital (Daske et al, 2008; Leuz and Verrecchia, 2000); a larger trading volume (Drake et al, 2010); positive economic consequences in terms of corporate debt financing, especially for bond financing (Florou and Kosi, 2009); and growing investment flows from foreign mutual funds (Covrig et al, 2007). From another perspective summarizing the strand of research is they are overall in the investors’ shoes. They focused on investigating whether investors benefit more from IFRS adoption than its associated costs (Armstrong et al 2010; Lee, Walker and Zeng 2013). For example, arguably, the increased market liquidity is a benefit accruing to IFRS adoption while the impaired investors’ confidence on the reliability of financial information is an associated cost. These studies generate mixed evidence regarding the effect of IFRS adoption and the vast majority of them give conclusions premised on specific assumptions or circumstances such as the existence of financial reporting incentives and inherent strong enforcement (Christensen, et al 2008) as well as well-established investor protection mechanism (Leuz and Wysocki, 2008; Bruggemann et al, 2010). Despite…show more content…
Nevertheless, not enough attention has been paid to auditors, who will concededly be heavily influenced by the accounting rules reform, except for some studies on the consequent audit fee impact within a single country or economic block (Kim, Liu and Zheng, 2012; Vieru and Schadewitz, 2010). This essay is mainly from the incumbent auditors’ angle to investigate how audit risk is affected by the IFRS adoption in the EU and China, but incorporates those forgoing studies in order to identify the expectation gap between practitioners and scholars who speak for investors. Also, by comparison this essay will highlight the specific difficulties facing by Chinese audit market. It is concluded that the audit risk witnesses a rise both in the EU and China but in comparison the rise is much higher and threatening in China for a number of reasons for instance including generally
Get Access