Uniform accounting standards produce uniform financial reporting. Discuss and evaluate the above statement in the context of the International Financial Reporting Standards (IFRS)

1064 Words Mar 24th, 2014 5 Pages
In order to answer this question one must first identify what the phrases “accounting standards” and “financial reporting” refer to. Accounting standards refer to the accounting methods used in an accounting system like the IFRS. Financial reporting refers to the representation of financial information, in order to be uniform the financial reporting must be based on a fixed set of rules, invole complete objectivity and no bias. The IFRS (International financial reporting standards) has indeed helped the uniformity of financial reporting. However, in some cases due to subjectivity involved, created by human judgment, the financial information reported may not be uniform. Furthermore the various methods permitted by the IFRS for the …show more content…
Though these judgments are based on a large amount of quantitative data there is a large degree of human judgment involved. Similarly when it comes to depreciating an asset a firm has many options, which as will be discussed later pose other problem, under the IFRS an entity can be depreciated by several methods examples being the straight line and the reducing balance methods. The method chosen depends on the person’s perception of how the value of an asset depreciates over time thus creating a subjective aspect. It is worth mentioning however that this subjective component is crucial in capturing the realistic changes in value of an asset. If there were a rule stating that the only method allowed was the straight line though uniformity would be created across financial reporting a degree of realism would be removed for example a piece of agricultural land could degrade exponentially each year suggesting that an alternative method would be more accurate in capturing the value over time.

Another problem associated with the IFRS, in relation to uniform financial reporting, is that there are many methods one can use to present financial information. For example under the IFRS companies can employ one of three cost formulas when reporting inventory expenses, specific identification, first in first out, or weighed average cost. Depending on what cost method is used inventory will be reported differently. Firms in many cases take advantage of this flexibility by employing