Week 2 Assignment
March 13, 2015
United Kingdom Adopted IFRS
IFRS is a set of accounting standards promulgated by the International Accounting Standards Board (IASB), an international standard-setting body based in London. It was designed as a common global language for business affairs so that company accounts are comparable and understandable across international boundaries (Ghosh, 2010). In June 2002, the European Union (EU) adopted an IAS Regulation requiring European companies listed in an EU/European Economic Area (EEA) securities market to prepare their consolidated financial statements in accordance with IFRS starting in 2005 (United Kingdom).
EU countries have four options: require or permit…show more content… The UK has other public securities markets that are not regulated markets, such as The Alternative Investment Market (AIM). Companies with securities admitted to trading on the AIM of the London stock exchange are not subject to the EU IAS Regulation. However, AIM rules require an AIM company incorporated in an EEA country to prepare its consolidated financial statements in accordance with IFRS on or after January 1, 2007 (United Kingdom).
Following the implementation of IFRS, UK has a significant reduction in the cost of equity capital. IFRS make it easier to compare the performance of companies in different countries, rather than each country maintaining its own GAAP, which makes such comparisons difficult.
International comparability of financial statements attracts capital from foreign investors and reduces the barriers to cross-border capital flows. When international accounting standard replace domestic accounting standard, corporate discourse is reduced. This enables investors to monitor managerial performance better because information asymmetry is reduced. IFRS adoption made it easier for companies in U.K to access the capital markets (Lee, 2008).
Based on my research regarding the United Kingdom, U.S. SEC should mandate adopt IFRS. U.S. and U.K are two largest stock markets. The world’s capital markets know no borders. The participants in these markets need high-quality, transparent, and comparable financial information to enable them to make sound