Tuesday 28 June 2011

The key rationales that support and against the development and widespread application of International Financial Reporting Standards

Evidence of support for IFRS
A growing body of evidence indicates that the goal of international convergence of accounting, disclosure and auditing has been widely accepted.

All dimensions of accounting are becoming converged worldwide.
Increasing numbers of highly credible organizations strongly support the goals of the IASB.

National differences in the underlying factors that lead to variation in accounting, disclosure, and auditing practices are narrowing as capital and product markets become more international.

International standards will improve the comparability of international financial information.

Time and money will be saved on international consolidations, the components of which now are subject to different national laws and practices.

There may be a tendency for accounting standards throughout the world to be raised to the highest possible level.

Widespread application of IFRS might also result in:
Improved managerial decision making within multinational enterprises.
Improved allocations of corporate investment money worldwide.
Better international understandability of financial statements. Cost reductions in accounting information processing and financial disclosure costs for multinational enterprises.
Greater international credibility for published financial statements.
Some countries disallow IFRS for domestic firms but allow foreign companies to use them.
U.S. and Japan, for example will allow foreign countries listing on their respective exchanges to file financials prepared in accordance with IFRS without reconciliation to U.S. or Japanese GAAP.

International Convergence Issues
The complicated nature of standards such as financial instruments and fair value accounting
The tax-driven nature of the national accounting regime
Disagreement with significant IFRS, such as financial statements and fair value accounting
Insufficient guidance on first time application of IFRS
Limited capital markets = little benefit
Investor satisfaction with national accounting standards
IFRS difficulties in language translation
Significant differences in standards currently exist.
The political cost of eliminating differences.
Overcoming “Nationalism” and traditions. 
Perhaps it will not provide significant benefits.
It will cause “standards overload” from some firms.
It diverse standards for diverse places is acceptable.

2 comments:

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