The International Journal of Accounting

Running head: ADOPTION OF IFRS: A CRITICAL REVIEW
Adoption of IFRS: A Critical Review
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Author’s Note

ADOPTION OF IFRS: A CRITICAL REVIEW1
Abstract
The adoption of International Financial Reporting Standards (IFRS) is a major
incident in financial reporting that has contributed towards the inception of a uniform
set of accounting standards for all the companies around the globe. Many countries
like Australia, Nigeria and others have already adopted the IFRS standards with the
aim to comply with the international accounting standards. This report undertakes
the analysis of different aspects of IFRS adoption in Australian and Nigeria. The
findings of the report states that the adoption of IFRS in Australia is more successful
as compares to the same in Nigeria because of the presence of major transitional
issues and challenges in Nigeria in IFRS adoption.

ADOPTION OF IFRS: A CRITICAL REVIEW2
Table of Contents
Introduction...................................................................................................................3
1. Relevance of PAT for Financial Reporting...............................................................3
2. Implementation of IFRSs in Australia and Nigeria...................................................4
i. Reasons for Adopting IFRS and the Time of Adoption..........................................4
ii. Transitional Issue Faced by Australia and Nigeria on Adopting IFRS..................4
iii. Challenges Faced by Reporting Entities on IFRS Adoption................................5
iv. Benefits of Adopting IFRS....................................................................................5
v. Similarities and Differences in the Adoption of IFRSs..........................................6
3. Success of the Adoption of IFRS Standards............................................................6
4. Recommendations....................................................................................................7
Conclusion....................................................................................................................7
References...................................................................................................................9

ADOPTION OF IFRS: A CRITICAL REVIEW3
Introduction
Financial reporting has major usefulness in the accounting profession and it
provides the business entities with the required financial regulation for carrying out
the required accounting works (Frias‐Aceituno et al. 2014). In Australia, the adoption
of IFRS is considered as a major aspect for the financial reporting of the country.
Apart from Australian, many other countries have adopted IFRS standards for the
purpose of financial reporting and Nigeria can be considered as one of those
countries. There are two objectives of this report. The first objective is to discuss
about the relevance of Positive Accounting Theory (PAT) for financial reporting with
the help of two example. The second objective is to shed light on different aspect of
IFRS adoption in two countries that are Australia and Nigeria. Based on the whole
discussion, certain recommendations are provided to the accounting bodies on
IFRS.
1. Relevance of PAT for Financial Reporting
The PAT attempts in making good prediction of the real world events and
translating them in accounting transactions. More specifically, the main concern of
PAT is the prediction of action like the selection of accounting policies by the
financial managers and how the financial managers will respond to the new
accounting standards. In the year 1978, Watts and Zimmerman developed a positive
theory related to the determination of the accounting standards (Ball 2013). They
inquired the factors that influence the attitude of the management on accounting
standards that include regulations, management compensation plan, political costs,
taxes and production of information. According to the argument of PAT, individuals
act with the aim to maximize their own utility and the management of the companies
involve in lobbying the accounting standards on the basis of their own self-interests.
This can be explained with an example. For instance, the organizational mangers
have the incentive of choosing accounting standards that help in reporting lower
earnings because of tax and regulatory and political systems. In this context, it needs
to be mentioned that the size of the firms is the most crucial factor that explains the
behaviour of the managers towards the standards of financial reporting. This can be
explained in this sense that the big corporations are most likely to be subjected to
the costs of government interference (Schroeder, Clark and Cathey 2019).
According to the consideration of the PAT, the primary role of accounting can
be seen in valuing the firms that indicates that efficiency perspective is favoured by
PAT that emphasizes on how different organizational managers choose accounting
methods that demonstrates a true representation of the performance of the firms.
This particular efficiency perspective of PAT can be explained through the
opportunistic perspective which states that the organizational managers are the
agents of the owners and they act towards fulfilling their self-interests (Christensen,
Nikolaev and Wittenberg‐Moerman 2016). For this reason, organizational managers
adopt the kind of accounting regulations and policies that allows them to benefit and
these managers consider that what is good for them is also good for the companies.
In this regard, the PAT has highlighted three key hypothesis that are bonus plan,
political cost and debt hypothesis which help in revealing the motive of the managers
in selecting one specific accounting method on another. For example, organisational
managers who have accounting inventive associated with the performance of the
company will have the tendency of manoeuvring accounting methods in such a