This article discusses the efforts of IASB to harmonize the financial reporting environment and the issues in De jure and De facto convergence. It provides answers to Q1 and Q2. The article also highlights the limitations of accounting and financial reporting and the need for continuous training and education for professionals.
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Running head: ACCOUNTING IN CONTEXT (MACQUARIE) Accounting in Context (Macquarie) Name of the Student: Name of the University: Authors Note:
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1 ACCOUNTING IN CONTEXT (MACQUARIE) Contents Answer to Q1:..................................................................................................................................2 Answer to Q2:..................................................................................................................................3 References:......................................................................................................................................5
2 ACCOUNTING IN CONTEXT (MACQUARIE) Answer to Q1: National accounting boards of different countries are the members of IASB. IASB with the support of its members continuously looks to improve the existing accounting and financial reporting standards to achieve harmonization in accounting and financial reporting. The inherent limitations of accounting and financial reporting make it almost impossible to formulate single sets of internationally acceptable accounting and financial reporting standards (Camfferman and Zeff, 2015). Thus, harmonizing the accounting and financial reporting standards is a complex process. However, the continuous efforts by the IASB to formulate better and effective standards toreducethealternativeaccountingprinciplesandpolicieshasimprovetheprocessof convergence over the years (Oulasvirta, 2014). The reason for increase in the number of countries using IASs and IFRSs for accounting and financial reporting purpose is mainly attributable to the efforts of IASB to harmonize the financial reporting environment by using convergence process. Even the US is also moving towards converging its GAAP with the IFRSs. Having a single set of accounting and financial reporting standards such as IFRSs will go a long to improve the quality of financial reporting in all across the globe. The IASB with its efforts has improved the process of convergence. However, the process is a continuous process thus, efforts are still on to improve the process of convergence continuously. Hence, IASB is certainly achieving its objective (Oulasvirta, 2014). Answer to Q2: The issues in De jure and De facto convergence are enumerated below: Official endorsement:
3 ACCOUNTING IN CONTEXT (MACQUARIE) IASB does not have the power to make IFRS compulsory until unless the official endorsement is made via legislation. Often the time lag between release of accounting standards and the endorsement creates the problem of comparability of financial reports between countries using the released standards and the countries not using the standards as the standards are yet to be endorsed (Yuet. al.2017). Issue relating to translation of IFRSs: Translation of IFRSs into different languages, mainly 22 official languages often lead to number of problems such as indifferent meaning of same words in English IFRS and IFRS in other languages. Such differences in words often changes the meaning of the standard to a certain extent. This creates problem in adoption of IFRSs. Issues in interpretation: Interpretation of IFRSs has to be exactly same in different countries otherwise the objective of harmonization in accounting practice would not be achieved. One of the qualitative characteristics, comparability, of financial statements will be hindered if the interpretation of IFRSs is different in different countries. Implementation cost: The implementation cost to prepare three sets of financial statements is likely to lead to a huge burden to a company. The cost to implement the current requirements of IFRSs would increase the cost of accounting and financial reporting significantly. Training and education issue:
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4 ACCOUNTING IN CONTEXT (MACQUARIE) It is important to have continuous training and education model to keep the professional auditors andaccountantsup-to-datewiththeamendmentsinexistingaccountingstandardsand introductionof new accounting standards. Lobbying: The lobbying to satisfy the national accounting standards instead of following IFRSs in preparation and presentation of financial statements is another reason for differences between de jure and de facto convergence (Henisz and Mansfield, 2016).
5 ACCOUNTING IN CONTEXT (MACQUARIE) References: Camfferman, K. and Zeff, S.A., 2015.Aiming for global accounting standards: the International Accounting Standards Board, 2001-2011. Oxford University Press, USA.[Online]Available from:https://books.google.co.in/books? hl=en&lr=&id=6bTlBgAAQBAJ&oi=fnd&pg=PP1&dq=objectives+of+international+accountin g+standards+board&ots=2whpdU6n9T&sig=Pb1ZXpZZBet6nTjaOqx-P- CQd1Q#v=onepage&q=objectives%20of%20international%20accounting%20standards %20board&f=false[Accessed 02 October 2018] Henisz, W.J. and Mansfield, E.D., 2016.The Political Economy of Financial Reform: de Jure Liberalization vs. de Facto Implementation. Working paper. The University of Pennsylvania. Oulasvirta, L., 2014. The reluctance of a developed country to choose International Public Sector AccountingStandardsoftheIFAC.Acriticalcasestudy.CriticalPerspectiveson Accounting,25(3),pp.272-285.[Online]Availablefrom: https://www.sciencedirect.com/science/article/pii/S1045235412001347[Accessed02October 2018] Yu, D., Xu, Q., Xiao, J., Huang, B. and Hu, G., 2017. De jure adoption and de facto implementation of FV accounting in China. InThe Routledge Handbook of Accounting in Asia(pp. 62-88). Routledge.