Adoption of IFRS: A critical review

Introduction 3 The relevance of Conceptual Framework in financial reporting and its usefulness 3 Comparing and contrasting the implementation of IFRSs in Australia and UK 3 Reasons for adoption of IFRS by the national accounting bodies 3 Transitional issues faced by the companies 4 Challenges faced by the reporting entities upon adopting IFRS 4 Benefits of adopting IFRSs by the reporting entities 5 Similarity and differences in the adoption of IFRSs 5 Findings on the success of the adoption of IFRS 5 Recommendations to the national accounting setting bodies 5 Conclusion 6 Reference list

Running head: ADOPTION OF IFRS: A CRITICAL REVIEW
Adoption of IFRS: A critical review
Name of the Student:
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Author Note

1ADOPTION OF IFRS: A CRITICAL REVIEW
Executive Summary
The Conceptual Framework in financial accounting is followed by the companies. The
financial reporting done by adopting IFRS has been proven to be very useful to its users
for better decision making. The performances and outcomes of UK and Australia has been
done for a minimum period of 5 years. The other aspects like reasons for adoption,
transitional issues, challenges, benefits and similarities along with differences have been
illustrated. The relevant recommendations have been provided for the companies.

2ADOPTION OF IFRS: A CRITICAL REVIEW
Table of Contents
Introduction............................................................................................................................3
The relevance of Conceptual Framework in financial reporting and its usefulness..............3
Comparing and contrasting the implementation of IFRSs in Australia and UK.....................3
Reasons for adoption of IFRS by the national accounting bodies.....................................3
Transitional issues faced by the companies......................................................................4
Challenges faced by the reporting entities upon adopting IFRS.......................................4
Benefits of adopting IFRSs by the reporting entities..........................................................5
Similarity and differences in the adoption of IFRSs...........................................................5
Findings on the success of the adoption of IFRS..................................................................5
Recommendations to the national accounting setting bodies...............................................5
Conclusion.............................................................................................................................6
Reference list.........................................................................................................................7

3ADOPTION OF IFRS: A CRITICAL REVIEW
Introduction
The Conceptual Framework and adoption of IFRSs are used by reporting entities
for their financial reporting. The useful financial information should be relevant and faithful
in its purpose. The data is considered relevant if it has the capability of affecting the
decisions that the users make (De George, Li and Shivakumar 2016). It makes a
difference if the decisions have confirmatory value or predictive value. It has the
characteristics of timeliness, verifiability, understandability and comparability. It is neutral,
free from error and complete in its representation. It gets affected by the degree of
measurement uncertainty. The conceptual framework frames comprehensive concepts for
standard setting, financial reporting, guidance for preparing consistent policies of
accounting and assisting others by understanding and interpreting the standards. The
variations in the Conceptual Framework affects the application of IFRS in cases where the
standards do not apply to specific events. The IFRS includes a variety of accounting
activities and sets mandatory rules. It influences the manner of reporting of the
components in the balance sheet and profit and loss statement. The report also provides a
study of adoption by the UK in the past five years. The critical evaluation has been done
on its transitional issues, benefits and challenges. Specific recommendations have been
provided regarding future directions to the accounting bodies.
The relevance of Conceptual Framework in financial reporting and its usefulness
The Conceptual Framework for Financial Reporting was revised and issued by the
International Accounting Standards Board is a comprehensive combination of concepts
used in financial reporting (Weaver and Woods 2015). It assists the Board in developing
the IFRS Standards on the basis of consistent ideas that result in financial information
being obtained and used by lenders, investors as well as other creditors. It helps in
preparation of financial reports for the development of consistent policies of accounting for
different events or transactions in the situation where no Standard is applicable or the
permission of choosing the policies of accounting using the Standard (Chand, Patel and
White 2015). It supports the parties in understanding and interpreting the Standards. It
gives guidance and concepts that relate to the decisions made by the Board while
developing the Standards. It helps the users in making decisions relating to the provision
or settlement of loans and other credit forms, voting or influencing the actions of the
management and purchase, sale or holding the debt or equity instruments ( Rudzani and
Manda 2016). IFRS has been designed to make the accounting practices, statements and
language consistent and help the investors along with businesses to make knowledgeable
financial decisions and analyses. The Standards make the accountability more strong by
decreasing the gap of information between the people and providers of capital to whom
money has been entrusted (Alemi and Pasricha 2016). The use of a trusted, single
language of accounting reduces the cost of capital and costs of international reporting. It
makes the comparison of financial results easier of entities from various countries.
Comparing and contrasting the implementation of IFRSs in Australia and UK
Reasons for adoption of IFRS by the national accounting bodies
The adoption of IFRS in Australia was a smooth process for most business entities
though extra support was warranted for the not-for-profit entities. It was adopted by the
Financial Reporting Council as a strategic decision in 2002 to begin from 1 January 2005
(Uzma 2016). The occurrence of the convergence with the Standards began since 1996
issued by its predecessor who was IASC and the Board. The adoption was by the
application of IFRS 1 as the First-time Adoption of IFRS. The historical actions and
conditions of Australia gave rise to the decision for adoption of IFRS (Florou and Kosi
2015). It was a broad movement in its history where the transnational neoliberal global
order emerged including the networks of strategic alliances and multilateral arrangements.

4ADOPTION OF IFRS: A CRITICAL REVIEW
The adoption was in line with the EU adoption timetable. It was applied in 2004 from the
IFRS stable platform. On the other hand, UK adopted the IFRS standards since 2005. The
adoption requires the consolidated financial statements relating to equity or debt securities
trade in the regulated markets (Beneish, Miller and Yohn 2015). The European
Commission’s Impact Assessment was concluded to introduce IFRS for SMEs in 2009
which did not properly aim at the simplifications of the objectives and reduce the burden
for non-publicly accounting entities. Therefore, it was not adopted for the SMEs. The tired
approach reduced the burden of compliance by the application of the principle of
proportionality. The tiers in the approach aimed at helping the entities change between the
different categories. The low tier entities were allowed to use the regime of the higher tier
entities.
Transitional issues faced by the companies
The adoption of IFRS by Australia led to incurring of initial upfront costs in particular
for the implementation of IAS 39 for the entities like insurers and banks. Similarly, the
increased cost was incurred by the UK on its adoption (Loyeung et al. 2016). However,
only a few entities were able to recover their costs from its adoption. The benefits weighted
more than its cost. Within a short period of time, the improvements in comparability,
market liquidity, cost of capital and transparency were seen. The amendments of IFRS
were driven by the issues prevailing in Australia (Kabir and Rahman 2016). The issues
faced by Australia might not be a priority of the world like the emission trading rights. The
complete benefits of IFRS in UK could be reaped only if the complete standards were
adopted. As a result, the local variants should be set as a minimum (Li and Yang 2015).
As the standards of IFRS in Australia are believed to be applicable to all the sectors, there
are certain questions raised by the sectors regarding its applicability and suitability
(Sharma, Joshi and Kansal 2017). The applications of IFRS standards have faced
flexibility and technical issues by all the countries. There are based on principles and
cannot be interpreted in technical terms. Therefore, ignoring market realities. The reports
prepared by adopting IFRS have affected the reporting of equity and net profit of the listed
companies in UK.
Challenges faced by the reporting entities upon adopting IFRS
Australia suffered the challenge of moving the developed of its domestic standards to a
contributor to international standards. The AASB had to improvise itself on several
aspects. The leads research like intangible assets and extractive activities had to be
reinvented (Perera and Chand 2015). The comments on the consultative documents of
entire IASB and encouraging the constituents of Australia for doing it. The participation in
international forums like the AOSSG and the NSS Group were required (Kaaya 2015). The
IASB had to be informed about the issues relating to interpretation instead of developing
its own interpretations. A close relationship had to be established with the FRSB of New
Zealand. The active participation in activities of IPSASB was required. The reconsideration
of differential reporting framework was needed. The public sector and not-for-profit
projects were continued (Elbakry et al. 2017). The decision of the EU for the extension of
using IFRS in the listed entities was doubtful. The evaluation of the disclosures prove to be
very challenging and require high professionals for the judgment. The complexity of the
process cannot be avoided as the world is itself complex and the business transactions
necessitate complex accounting in certain situations (Kabir and Laswad 2015). The
regional groupings and National standard-setters are considered very important as they
play a major role in field testing, outreach activities and coordinated research ( Fearnley
and Gray 2015). Therefore, requires skilled professionals. The national enforcement in UK
is strong and critical. Therefore, it requires experience that demonstrates the importance of
its mechanisms for coordinating and sharing the decisions relating to enforcement. The

5ADOPTION OF IFRS: A CRITICAL REVIEW
legitimacy is underpinned by endorsements and prove to be a critical way of establishing
the legitimacies of politics in UK of IFRS.
Benefits of adopting IFRSs by the reporting entities
The financial reports of the Australian entities are understood more widely by all the
users. The preparation, analysis and audit have made the synergy of the financial reports
which form a part of the multinational group. It filled the gaps in AGAAP, in the areas of
recognition and measurement of financial instruments particularly (Collis, Jarvis and
Skerratt 2017). The investors of the UK were seen to rely on the book value of the equity
of the shareholders instead of the information on their earnings. It was found that there
was no change in the increase of ability for the prediction of accounting information
(Weaver and Woods 2015). The standards of IFRD are applicable to all the sectors in
Australia, making it neutral for all the sectors, including not-for-profit and public entities.
The Australian economy has seen to be benefitting from the adoption of IFRS by the
improved comparability and quality of financial information. It has helped the analysts and
investors to predict the future performances in a better manner.
Similarity and differences in the adoption of IFRSs
IFRS was adopted by both the reporting entities in the year 2005. The reasons for
adoption were more or less similar, as every entity aims to have a uniform representation
of data that would help the users in better understandability (Macve 2015). Both the
countries had the costs weigh more than the benefits that they got. They require highly
qualified professionals for being able to evaluate the disclosures and other challenging
aspects relating to the adoption of IFRS. The application and implementation are faced as
a challenge by both the countries as it is based on principles and not on technicalities. The
evaluations and interpretations require knowledgeable and highly skilled professionals for
proper decision making and predictions of future. The two companies have seen to be
having varying results on the IFRS adoptions. Some results have been good and some
have been bad. There has been adoption of IFRS 1 in both UK and in Australia that has
been emphasized.
Findings on the success of the adoption of IFRS
The findings of the report have helped to conclude the success of IFRS adoption by
the two countries, Australia and UK. The countries have benefitted from the
implementation. The presentation of data in the financial reports have gained uniformity
and help the users of information to make improved decisions. There is still scope for
improvement as the challenges and transitional issues have been highlighted which reflect
the need for improvement. The interpretations often do not consider market realties while
accounting for it. There are complexities that exist in every organization therefore, this
sector is no exception. The world itself is a complex place. The effect of IFRS reporting
has been seen in the manner net profits and equity have been shown.
Recommendations to the national accounting setting bodies
Accounting and auditing standards primary purpose is to assists in sustaining
confidence in the Australian economy, which also includes in capital market structure. The
AASB has achieved this by developing, issuing, and supporting Australian accountancy
standards and connected pronouncements. Accounting standard set out how the body
must report from outside based on critical events as well as transactions including on their
presentation and financial structure. So the two recommendations of the national
accounting AASB is are as follows:

6ADOPTION OF IFRS: A CRITICAL REVIEW
 In the world of accounting, IFRS has a broader scope. It will be beneficial to
recommend that there should be a future look at compliance with IFRS in other
parts of the world. This will tell us the detailed application and how well the other
countries continue it.
 Another recommendation would be that investigation should be done on how the
small and medium enterprises adopt and comply with the standards of IFRS.
Conclusion
The report has overall highlighted the impact of the adoption of IFRS in Australia and the
UK. The importance of its adoption has been stated. It has helped to emphasize the
enriching disclosure of the financial standards. It provides a better basis of comparison to
its investors regarding the position of the reporting entities and their financial statements
for evaluation and decision making. It has been seen to a challenging move made by the
countries. The complexity of the applications of the principles made it more difficult. It
requires high professionals for its evaluation of relevant disclosures which are its
challenging aspects. The changes in the accounting standards were forecasted to impose
major and significant modifications in the method of reporting done by the entities
regarding their financial position and performance to the stakeholders and other users of
information. The standards have an inflexible and highly technical nature due to which it
becomes to interpret it by considering the market realities. The comparability and quality of
financial information has seen to improving. The decision making by the analysts and
investors has helped to make better predictions. The accounting of transactions can be
complex as the world is itself complex and thus cannot be avoided. The activities like
outreach activities, field testing and coordinated research require highly skilled
professional work force which is a big challenge for the companies. The consequences
occurred due to the identified causes have shown its differences of not being able to
achieve the outcomes. The similarity of IFRS 1 adoption has provided unique opportunities
for the comparison of the events. The measurements has been based on same group of
underlying economic events. The relevance and usefulness of the Conceptual Framework
in financial reporting has been illustrated with examples. The implementations of IFRSs in
Australia and UK have been compared and contrasted. The discussions on its reasons
and time frame of adoption have been discussed. The transitional issues faced within a
span of two years has been highlighted. The challenges faced by the entities upon
adoption of IFRS have been discussed and explained with examples. The benefits of IFRS
adoption have been emphasized. The similarities and differences faced by UK and
Australia have been highlighted. The factors that led to the differences have been found.
The findings have been used to interpret the success behind the adoption of IFRS in the
two countries. The relevant recommendations have been made based on the needs of
users and the sectors in the economy.

7ADOPTION OF IFRS: A CRITICAL REVIEW
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