Adoption of IFRS and its Concerns: A Case Study

This case study discusses the adoption of IFRS and its concerns. It covers the meaning of IFRS, factors causing concerns, empirical evidence, and parties that stand to gain or lose from the adoption. The study is relevant to Accounting Theory 1.

Accounting Theory 1
ACCOUNTING THEORY
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Accounting Theory 2
Case One
1. Meaning of IFRS
The IFRS also known as the International Financial Reporting Standards are the standards
issued by IFRS foundation and the IASB in offering common global language for the
organization affaires so as an organization accounts are clearly understandable as well as
comparable across the international boundaries (De George, Li & Shivakumar 2016).
Besides, the IFRS are consequence of the growing international shareholding as well as trade
and are specifically significant for organizations that have their business or operations in
numerous nations. In other words, the IFRS are rules followed by the accountants in
maintaining the books of accounts that are relevant, comparable, reliable and understandable
as per user external or internal (Lourenço, Branco & Castelo 2015). Basically, the IFRS are
the set of international accounting standards indicating how specific forms of the transactions
or dealings as well as other activities ought to be reported in the financial statements. They
are usually issued by IASB and specify exactly how the accountants should report and
maintain their accounts. They are also the rules established to have mutual accounting
linguistic so as accounts and businesses could be assumed from organization to organization
and nation to nation (Brown 2013). They are aimed at maintaining transparency and stability
all across the financial world. This permits individual investors and businesses to make some
educated and comprehensive decisions, since they are in a position to view exactly what is
happening with an organization where they wished to invest. Formerly referred to
International Accounting Standards, the main goal of the IFRS is to accomplish transparency
and uniformity of the accounting principles which are deployed by organizations for the
financial reporting across the globe (De George, Li & Shivakumar 2016).
2. Factors That Are Causing Some Concerns on the Effect of the Adoption of the IFRS

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Several countries require the IFRS while preparing the financial statements. Despite the
adoption, there are several factors that are causing major concern on the effect of adoption of
the IFRS. The adoption of IFRS requires organizations to recognize, disclose and present
financial information in a very transparent manner (De George, Li & Shivakumar 2016). The
second factor causing some concerns on the prospects of the adoption of the IFRS is the use
of the fair value accountings that necessitates liabilities and assets reassessments to be clearly
approved over profit and loss both the upsurges in incomes as well as leverage processes of
the unpredictability and takes significantly more exertion to execute (Lourenço, Branco &
Castelo 2015). The third factor is the fact that IFRS do not offer more insight into
organization risk than the existing accounting standards.
Question 3
(a) Whether there is any empirical evidence in support of the factor
i. The first factor: organizations are needed to recognize, disclose and present the
financial information in a diverse manner
There is some empirical evidence in supporting this aspect. For instance, adoption of the
IFRS within Australia also necessitates or calls for the organizations to recognise, the share-
based dealings, which was not done previously. In fact, accounts of organizations adopting
the IFRS vary from those of organizations utilizing diverse national accounting standards (De
George, Li & Shivakumar 2016).
ii. use of the fair value accountings that necessitates liabilities and assets reassessments
to be clearly approved over profit and loss both the upsurges in incomes as well as
leverage processes of the unpredictability and takes significantly more exertion to
execute.

Accounting Theory 4
There is empirical evidence that the fair value of the accounting produce more volatility. For
instance, in a study by Chand Patel and Day (2008) examining fair value of the US banks’
investment stocks established that the fair value-based earnings were more volatile compared
to the historical-based earnings. Therefore, use of the fair value accounting result in
complaints that it sometimes introduces some volatilities in the reported profits or earnings,
as the revaluations ought to be clearly brought in the profit and loss statements.
iii. IFRS do not offer more insight into organization risk than the existing accounting
standards.
There is some empirical evidence on the above factor which could include type of the risk
being disclosed and its effects on the financial position and profit of an organisation;
difficulty in the risk in comparison with audit of the financial reports which are primed under
the national standards.
(b) Whether the analysis resulting from the above aspects to concerns on adoption of
the IFRS naturalistic or scientific?
i. The first factor: organizations are needed to recognize, disclose and present the
financial information in a diverse manner
The evidence utilised in this factors of concern is naturalistic in case it is evidence from
organization’s individual accounts which underpins claims by the individuals in numerous
scenarios. Such accounts have already been observed by different persons who have been
concerned on the nature of variations needed under the IFRS (Lourenço, Branco & Castelo
2015). Nonetheless, in case the research study is already conducted, for instance by the
academics, then this research is more likely to adopt scientific approach in analysing
numerous organization’s financial reports or in modernisations of the organisation’s historical

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financial reports, in order to generate overall conclusion in an outlook that organizations are
needed to recognise, disclose and present the financial evidence inversely from its present
technique.
ii. use of the fair value accountings that necessitates liabilities and assets reassessments
to be clearly approved over profit and loss both the upsurges in incomes as well as
leverage processes of the unpredictability and takes significantly more exertion to
execute.
Evidenced utilized as basis for this claim is usually naturalistic in case it is the evidence from
organization’s individual accounts which underpins this claim by individuals in numerous
scenarios. Such accounts are observed by the individual organizations who are concerned on
the increase in the leverage and earnings volatility which is reported under the IFRS.
Nonetheless, in case a research is carried out by scholars, then the research is probable to be
following the scientific technique in examining numerous organizations’ financial reports or
in rebuilding of the previous financial reports, to turn into overall conclusion, statistically
verified, on an outlook that the unpredictability of the earnings and leverages increases once
the IFR is adopted (Lourenço, Branco & Castelo 2015).
iii. IFRS do not offer more insight into organization risk than the existing accounting
standards.
Evidenced used as basis in support of this claim is usually naturalistic in case it is the
evidence from an individual learning to auditing or prepare organisation’s accounts which
underpins this claim by an individual in numerous scenarios (Lourenço, Branco & Castelo
2015). Nonetheless, in case the study has been carried out by academics, then it is more likely
to follow scientific technique in analysing time spend by the auditors or accountants in

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relation to several organization’s financial statements or the reconstruction of the previous
financial statements or statements post- and pre-IFRS adoption (Howieson 2009).
Case two
(a) Whether agree or disagree with the change
The year 2005 is particularly significant milestone for numerous countries in terms of the
mandatory IASB adoption. Therefore, I totally agree with the changes since adoption of
AISB is said to trigger greater or higher investors’ capacity in making informed financial
decisions, reducing confusion which might arise from existence of numerous means to
measure the financial performance and status in different nations, resulting in decreased or
lessened financial risks for the stockholders and lessens expenditure of the resources for
organizations. Two, adoption of the AISB would result in reduced costs linked with
preparation of the financial data in accordance with numerous sets of the standards
(Howieson 2009). Third, the adoption of AISB would result in greater incentives for the
international investment.
(b) The parties who stand to gain from adoption of the IASB standards?
According to Chapple (2014) a number of stakeholders would benefit or gain from
implementation of the new IASB standards. One, investors stands to benefit through IASB
standards adoption (Howieson 2009). Financial theory indicates that the investors might gain
from the internationally diversifying their investment since performance of the individuals
national capital are not properly correlated and the international markets usually present an
opportunity that is not relatively available domestically. In this case, adoption of the AISB
standards is said to reduce capacity of the investors in doing such since diversity create

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relatively much uncertainty as well as confusion as the investors try to assess and compare
the financial statements from diverse nations. For instance, Chapple (2017) commented that
variations in the accounting standards could fully obscure the comparisons of the equity
values in between nations, between organizations or even between sectors.
Two, government would also gain through the implementation of the new IASB standards by
2005. Basically, government is said to gain most from this adoption related to increased
propensity for the firms to internationalise their key operations, investment and financing
activities all over the foreign stock exchange market, reliance on the foreign creditors and
investors as well as development of the multinational group (Chapple 2014).
Three, accountants stand to gain from the adoptions of the AISB standards in that the
increasingly complicated standards tend to restrict supply of the audit services as a result of
increased cost of the entrance in the audit market, while at similar period increasing demand
for the audit services. Basically, the firm accountants would be better placed in monitoring
activities of their worldwide dispersed personnel base as well as develop the standardised
personnel training programs. Use of the common base of the standards would further evade
duplication of the resources across departments located within different nations, with
particularly single set of the policy guideline being made.
Another group that is more likely to gain from this adoption is the organizations.
Organizations might gain from the adoption through cost savings linked with removal of need
to restate or reconcile the financial statements with the aim of meeting the foreign accounting
standard needs (Howieson 2009). In essence, the standards result in improved capacity for the
organizations to attract more finances from the foreign investors as well as lowering costs of
the capital due to improvement in quality as well as comparability of the financial reporting.
(c) Parties to lose from adoption of the IASB standards

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Auditors stand to lose with adoption of the adoption of the AISB standards since the
standards restrict supply of the audit services as a result of increase in cost of the entrance to
audit market while increasing demand for the audit services. In essence, the complexity of
these standards further suggested improving qualitative outlook of profession, hence, offering
justification for relatively higher prices (Howieson 2009).

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REFERENCES
Brown, P 2013, ‘Some observations on research on the benefits to nations of adopting
IFRS,’ The Japanese Accounting Review, 3(2013), 1-19.
Chand, P, Patel, C & Day, R 2008, ‘Factors causing differences in the financial reporting
practices in selected south pacific countries in the post-convergence period,’ Asian Academy
of Management Journal, 13(2).
Chapple, S 2014, Adoption of International Financial Reporting Standards in Australia:
structure, agency and unintended consequences.
Chapple, S 2017, ‘IFRS adoption in Australia: A strong structuration
perspective,’ Accounting History, 1032373217741142.
De George, ET, Li, X & Shivakumar, L 2016, ‘A review of the IFRS adoption
literature,’ Review of Accounting Studies, 21(3), 898-1004.
Howieson, BA 2009, ‘Agenda formation and accounting standards setting: lessons from the
standards setters,’ Accounting & Finance, 49(3), 577-598.
Lourenço, IM, Branco, M & Castelo, D 2015, ‘Main consequences of IFRS adoption:
analysis of existing literature and suggestions for further research,’ Revista Contabilidade &
Finanças, 26(68), 126-139.