IFRSs Adoption and Implementation Challenges

This report presents a comprehensive study on the implementation of International Financial Reporting Standards (IFRSs) in Australia and Malaysia. The adoption of IFRSs has been successful in both countries, but financial entities faced various challenges during the transition period. Despite these issues, IFRSs have provided numerous benefits to financial entities. The report highlights the importance of continuous work by accounting standard-setters, such as AASB and KASB, to ensure effective implementation of IFRSs in various financial entities.

Adoption of IFRSs: A Critical
Review

Abstract
International Financial Report Standards that are issued by International Accounting
Standard board to develop better understanding of businesses on global platform. This standards
are issued with a general framework of financial report which should be used to prepare finance
report. This study will be providing brief information of IFRS and conceptual framework that is
proposed by IASB. Importance of IFRS will be covered in report. For Australia and Korea these
IFRS standards will be evaluated and analysed for different aspects like differences, issues,
benefits and transition process using different examples. The adoption process will be studied to
evaluate the implication of standards in Korea and Australia. Various recommendations
suggestion will be provided to improve the adoption process of International financial report
standards.

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Conceptual Framework for financial Report......................................................................1
2. Comparing and contrasting the implementations of IFRSs in Korea and Australia..........3
I. Reasons for adoption of IFRSs...........................................................................................3
II. Transitional issue faced ....................................................................................................3
III. Challenges faced by reporting entities.............................................................................4
IV. Benefits of adopting IFRSs by the reporting entities.......................................................5
3. Effectiveness of IFRS in Korea and Australia...................................................................5
4. Recommendations..............................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
International financial reporting standards (IFRS) are the standards which are issued by
the IFRS Foundation and the International Accounting standards Board. The main purpose was
to provide the common global language for the business affairs across the world so that company
accounts are easily understandable as well as comparable. Present report discusses about the
usefulness of the financial reporting regulations for Australian reporting entities and Korean
reporting entities. It also includes the key issues for adopting IFRSs within the two countries and
what are the challenges faced and even the benefits of adopting IFRSs. Present report also
includes the recommendations provided to both the countries for future directions to national
accounting setting bodies.
MAIN BODY
1. Conceptual Framework for financial Report
The conceptual frame work for financial reporting is a basic document that sets
objectives and concepts for general purposes of financial reporting (Yahaya, Kutigi and
Mohammed, 2015). There are different parts of financial report frame.
Through this framework better understanding can be developed for general scenario of business
in nation. Financial report follows different points in report that are- objectives of report,
Qualitative characteristics, financial statement and report entity, elements of financial statement,
recognition and de-recognition , measurements, presentation and disclosure and concept of
capital with capital maintenance.
Framework for Report
Objective provide the information of aims and objective of report to reader. Tow type of
useful characteristics are provided in Qualitative Characteristics which are of fundamental and
enhancing type. The information about different assets, Liabilities, equity, income and expenses,
cash flow, contribution of equity holder and other useful information like methods, assumption
and judgements are explained in in Financial Statement and Reporting Entity. Various entities
like single entity, a portion of an entity, multiple entity, consolidated entity, unconsolidated and
combined are used to prepare financial report of business. Different Elements of Financial
Statement like Asset, equity, income, expenses and liability are considered and explained in
element of report. These elements of Financial report can be classified in two categories that are
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financial position and other one is financial performance. Assets, Liability and Equity comes into
position and income and expenses are included in financial performance. Recognition and De-
recognition consists of speaking and linking of different elements of report and removal of
assets that are no longer meet requirements. Measurements includes the element like cost, value
of business. In this different data is explained to generate a result. A brief Presentation is
prepared for report to explain the data and information to people who may required this
information (Flower and Ebbers, 2018). The financials report ends with the overall result and
conclusion of report. As per the previous IFRS there are Concepts of Capital are added in end
that are classified in two parts which are- Financial and Physical capitals. The financial capital
holds the information of nominal monetary unit and Units of Constant purchasing power.
Physical capitals are consists of productive capacity of business which is evaluated as units of
output per day. This is how a financial report of business follows this particular frame work.
Importance of Framework
IFRS are known as new standards that are provided by International Accounting Standard
Board in year 2001. The traditional standards were replaced in order to improve the accounting
standards for business world. There are different goals of these standards which are to made to
compare businesses around world, increase transparency & trust in financial reporting. The
combine goal of these standards is to improve global trade and investment. These transparency is
important to provide better opportunity and chances to inverters and other marketing participants
to stay aware of market condition. By making them aware of business market these standards
enable them to make further investment in different businesses and ideas. The role of IFRS
varies for various country because of economic and business policy differences.
There are different benefits of IFRs standards that can be utilised to get better visibility
on global platform and consideration by international investors. For example for companies that
are that are operating in one nation do not need to follow IFR standards but in order to get global
exposure they need to communicate their success financial report that can help the investors and
business participants to find scope in company to make investments (Lang and Stice-Lawrence,
2015). This is how better understanding can be developed by following international standard of
financial reports. This can be also used by companies in the expansion process to find new
investors on global platform.
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If different business organization will use same standard for financial report, then it will
help the investors to compare different organization on same criterion.
2. Comparing and contrasting the implementations of IFRSs in Korea and Australia
I. Reasons for adoption of IFRSs
Australia adopted IFRSs in the year 1st January 2005 and this adoption was done through
the application of IFRS-1 i.e. the first time adoption of the IFRSs. It was reviewed in 2015 in
order to assess the relevance of IFRSs within the country For-Profit and Not-for-Profit reporting
entities. Main reason for adoption of IFRSs was that Australia want to make a positive impact on
the surpluses, equities, liabilities as well as on the assets of local government entities of the
country (Deb, 2015). In this context Australian local government entities changed to accounting
standards were expected to make some of the major modifications and changed the ways that
these entities previously reported the financial performance to the stakeholders for example
profit seeking entities.
On the hander hand Korea adopted IFRSs in the 2011 and there were various reason
behind the adoption of IFRSs within the country one of the major reasons of was that Korea
wants to achieve the higher accounting information in to make decisions and also country wants
to make the better allocation of the resources towards the accounting process (Seo, 2016).
Another main purpose of adopting IFRSs was to bring financial stability within the country that
could make country's position much stronger.
II. Transitional issue faced
There were various issues which were faced by Australia while making a transition, one
of the major issue was that after the adoption of IFRSs in the country was there was the lack of
training as well as lack of proper education was the major challenge faced by the country soon
after its implementation (IRONKWE and OGLEKW, 2016). Another issues was faced by the
country was on the hand of regulators, for the financial entities, auditors and even the interested
parties who were familiar with the previous accounting standards. For example it made them to
acquire additional skills and knowledge for the evaluation as well as application of IFRSs within
the country. Australian financial entities are also facing the technological issues which are
effecting them in a negative manner.
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Similarly Korea also faced various issues during the transition process one of the major
issue was that country has to make its transition more principle based under the regime of IFRS.
For example, it had to move from detailed requirements on the various transactions as well as
events which was under the Korean GAAP towards more principled based program in which
decision required more professional judgements as well highly trained professionals
(Comprehensive study into IFRS adoption in Korea, 2017.). This also resulted in another issue
that changes in the past Korean practices resulted in change in the boundaries of reporting
entities for elimination of the need for various Korean firms to raise funds for foreign markets in
order to prepare multiple sets of financial statements.
III. Challenges faced by reporting entities
With the issues faced during the transition there were are also some of the major issues
which were faced by financial entities of Australia was that they have to completely replace their
existing accounting standards within the new provisions. For example various financial entities
have to consider different financial standards in order to achieve the proper valuation in the IFRS
i.e. previously they don't had to consider domestic standards in concern and this resulted in the
re-negotiation of business contracts in order to depict proper valuation within the IFRS
(Diantimala, Syahnur and Ridwan, 2019). Another major challenge faced by financial entities
was that Australian regulatory authority and legal provisions gave two years of time to
understand as well as adopt to the change. For financial entities they also faced another challenge
due to IFRS was that they had to adopt more and more accounting principles, concepts as well as
theoretical approaches which can be applied on the global context was very challenging. For
example financial statements has to be backed with various obvious regulatory issues,
involvement of cost, high awareness as well as legal provisions which are not easy to deal with.
On the other hand there were are also various challenges faced by Korean financial entities upon
the adopting IFRSs, even it was very bumpy ride of Korea as well. One of the major challenge
was the financial entities had to face unexpected additional costs which was mainly due to lack
of efficient accounting professionals which lacked the experience. For example it have affected
the taxation process as it have effected most of the items of financial statements and even the tax
liabilities have under gone the change and has also increased the tax burden on foreign
companies (Pavić, 2019). Another challenges faced by various financial entities is that they are
not able to understand each and every IFS standards which are issued by IASB into the Korean
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language. So, this make very difficult for auditors or financial analysts make the annual financial
statements or make the periodic revisions in IFRSs. So, it is the KASB who have to translate
every standards to financial entities so that new accounting concepts, theories as well as
principles can be applied. This is what make it challenging task for Korean financial entities.
IV. Benefits of adopting IFRSs by the reporting entities
IFRSs adoption in Australia has been quite smooth and beneficial process for most of the
financial entities as it has improved their quality and comparability of financial reporting and
have resulted in the positive impact on overall Australian economy. All national and
international financial entities across the country have experienced high cost saving while
preparing financial reports (DIMA, DIMA and NACHESCU, 2018). Adoption of IFRSs has also
allowed various financial entities to move between the different sectors as well as different
countries with the transferable knowledge and skills. It has also promoted comparability within
the financial reports of various Australian financial entities and its adoption was not permitted
previously. Adoption of IFRSs have also enabled financial entities to help new investors and
small investments which has help in improving the financial reputation within the country.
Similarly Korea's adoption of IFRSs has been very challenging process as compared to
Australian adoption but ultimately it has also brought various benefits for the financial entities of
Korea. One of the major benefits for Korean financial entities was lower risk perceptions among
the foreign banks in their lending and credit decisions (Seo, 2017). It has also resulted in the
greater attraction from the foreign capital which are ready to invest in Korean financial entities.
Another benefit which IFRSs have rendered to financial entities is that they can make higher
prioritising of accounting, can make appropriate use of accounting information in their decision-
making process and effective use of resources within the organisation.
3. Effectiveness of IFRS in Korea and Australia
As defined through above data there are different benefits for business organizations that
wants to conduct business on the international level and get attention from people who are
looking for new business to make investment. Many countries have adopted these standards to
provide opportunity to businesses that are developing in country. For country like Australia and
Korea implementation of IFRS is successful because it has provided international opportunity to
businesses that needs global consideration. For Australia this standards are good for their
economy. Australia is capital of importers. The before the adoption of international standards of
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financial reporting various organization were using the statements that are defined by Australian
officials. In this case they have only few opportunities to get global exposer. There were limited
opportunities for them in international market and investors were also were the Few. This
standards helped the business organization to develop a standard report that are provide
awareness to the people who are interested to make investment for companies that are new to
global business market. There were only few problems faced by Australia in adoption of IFRs
country and all of them were about the implementation and understanding problem in the initial
level. This standards have made positive impact on Australian corporate.
These standards are also good and beneficiary for country like Korea. Because of
cultural, educational and language differences it is difficult for them to implement or apply IFR
standards to make financial report to get global attention (Katta, 2018). The K-IFRS was applied
to the business organization in year 2011. the adoption of of IFRS was successful in Korea
because people and business organization were prepared for implementation of new changes in
organization. Many research were performed to find the benefits of IFRS. Because the benefits
of these standards were higher they have start prepared to adopt IFRS standard in first place.
They also have faced different problems in initial phase. Most of problems were related to the
language and communication barrier and it is difficult for them to convert the document and
standards in their language to start implementation. This is how IFR standards are adopted by
both countries and international financial report standards are benefiting businesses of both
countries.
4. Recommendations
 Since both the countries are still facing some challenge due to adoption of IFRSs, so they
should try to minimise such challenges in the future. Both the countries should try to
educate and train their auditors, financial entities, etc in order to educate them towards
new principles of IFRSs especially in Korea. There should be the proper involvement of
AASB in the various issues particularly with the technical issues which needs to be
identified by AASB which help in decreasing the costs.
 It is also recommended for both the countries AASB and KASB to eliminate the
duplication of the financial reporting within the government and provide the financial
entities with the transparent objective criteria for developing annual financial reporting.
Also, they need to make sure that there is a full measurement and recognition of IFRSs
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within the financial entities of Korea and Australian accounting standards. Both KASB
and AASB should ensure that proper reviewing of IFRSs should be done and followed
within the countries in make effective financial reportings.
CONCLUSION
It can be concluded from the report that adoption of IFRSs in Australia and Korea had
their own reasons and during the transactional phase both the countries had to face certain issues
within the 2 years of IFRSs adoption. Present report also concludes that financial entities of both
the countries has to face various challenges during the adoption of IFRSs which made is
challenging for financial entities to adopt the standards. Despite of various issues and challenges,
IFRSs have been successful for both the countries and has provided various benefits for the
financial entities. Also, AASB and KASB have to work on continuous basis to make IFRSs
effectively applicable in various financial entities.
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REFERENCES
Books and Journals
Deb, R., 2015. Corporate Reporting Practices & IFRSs: Review of Literature. Editorial Team
Editorial Advisory Board. p.11.
Diantimala, Y., Syahnur, S. and Ridwan, R., 2019, January. Factors Influencing Asset
Revaluation by Indonesian Listed Companies in IFRSs Implementation. In 1st Aceh Global
Conference (AGC 2018). Atlantis Press.
DIMA, B., DIMA, Ş. M. and NACHESCU, M. L., 2018. Does IFRSs adoption contribute to the
protection of minority investors?. Audit Financiar. 16(152).
Flower, J. and Ebbers, G., 2018. Global financial reporting. Macmillan International Higher
Education.
IRONKWE, U. and OGLEKWU, M., 2016. International financial reporting standards (IFRSs)
and corporate performance of listed companies in Nigeria. International Journal of
Banking and Finance Research. 2(3). pp.1-13.
Katta, A.K., 2018. International Financial Reporting Standards (IFRS) Adoption on Financial
Decisions.
Lang, M. and Stice-Lawrence, L., 2015. Textual analysis and international financial reporting:
Large sample evidence. Journal of Accounting and Economics. 60(2-3). pp.110-135.
Pavić, I., 2019. ANALYSIS OF THE IFRSS’APPLICATION IN NORTH AND SOUTH
AMERICAN COUNTRIES. ISSN 2671-132X Vol. 1 No. 1 pp. 1-876 June 2019, Zagreb,
p.58.
Seo, J. M., 2017. A Study on the Translation Strategies of Accounting Terminology in the
Translation of 1FRS into the Korean Language. International Information Institute
(Tokyo). Information. 20(9B). pp.6887-6897.
Seo, Y., 2016. Accounting Judgments on Terms of Likelihood in IFRS: Korea and Australia.
Yahaya, O.A., Kutigi, U.M. and Mohammed, A., 2015. International financial reporting
standards and earnings management behaviour of listed deposit money banks in
Nigeria. European Journal of Business and Management. 7(18). pp.70-82.
Online
Comprehensive study into IFRS adoption in Korea. 2017. [Online]. Available Through:
<https://www.iasplus.com/en/news/2017/01/korea-5-years>.
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