Approach of International Financial Reporting Standards

Article reviews
Section-A:
a) What are some of the suggestions made to create a
more efficient financial reporting system?
IFRS is the organisation that in recent time developed the aim of business affairs common
language development so that the accounts information can be made comparable and readable
with other companies. But here the question is about their deliverable in this regard. Prof. Ray
Ball in an article addressed the question (Subramanian, 2016). The above shift in approach of
IFRS is focused on the capital market of global market. The financial approaches of IFRS are
also useful for the foreign direct investment attracting. The developed mechanisms are focused
on the movement of debt and equity capital facilitation process. The general perception in the
accounting field is that the changes would bring greater transparency, efficiency in the
transaction, reduction in the cost of capital and improvement in the comparability. But are those
current moves sufficient for delivering the promises made by the organisation? Prof Ball in his
2006’s view, expressed that the difference in the accounting standard of different nations can be
justified by the diverse culture and people of the nations and their diverse laws and the
companies. In his 2016’s analysis he shows more off a conscious approach where he expressed
that the good impact of these standard are yet to be fully assessed. But here recognised that the
adoption of the IFRS standards can be historically states as innovative approach which has
somewhat uncertain impact worldwide. The adoption of the standard was uniform where the
general apprehension was the lack of uniformity at the time of adopting. But here the significant
challenge is the implementation uniformity and there the political and economical factors are
playing the vital part to provide the challenges (Subramanian, 2016). The key problem as
analysed by Prof Ball, in the principle based IFRS framework which demands judgement and
estimation leading to choice of accounting policy discretion creation. Because of this reason the
outcome would differ because of the variation in technique and variables. He also pointed that

the fair value based accounting system in IFRS is difficult to follow for the low information
availability based emerging economy. At the time of discussion the regulatory environment Prof
Ball mentioned the lack of proper infrastructure in the effective and uniform implementation
process of the standards. Therefore in the concluding remark the article expressed the view of
Prof Ball where he stated that the primary aim of IFRS is undermined because of the non-
uniform implementation of the standards across the world. The non-adoption of major economy
like USA, India, China and Japan is an additional issue but the future adoption commitment
showed by the rest of the three economies is a hopeful sign (Subramanian, 2016). Under all of
these circumstances the actual impact is elusive.
b)
Differences between the usefulness of financial statements
in Australia and the United States and the underlying
reasons:
According to the two US academics Baruch Lev and Feng Gu the major financial statements of a
business organization such as the statements of the financial position or the balance sheets, Profit
and loss statement or the income statement and cash flow statement are losing their importance
in US as an essential documents for valuation of the business from the point of view of the
investors. According to their arguments the underlying reason of losing the usefulness is the
access of the investors in the other infiobrmation sources that are strong enough for making the
quick up down in the stock prices of the company. The other reason of such reduction of the
main financial statements is the increase in the investment in the knowledge-based intangible
assets and the accounting of those intangible assets cannot be done with the traditional
accounting process. According to them, intangible capital is the leading corporate value creator
for the businesses in the US and due to the incapability of the traditional accounting process the
different profitability [ROI & ROA] measures are overstated and the values of the intangible
assets are understated. More over in USA the application of the ‘rules-based’ accounting
standard of US GAAP[Generally Accepted Accounting Principle] and the more liquid nature of
the US economy(compared to that of Australia) which involves frequent trading on the basis

non-accounting information. That is why the US investors look in to the fundamental
information with respect to a business that is related to the cash holding or the holding of the
intangible assets of the business before making the investment decisions in that company rather
than studding the major financial statements of the business that are gradually losing the
importance.
On the other hand in Australia the application of the principles-based’ standards in the
accounting process that is named as IFRS is used for accounting of net profit and the equity of
the share holders with a primary objective to capture the summary of the transactions occurred in
the business. According to the research done by CPA Australia on the basis of the annual reports
of the companies that are listed in Australian Securities Exchange for a period of 24 years[1992-
2015] reveal the fact that the net profit and shareholders’ equity that are reported in the financial
statements have shown consistent reflection in the share prices of the company for the period
under study. That is why the Australia the financial statements are comparatively more relevant
[compared to USA] so far as investment decision making are concerned(Intheblack.com, 2017).
Current problems related to the communication of the
finical reporting process and strategies to improve them:
The IASB [International Accounting Standards Board’s] has identified the defects in the process
of presentation and structure of the four major financial statements of a business organization
namely the income statement, the cash flow statement, the balance sheet and the statement of
changes in equity.
The users of the financial statements often reported that the important values of Earnings before
Interest and Tax (EBIT) and the value of operating profit is not clearly defined as per the
framework of IFRS.
The defects also lies with respect to the presentation of the line items as some of the companies
include the depreciation of the intangible assets for the calculation of the adjusted net operating
profit but some of the companies do not follow the same process for the calculation of the
adjusted net operating profit