Contemporary Issues in Accounting: Convergence of International Financial Reporting Standards

This paper discusses the convergence of International Financial Reporting Standards that have resulted in the harmonized international accounting practices across the countries. It also analyzes the factors that drive global convergence of International Financial Reporting Standards and how quality of financial reporting is measured in the developed as well as developing countries.

Running Head: CONTEMPORARY ISSUES IN ACCOUNTING
CONTEMPORARY ISSUES IN ACCOUNTING
Name of the Student
Name of the University
Author Note

1CONTEMPORARY ISSUES IN ACCOUNTING
Abstract
Since, from the last few decades, there has been great demand for the uniformity of
the accounting that is becoming much stronger. There are organizations who are
expanding their business across the borders of the country. Moreover, because of
the differences in the accounting standards and the financial reporting, the hurdles
are created in the financial comparisons at international level as well. Therefore, for
solving this problem, International Accounting Standards Board has come has
introduced the concept of the unified standards of accounting that is International
Financial Reporting Standard. Some countries have already adopted this particular
resolution but more efforts are needed from other countries as well. Hence, this
paper will discuss convergence of the International Financial Reporting Standards
that have resulted in the harmonized international accounting practices across the
countries.

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Table of Contents
Introduction...............................................................................................................................3
Research Objective.................................................................................................................3
Literature Review.....................................................................................................................4
Global Convergence of International Financial Reporting Standards.........................4
Measurement of the Financial Reporting Quality in Developed and Developing
Countries...............................................................................................................................6
Basis of Preparation of Financial Statement...................................................................8
Convergence of IFRS leads to Improved Financial Reporting Quality.....................10
Research Methodology.........................................................................................................11
Conclusion..............................................................................................................................12
Reference...............................................................................................................................13

3CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
The aim of this assignment is to do the analysis on the convergence of
International Financial Reporting standards. The increase in the convergence has
resulted into the harmonization of the international accounting practices across the
countries that have grown over the last ten years. Several studies are conducted in
this relation. Hence, under this report, discussion will be done on factors that drive
the globalized convergence of International Financial Reporting Standard. Moreover,
review of the research articles will be done for explaining the way in which the quality
of the financial reporting is measured in the developed as well as developing
countries. Further, two companies will be taken into considerations and comparison
will be done on the financial statements of each company. First company will be
Nepal based company Himalayan Distillery Limited, which is leading manufacturing
company of alcoholic beverage that is listed in the Nepal Stock Exchange. The
second company that will be considered will be Australian Vintage Limited, which is
listed in the Australian Stock Exchange that is the leading Australian wine company
and they are the largest owners of vineyard and managers of Australia. Lastly,
discussion will be done on whether the convergence of IFRS will lead to the
improved financial reporting quality.
Research Objective
This research is having the objectives for answering the following question:
 What are the factors that drive global convergence of International Financial
Reporting Standards?
 How quality of financial reporting is measured in the measured as well as
developing countries?

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 Comparison of the two companies based on financial statements in each of
the company.
 Whether the convergence of the IFRS will lead to the improved financial
reporting quality or not?
Literature Review
Global Convergence of International Financial Reporting Standards
In the recent few years, the discussion and the activity towards the objectives
of moving towards the global standards for the financial reporting has been
increased. As the business organizations are becoming more and more global, there
is the need for the convergence. The idea of the global harmonization of the
accounting standards are stems from the lack of the coordination and convergence
of the accounting standards (Albu, Albu & Alexander, 2014).
International Accounting Standards Board as well as Financial Accounting
Standard Board has expressed their views for their commitment towards the
convergence of the accounting. In the year 2002, both have signed the “Norwalk
Agreement”, under which both have pledged for using their efforts for making the
fully compatibility of the existing financial reporting standards as early as possible
and for coordinating their work programs of future for ensuring that once it is
achieved, compatibility would be maintained. The boards are working as well as
aimed for removing the variety of the differences (Chen, Ng & Tsang, 2014).
Increasing the cross border proliferation and investing of the financial products that
have posed challenge to the companies as they are faced with the multiple
standards. Convergence as well as harmonization with IFRS will greatly contribute to

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the efforts of building the infrastructure of the global financial reporting (Tschopp &
Huefner, 2015).
However, many of the countries have already adopted IFRS by the issuance
of their country that are equivalents of the IFRS such as Australia has the Australian
equivalents to the IFRS and al the listed countries is required for using IFRS. It has
been observed that around the world, more than 100 countries are adopting towards
IFRS. It is done for having common financial reporting standards that should be
accepted worldwide, but it is the huge undertaking that may take several years
(Chen, Ding & Xu, 2014). However, there are certain barriers for achieving the full
convergence:
 The regulators as well as standard-setting bodies may different views
regarding the same.
 There may be political pressure due to having different views as well as
objectives.
 There can be pressure as well as influence from the lobbying groups of
industry and from the others, to the subjects of accounting standards or those
who are affected by them.
Some countries that have adopted IFRS, have gained expected economic
benefits. It is necessary for accessing the process by using the institutional
perspective that is able for explaining adopting IFRS where economic pressures are
the drivers as well as legitimacy of accounting standards-setting bodies and the
accounting practitioners that are influenced by the external forces (Tschopp &
Nastanski, 2014). From the institutional context, the institutionalization is viewed as
the social process by which the individuals accepted that the national accounting

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standards are taken place in the international accounting harmonization interests.
The tendency of using the same accounting standards that are used by the other
countries continues regardless of the fact that it might not necessarily lead to the
economic benefits promoted by IASB. Moreover, it may takes place in the countries
where institutional environments are different because the countries may tend to
ceremonially or they actually confirm for dominating the norms as well as social
inferences for the legitimacy (Fang, Maffett & Zhang, 2015).
Measurement of the Financial Reporting Quality in Developed and Developing
Countries
After the investigation as well as translation of the global accounting
standards in the local context it has been find that the local actors plays the
important role in the triggering the responses of the organizations in the application
of the International Financial Reporting Standards. This is because organizational
responses to the global standards and these are conditioned by interplay between
the actors who are generally searching for the attaining the own mutual conflicting
interest as well as searching for the legitimacy. It has been find that the strategies of
the acquiescence may occur even if there is high degree of the multiplicity of
constituent, there may occur the avoidance in the organizations with the small
degree of the multiplicity. Hence, for the implementation of IFRS, interest as well as
actions of the intra-organizational is important (Albu et al. 2014).
The result have suggested that low level of harmonization are because of the
degree of flexibility that are available in selection of the benchmark treatments in the
some International Accounting Standard and it is to the non-compliance with the
mandated requirements of IAS by the companies (Ali, K. Ahmed & D, 2006). The

7CONTEMPORARY ISSUES IN ACCOUNTING
primary goal of the audit research and financing reporting research is done for the
understanding of the determinants of the quality (Gaynor et al. 2016).
In the past two decades, market globalization has created the demand for the
international convergence in the financial reporting. Moreover, there are little direct
evidences that are documented regarding unintended consequences of the adoption
of IFRS mandatory. These consequences likely occur in the market where financial
accounting plays the important role in the contracting role than the information role
as well as those where incompatibly of the institutional environments with the IFRS
(He, T. J and D, 2012). After the application of the framework of institutional theory at
the nation state level as well as using the publicly available data about emerging
economy of UAE, it has been identified some of global coercive, mimetic and
normative pressures that have contributed to its widespread adoption (Irvine, 2008).
The results of the investigation of the investigation of the differences in the
earnings quality of the Malaysian companies after the adoption of accounting
standard of IFRS based that IFRS is associated with the higher quality of the
reported earnings. Moreover, it has been found that during the period after IFRS
adoption is associated with the management of the lower earnings as well as higher
value relevancy (Ismail et al. 2013). It has been analyzed that even if there is high
multiplicity degree of constituents, there is strategy of adopting it unwillingly, it is due
to the fact that in accounting practices terms, there is no countries that are
homogenous. Although, the harmonization level is improved, but there is no any
question that can be raised for the reporting of legality (Nobes, 2015).
The use of the common set of the standards such as objectives of
International Financial Reporting Standards in the broad sense is to do the

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promotions of the transparency and the comparability of the financial statements as
well as for improving the quality of the financial reporting. Although, the effectiveness
of the adoption of the IFRS is hampered by the differences across the countries,
where in the institutional setting, financial reporting occurs (Brown, Preiato & Tarca,
2014).
The mandatory adopters of has the experience of increase in the reactions of
market for the release of the earnings by the voluntary adopters that is compared to
period that is preceding mandatory adoption. This particular is not observed in case
of non-adopters. After taking it together, it is observed that the harmonization of the
accounting standards facilitates the transnational transfer of information as well as
suggests comparability of financial statement as the direct mechanism (Wang,
2014).
Therefore, issues concerning to the developing countries relating to
accounting in particular has generated the interest considerably among the scholars
and practitioners of accounting in the developed as well as developing countries. It is
claimed that accounting system of the developing countries is unsuitable for meeting
the developed economy’s needs.
Basis of Preparation of Financial Statement
Australian Vintage Limited
The financial statements of the company have been prepared on the basis of
historical cost that is except in the case of revaluation of the certain financial
instruments. The cost of the company is based on fair values of the considerations
that is given in the exchange for the assets. The amounts are presented in Australian
dollars. The methods and the policies for the computation in preparing the financial

9CONTEMPORARY ISSUES IN ACCOUNTING
statements is consistent with the adopted as well as disclosed in the annual reports
of the company, except in the case of any relevant amendments. The consolidated
financial statements of the company are general purpose financial statements that
have been prepared according to the Australian Accounting Standards that are
adopted by the Australian Accounting Standard board as well as Corporation Act
2001. The consolidation of the financial statements is prepared with the International
financial reporting standard that is adopted by the International Accounting standard
board. The accounting policies of the company are selected as well as applied in
such a manner that it helps in ensuring the resulting financial information in satisfying
the relevance and reliability concepts, ensuring that the substance of the underlying
transactions and the events are reported. Moreover, the other accounting policies
that are significant are included in the notes to the financial statements consolidated
to which they are related (Australianvintage.com.au. 2019).
Himalayan Distillery Limited
The financial statement of the company has been prepared according to the
Nepal Financing Reporting Standards (NFRS), Standards Interpretation Committee
and IFRS Interpretations Committee. The company also takes into considerations
the time value of money. The company uses the measurement of accounting based
on FIFO (Anon 2019). This method is helpful in measuring the performance of
inventory that is based on the margin as well as inventory turnover. The company
prepares the general purpose financial statements as per the Nepal Financing
Reporting Standards, which are prepared by the Nepal Financing Standards Boards.
The Nepal financial reporting standards are helpful in designing the common global
language for the affairs of the business so that the accounts of the company are
comparable and understandable within Nepal. The explanations of every

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transactions and the accounting policies are described in and included in financial
statements (Anon 2019).
Convergence of IFRS leads to Improved Financial Reporting Quality.
The global convergence of the IFRS helps in the globalized standards for
preparing the company’s financial statements. The globalization of market has
demanded for globalized convergence of financial reporting that has resulted into the
emergence and development of market that has adopted it. Hence, adoption of the
IFRS has helps in achieving the objective that provides comparisons and
transparency of the financial statements (Ball, 2016).
The IASB has the mission of developing in the public interest of the single set
of the high quality as well as understandable for the general purposes of the financial
statements. IFRS helps in enhancing comparability of the financial information of the
company as well as improved communication quality to their stockholders, reduces
risk, increase in the market efficiency as well as minimizing the capital cost. The
management reporting for the internal purposes under the IFRS helps in improving
the consistency and quality of the information that are needed by the management
for making efficient, effective as well as timely business decisions (Uwuigbe et al.
2016). Moreover, the single set of the accounting standards helps in enabling
international firm of auditing for standardizing the training and ensuring the better
work quality on the globalized scale. It helps in permitting flow of international capital
more freely by enabling the auditing firms and the clients for developing the
consistency of globalized practices on the accounting problems (Ball, 2016).
Different standards of accounting may leads to the differences in the financial
reporting and their quality with having the same set of the accounting data.

11CONTEMPORARY ISSUES IN ACCOUNTING
Therefore, when there are changes in the accounting regimes, then there is the
significant effect of the performances and the financial position that is being reported.
International Financing reporting standards are adopted increasingly by the countries
all around the globe because it is being believed that it may improves the quality of
the financial reporting as well as comparability (Taiwo & Adejare, 2014).
The quality of the financial reporting is being judged by power of the
information in the financial statements for explaining the value of the firm. The IFRS
effect on the value relevance of the information of the accounting is being different
across the jurisdiction as well as it seems for depending upon the concerned
accounting information characteristics as well as the nature of the economy under
which the sample firm is operating (Ball, Li & Shivakumar, 2015).
The adoption of IFRS has been investigated relating to the quality
improvement of the provided disclosures in the financial statements. It has been
observed that generally IFRS imposes more requirements of disclosures in course of
the improvements of the quality of the financial reporting as well as addressing the
asymmetry of the information (Christensen et al. 2015). The information volume,
usefulness of their decisions as well as relevance of the value have been in the
focus in case of exploring of the disclosures quality to the financial statements. It has
been observed that levels of the mandatory disclosures are the value relevance as
well as also valuation coefficient of the net income of the companies of high-
compliance is higher significantly than that of the lower compliance companies (Liu &
Sun, 2015).

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Research Methodology
The research type used in this study is descriptive research. The research is
based on the secondary data. The data under this research is collected by the
review of the various types of the literature such as books, websites, journals articles
and annual report of two different country. This research is based on the qualitative
analysis of the facts.
Conclusion
Therefore, it can be concluded from the analysis that IFRS is that type of
accounting framework that helps in making the comparison of the financial
statements understandable and easy to the domestic and the international investors.
It is because there would not be any kind of variances as well as disparities in the
figures reported. Moreover, the common accounting practices all over the world will
be helpful for the removing the differences and leading towards uniformity that will
also lead towards economic benefits. In addition, the issues of the accounting of the
developing countries have led to the various research among the practitioners.
Further, from the annual reports of two different countries, the preparation of the
financial statements has been reviewed, it has been analyzed that both the
company’s financial statements are prepared according to the IFRS and accounting
standards are followed by the help of respective country’s standards. Lastly, the
discussion has been done on the improving the financial reporting quality by the
convergence of the IFRS. The IFRS affects the value relevance and disclosures for
the improvements in the quality of the financial reporting. Hence, the countries for
the successful and the smooth implementations of the converged accounting
standards should make efforts. In order for the successful implementations of the
convergence of accounting standards, there should be development support from

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the country as well, it is because the intention and the ethical trials is the way for
making the convergence possible in the countries.

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