HA3011 Advanced Financial Accounting: Analyzing the Impact of IFRS on Corporate Financial Reporting

HA3011 Advanced Financial Accounting

Contents
Assessment task part A:..............................................................................................................................2
Assessment task part B:...............................................................................................................................6
Assessment task part C:...............................................................................................................................8
Assessment task part D:..............................................................................................................................9
References:................................................................................................................................................10

Assessment task part A:
The article appeared in the Australian Financial Review on 6th February 2012 entitled “Unwieldy
rules useless for investors”. This article criticizes for adopting the new International Financial
Reporting Standards (IFRS). In accordance with the article entitled ‘unwieldy rules’ which
indicates difficult to control and handle. The new system is being adopted to help the investors
to make comparisons between the companies in global capital market, but the CFOs i.e. Chief
Financial Officer criticizes the new standards by saying that they are useless as they disclose the
financial position of the companies to the unmanageable levels. As the new rules are unwieldy,
the person who is studying the report must be technically trained, if not, the information might
be misinterpreted and may mislead. The article is being criticized as whether to retire its
domestic accounting standard (US GAAP) and adopt IFRS as millions of dollars have been
already spent.
IFRS:
IFRS stands for International Financial Reporting Standards. These standards are issued by
International Accounting Standard Board (IASB) to provide a common language for business to
compare and understand the company affairs globally. IFRS are the core of accounting standards
and are becoming the global standards for preparation of company financial statements and are
being adopted by the countries across the world. As the name states, these standards are being
formed and adopted to provide the investors the view and knowledge of companies financial
position (Barker, & Teixeira, 2018).
Generally Accepted Accounting Principles (GAAP) are the rules and standards for financial
reporting of the companies and industries which is adopted by nearly all public U.S Companies,
whereas, IFRS is a global framework of how public companies should prepare and disclose their
financial reports so they can be used by the investors to know the financial position of the
companies and to make a like-to-like comparison among the global capital markets.
Characteristics of IFRS:
IFRS consist of several characteristics; few of them are as follows:

1. Faithful representation – financial reports made under these standards are complete and
bias free as they are prepared according to the standards set by IASB.
2. Understandable – these reports are understandable as they prepared with the view point
of investors to have knowledge about company’s financial position.
3. Comparable – reports made according to these standards can be easily compared. The
past reports can be compared with the present ones. Financial reports of different
companies in the same industries can be compared and effective conclusions can be
drawn by the investors.
4. Verifiability - as different people and investors for whom the reports are being made can
conclude the same decisions based on the information provided by the reports and hence
this helps to verify the information given in the reports.
5. Reliable - as the main objective of these standards is to provide financial reports of the
company to its investors, the decisions made by the investors are reliable on these reports
(Barker, & Teixeira, 2018).
Qualitative characteristics through which are not satisfied by persons:
According to the article, former AXA head of finance Geoff Roberts said that he did not
received even a single question in past seven years from the investment analyst and fund
managers about IFRS adjustments and that the investors rely on management briefings to
understand the company’s numbers (Sytnik, 2014).
So according to Geoff Roberts, the characteristic of IFRS (Reliability) does not satisfy the
current reporting practices pursuant to IFRS as the investors are not completely reliable on these
financial reports for their decisions, they do examine other things such as management briefings
and investors report before coming to any conclusions and final decision making. As Mr. Bowen
said that a person must be technically trained in order to understand these reports otherwise they
might be misleading is true (Sytnik, 2014)
If the person for whom the reports are being formed has lack of knowledge on accounting
standards then it might be hard for them to interpret what the report is providing and may draw
misleading conclusions. But on the other side it is good to have a technical knowledge in order