International Financial Reporting Standards and their Concerns

This article discusses the International Financial Reporting Standards (IFRS) and the concerns surrounding their adoption. It also analyzes the empirical evidence related to these concerns. The second case discusses the adoption of IASB standards in Australia and who stands to gain or lose from it.

FINANCIAL REPORTING ASSIGNMENT

Table of Contents
Assessment of Case 1..................................................................................................................................3
Introduction to International Financial Reporting Standards (IFRS)........................................................3
Three factors causing concern on adoption of IRFS.................................................................................3
Empirical Evidence and Analysis of the given factors..............................................................................4
Conclusion...............................................................................................................................................5
Assessment of Case 2..................................................................................................................................6
Introduction.............................................................................................................................................6
Change in the standards..........................................................................................................................6
Who stands to gain from Australia’s adoption of IASB standards...........................................................7
Who stands to lose from Australia’s adoption of IASB standards............................................................7
Conclusion...............................................................................................................................................8
References...................................................................................................................................................9

Assessment of Case 1
Introduction to International Financial Reporting Standards (IFRS)
International Financial Reporting Standards, also known as IFRS, are the standards which have
been issued by the International Financial Reporting Standards Foundation (IFRS Foundation)
together with International Accounting Standards Board (IASB) in order to provide a language
which is usual and universal in respect of the affairs of the business all over the world and is
also easy to understand and contrast. With the growing trade amongst various countries in the
world, there has increased a requirement for common standards. The introduction of these
standards has brought about replacements in many of the existing standards which are being
followed by many countries (Arnott, Lizama, & Song, 2017).
Three factors causing concern on adoption of IRFS
The introduction of the International Financial Reporting Standards is the reason behind the
concern of many countries. There are various factors because of which these concerns have
aroused. We have stated three factors of concern here. These factors are as follows:
a) The first factor of the concern is the concept of being principle based. Which does not
involve detailed rules and as a result, the job of actual processing of accounting is left on
to the decisions of the individual companies and their auditors (Boccia & Leonardi,
2016).
b) The second factor of concern is that under the International Financial Reporting
Standards (IFRS) the value of those assets which does not have any market value will be
determined on the basis of the mathematical projections of the earning being earned
with those assets in future (Bennouna, Meredith, & Marchant, 2010).
c) With the adoption of the International Financial Reporting Standards (IFRS), the
companies will have the ultimate discretion over the way various financial informations

are being presented, which will result in varied formats of processing the financial
statements.
Empirical Evidence and Analysis of the given factors
In reference to the factors stated above in Q2, the answers to the questions are being discussed
below:
a) The availability of empirical evidences in case of the above factors of concerns have
been discussed below:
i. In case of the first factor of concern, the concept the International Financial
Reporting Standards (IFRS) being principle based with less number of prescribed
rules and leaving of all the work of actual accounting processes at the decision of the
companies and it auditors does not have any actual evidence. There has been an
introduction of Japanese SOX law for this regard. However not in direct connection,
but this could be considered as an empirical evidence (Dichev, 2017).
ii. In case of the second factor of concern, there is no such empirical evidence being
observed as of now of valuing the assets without any market value at the
mathematical projections of its future earnings.
iii. In case of the third factor of concern, which is about giving the managers the
discretion over the format of presentation of informations to be reflected in the
financial statements has raised voices of many business people as well as
researchers. There has been no observation of any empirical evidence with this
regard as of now (Dumay & Baard, 2017).
b) The analysis of the above factors of concerns are being discussed below:
i. In the case of the first factor of concern mentioned above, that is, the concept of
the International Financial Reporting Standards (IFRS) being principle based, the
primary concerns are that they does not have much prescribed rules and leaves

the work of the actual processing of accounting the companies’ and their
auditors’ discretion. Consequently, many transactions which are alike could be
interpreted and treated in different manner by different companies and as a
result there may arise several cases of window dressing, which could be easily
conceived by the companies and their auditors as well (Félix, 2017). From the
analysis of this factor of concern, we can say that it is naturalistic in nature.
ii. In case of the second factor of concern, that is, the allocating the assets without
any market prices with the value being based on the mathematical projections of
its estimated amount of future earnings, the primary concern is that the
adoption of this approach will pave way for the manipulation of the statistical
data as well as the models of calculation by the dishonest managers. From the
above analysis, we can say that this factor of concern is scientific in nature.
iii. In case of the third factor of concern, that is, the provision of the discretion to
the companies over the presentation of the financial information in the financial
statements, the primary concern is that this would lead to varieties of processing
formats which would be unfavorable for the investors of the companies to
understand the financial reports with ease (Kim, Schmidgall, & Damitio, 2017).
This is contradictory to the very aim of the introduction of International Financial
reporting Standards, which is to facilitate the comparison of the financials of the
cross border companies. Hence, from the above analysis we can say that this
factor is scientific in nature.
Conclusion
All the factors leading to the concern in adoption of International Financial Reporting Standards
and the empirical evidence in respect of the same has been explained in detail along with the
analysis.

Assessment of Case 2
Introduction
IASB stands for the International Accounting Standards Board, which is an independent body of
the International Financial Reporting Standards (IFRS) Foundation, for setting the accounting
standards. The main purpose of the IASB is to develop the International Financial Reporting
Standards (IFRS) which is also known as the International Accounting Standards (IAS) and to
elevate the use and adoption of these standards (Visinescu, Jones, & Sidorova, 2017).
Change in the standards
As per the information provided in the question, from 1st January, 2005, Australia has adopted
the International Accounting Standards; in reference to this following are the answers to the
questions:
a) With the introduction of the international accounting standards there will be several
benefits to Australian companies. The international accounting standards enable the
accounting practices in being more transparent and convergent, which will as a result
increase the capital flow all over the international markets. Not only this, these
standards will replace the existing standards in the country which were restricted to the
national boundaries of a country and the companies of the country will be free from the
burden of preparing alternative copies of financial statement for the purpose of other
different countries (Meroño-Cerdán, Lopez-Nicolas, & Molina-Castillo, 2017). Moreover,
the application of these standards also enhances the quality of the financial reports of
accompany since, it focuses on the meeting of the objectives set by the standards.
These standards not only provide the above mentioned benefits but also facilitates
flexibility, as it is being set on the basis of global principles, it can adapt and adjust to
both types of changes being expected or unexpected in the business environment
globally all across the world, these standards can accommodated to the jurisdictional as

well as traditional circumstances with little amount of interference from the part of the
International Accounting Standards Board.
Who stands to gain from Australia’s adoption of IASB standards
b) There are various parties who gains from the introduction of the international
accounting standards. We have mentioned these parties below:
i. The economy:
With the adoption of the international accounting standards the main
advantageous party is the economy of the country since these standards are
globally recognized and aims at the usage of universally understood standards,
this makes the analyzing of the financial statement of the companies of other
countries easier and brings about growth in the economy (Segal, 2017).
ii. The International Investors:
The people who have invested their money in companies across the national
border stands to benefit with the introduction of the international accounting
standards, since it would enable them to study the financial statement of the
companies in which they have invested their funds easy and understandable, as
these standards are globally recognized and the countries following it will be
having the same and universal format enabling any country following the same
standards to read and understand it (Werner, 2017).
iii. The industry:
With the help of the international accounting standards, the industry will be able
to raise funds in the form of capital from the international markets at a lower
cost, since with the adoption of the international accounting standards it can
raise the confidence of the foreign investors in their companies’ financial
statements (Heminway, 2017).

Who stands to lose from Australia’s adoption of IASB standards
c) There are various parties who are at loss with the introduction of the international
accounting standards. We have mentioned these parties below:
i. The Tax Department:
The adoption of the international accounting standards has led to the avoidance
of taxes in case of various companies. The introduction of international
accounting standards is associated with higher avoidance of taxes. As a
consequence the tax department is at a loss with the adoption of these
standards (Mubako & O'Donnell, 2018).
ii. The small companies:
The adoption of the international accounting standards are not too favorable for
the small companies, since the replacement from the old standards to new
standards are not very cost effective and moreover, the benefits with the
adoption of these standards to the small companies is likely to be negligible.
Conclusion
From the analysis of the varied benefits of the introduction of the International
Accounting Standards, I would place my agreement with this change in accounting
standards as introduced in Australia.

References
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Visinescu, L., Jones, M., & Sidorova, A. (2017). Improving Decision Quality: The Role of Business
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