IFRS Adoption Impact on Accounting Quality

This assignment delves into the effects of International Financial Reporting Standards (IFRS) adoption on accounting quality. It examines various empirical studies that investigate how IFRS implementation influences key aspects of financial reporting, such as earnings management, information asymmetry, and the overall usefulness of accounting information for investors and analysts. The analysis draws upon research from prominent journals in accounting and finance to provide a nuanced understanding of the complex relationship between IFRS and accounting quality.

Running head: IFRS PROS AND CONS FOR INVESTORS
IFRS pros and cons for investors
Name of the student
Name of the university
Author note

2IFRS PROS AND CONS FOR INVESTORS
Table of Contents
1.0 Introduction..........................................................................................................................4
1.1 Importance of the Research..............................................................................................5
1.2 Research Questions..........................................................................................................5
2.0 Literature review..................................................................................................................6
2.1.1 Focus on the investors...................................................................................................7
2.1.2 Recognition of loss in timeliness..................................................................................8
2.1.3 Comparability................................................................................................................8
2.2.1 Requirement of high costs.............................................................................................9
2.2.2 Prone to manipulation...................................................................................................9
2.2.3 Not globally accepted..................................................................................................10
2.3 Conceptual Framework......................................................................................................10
2.4Summary.........................................................................................................................10
3.0 Research methodology:......................................................................................................12
3.1 Sample selection:...........................................................................................................12
3.2 Sample period:...............................................................................................................13
3.3 Model selection:.............................................................................................................13
3.4 Variable selection:..........................................................................................................14
4.0 Results and findings:..........................................................................................................15
5.0 Conclusion..........................................................................................................................18
5.1 Recommendation............................................................................................................19

3IFRS PROS AND CONS FOR INVESTORS
Reference..................................................................................................................................20

4IFRS PROS AND CONS FOR INVESTORS
1.0 Introduction
There are various standards and processes that are used in the current world and these
processes are useful for proper maintenance and functioning of the organizations that
existent. This research study tries to elaborate the significance of IFRS (International
Financial Reporting Standard) and their pros and cons that are existent for an investor. IFRS
has been in the forefront in the current agenda as the organizations that are listed are required
to disclose their financial statements in accordance the standards of accounting put forth by
IFRS (Doukakis et al., 2017). The International Financial Reporting Standard provides
assisting standards for the developing countries that would be helpful in increasing the
economic revenues by disclosing the fair and true position of the economy. This research
paper comprises of the precise discussion of International Financial Reporting Standard and
the pros and cons that are associated for the investors. The financial reports that are
constructed by the companies are seen by the investors relying on IFRS but have not been
able to experience the full scale of the adjustments for a yearly basis that might be triggered
by the IFRS (Rhee et al., 2016). It is essential to explain the pros and cons that is available to
the investors so that the investors gain knowledge about the same and take extensive
measures that would be beneficial for the investors with respect to their investments.
The initial section of the paper tries to explain the principles of International Financial
Reporting Standard so that a brief idea about the standard can be attained. The next section of
the paper tries to assess the pros and cons for the investors with respect to IFRS when it is
implemented by various countries. The pros and cons are different and depend upon by the
various external factors that are existent in various countries. The various councils that looks
in to these standards, constructs the strategy for the compliance of these standards with the

5IFRS PROS AND CONS FOR INVESTORS
ones that existent to the regulations and laws and even assesses the standards when
incorporated (Santana et al., 2014).
There are various importance and benefits of IFRS that is inclusive of comparative
assessment of the true and fair statements, precise resource allocation, confidence of the
investors etc. These are certain pros that can assist the investors in understanding their
investments and in the same manner undertake investments in a precise manner (Barbu et al.,
2014). The paper even tries to explain the obstacles and the cons that the investors can face
and therefore specific assessments can be taken in order to understand the same about the
topic.
1.1 Importance of the Research
The answering of these issues is vital as it would be helpful in discovering the pros
and cons that are existent in IFRS for the investors and thereby helping the companies and the
investors to gain knowledge about the same and construct their strategies in an effective
manner.
1.2 Research Questions
The research questions have been constructed in order to have an idea about the
International Financial Reporting Standard and the companies that have been incorporating
the same. The research question is helpful in constructing the course and the path that would
be followed in order to complete the research in an effective manner. The research questions
consist of the issue that is needed to be answered by the paper. The research questions are
given as follows:
Q1. What are the various factors that can have an impact on IFRS and in that manner can
have an impact on the investors?

6IFRS PROS AND CONS FOR INVESTORS
Q2. What are the benefits and the hurdles that are associated with IFRS to the investors?

7IFRS PROS AND CONS FOR INVESTORS
2.0 Literature review
IFRS (International Financial Reporting Standards) is set of the standards that are
created by IASB. Earlier the standards were known as the IAS (International Accounting
Standards) and were in use between the years 1973 and 2001. However, later it came to
known as IASB and in that way the new system created. On the basis of IFRS, the complete
financial statement shall include the income statement, balance sheet and the cash flow
statement of the company. It shall further include the changes in equity if the company
(Ahmed, Chalmers & Khlif, 2013). Data related to these are crucial in the process of decision
making of the investors as well as the management. Financial statement is key component for
the potential investors for taking the decisions regarding whether the company is feasible to
make investment or not. However, the policies of the entity also play crucial role in taking
any decisions regarding the accounting statement.
The accounting standard is shaped by the political and economic forces and it follows
the worldwide integration of the politics and markets that is generally driven by the reduction
in the costs associated with information processing and communications. It makes the
integration of financial reporting practice and standards nearly inevitable (Barth et al., 2012).
However, most of the political and market forces may remain local for foreseeable future,
therefore, it is not clear that how much convergence with regard to the practice in the actual
financial reporting will take place. Moreover, very little evidence or theory is there based on
which the assessment of disadvantages and advantages of the rules associated with the
uniform accounting within the country or internationally. Therefore the pros or cons of IFS
for the investors are hypothetical in some context. Adoption of IFRS at international level, in
the present years is frequently discussed and analyzed under the accounting field which in

8IFRS PROS AND CONS FOR INVESTORS
turn generates the interests among the scholars, professionals, investors and the other users of
the financial information (Škoda & Bilka, 2012).
If the pros of adopting the IFRS are considered with regard to the investors, it can be
said that the IFRS delivers the information with more details as compared to the GAAP.
Further, it is easy and simple to use and it delivers the reporting with more detailed approach.
IFRS is flexible and it allows choosing the course of conduct and also offers for giving the
fair view with regard to the financial position of the company. Further, the IFRS allows any
company to adapt the changes with regard to the business environment in better way as they
do not have many guidelines. This approach influences usages of the professional judgements
which in turn enable the financial statements to be more transparent with flexible
interpreting; straightforward thinking and the standards of the reporting are produced as per
the expectation. Based on the judgement of IFRS supporters, business decisions are generally
relied on the professional judgements and not rely on the rules. Therefore, if any company
fails on disclosing the professional judgements with regard to the financial statements, it can
be misleading to the investors.
2.1.1 Focus on the investors
The single set of the accounting standards will definitely provide comparability and
will enable the companies for different countries for applying same standards. It will improve
the transparency and allow cross-border investment along with lower capital cost and greater
liquidity. Further, it will cut down costs and time for preparing the financial statements as per
various standards, regulations and will result into great savings with regard to long-term
capital. Using the uniform standards of accounting and and adopting the IFRS will eliminate
the expected different outcome of accounting from the application of various standards if US
does not move toward or adopt IFRS. Further, maintenance of multiple standards for
reporting purpose will increase the auditing and accounting costs and will deliver no value to

9IFRS PROS AND CONS FOR INVESTORS
any nation. More than 100 nations have already adopted or under the process for adopting the
IFRS. Delays for adoption of IFRS by US will force the multi-national organizations to
prepare their primary reports applying IFRS that will result into parallel reports in the US
GAAP. It is estimated that there will requirement of huge investment for the transition to the
IFRS, however, the expenses will be one time investment as the financial reports will be
reduced from 3 to 1 which in turn will save money in the long term period (Christensen,
2012).
2.1.2 Recognition of loss in timeliness
Recognition of the loss immediately is the crucial factor of the IFRS as it is beneficial
to the investors as well as to the stakeholders and lenders of the company. Further, the
improvements in transparency and the recognition of loss for IFRS, generally enhances the
efficiency with regard to the contracts among the organizations and management which in
turn also improves corporate governance (Cherry & Schwartz, 2013). With the improvements
in the transparency, the lenders also become beneficial as it make the recognition of the loss
immediately as compulsory. Further, the recognition of timelier loss in IFRS identifies the
issues associated with the economic losses and that will be known to the shareholders and
other potential investors. The recognition of timelier loss will also enable the company to
review the book values of the equities, earnings, liabilities and assets.
2.1.3 Comparability
Convergence to the IFRS will improve comparability of the financial statement for the
companies all over the world. If all the organizations prepare and report their consolidated
financial statements under the one standard for reporting, it will improve comparability for
the investors as well as the shareholders who generally use the financial statements for
making various decisions. Owing to strong national identity of the IFRS reports, the IFRS
mainly have an impact on the how the companies identify, disclose and measure the items.

10IFRS PROS AND CONS FOR INVESTORS
Further, as most of the companies already adopted the IFRS, it will minimize the alterations
from the earlier national standards which in turn will increase the ability of comparing the
financial statements all over the industries in the same sector (Marulkar, 2013).
If the cons of adopting IFRS with regard to the investors are considered, it is
recognized that the most crucial disadvantage of convergence to IFRS is the involvement of
cost that is associated with the application of IFRS by the multinational entities that includes
altering of internal systems for making it more compatible with new standards for reporting
and the costs associated with training. Further the issues associated with regulation of IFRS
in all the countries will not be possible owing to various reasons that is beyond the control of
IASC or IASB as they are not able to enforce IFRS application for all the countries all over
the world.
2.2.1 Requirement of high costs
Irrespective of the size, all the businesses feel that it will greatly impact them if they
adopt the IFRS. However, the small entities will not have enough resources for implementing
the changes associated with IFRS and will require trained staff or consultants or accountants
for assistance (Dvořáková, 2013). Therefore, they will have to bear more burdens in financial
terms as compared to the big companies.
2.2.2 Prone to manipulation
As any business can use only that method they wish to, it will lead to revealing the
desired results in the financial statements which in turn will lead to manipulation of profit. As
the new set of the standards needs the changes with regard to the ways in which the rules are
supposed to be applied to make it justifiable, chances are there that the businesses will come
up with various reasons for adopting the changes (Jiao et al., 2012). That is to say those more

11IFRS PROS AND CONS FOR INVESTORS
strict rules will be implemented for assuring that all the companies will value the statements
in similar manner.
2.2.3 Not globally accepted
As US has not yet adopted IFRS, various other countries in the same way is chosen to
continue with the old standards. This means to say that the accounting system by foreign
companies dealing in these countries that have not adopted IFRS will have to face difficulties
as they have to prepare the financial statement using both the systems.
2.3 Conceptual Framework
Comparabilit
y
High cost
Manipulati
on
Recognitio
n of loss in
Political
effect
Economic
effect
Effect of
IFRS on
investors

12IFRS PROS AND CONS FOR INVESTORS
2.4 Summary
It is concluded from the above discussion that the application of IFRS helps the small
or new investors through making the standards of reporting better and simpler as it puts the
new and small investor in same position along with other professional investors in same
position. However, it is disadvantageous to the investors as IFRS is still not accepted globally
and the financial statements are prone to manipulation by the management.

13IFRS PROS AND CONS FOR INVESTORS
3.0 Research methodology:
Research methodology is determined by researcher and it is their decision to pick up
instruments with the objective of collecting data and evaluating it on reasonable basis. The
current paper is prepared to understand the impact of International financial reporting
standards on selected companies of three countries that is Germany, United Kingdom and
Switzerland. In the present study, researcher has tried to understand the advantages and
disadvantages of implementation of IFRS on shareholders and investors of respective
organizations. This has been done by examining the financial report of selected companies by
the implementation of such standard.
3.1 Sample selection:
Selection of data is considered as utmost important requirement for ensuring that
research paper have been completed. This is so because data forming the part of sample
would lead to possible proposition for attaining the targeted results. In this research paper,
researcher is making use of secondary data that are collected from variety of secondary
sources. Sampling is the procedures of collecting sub group or individual from large number
of individuals in study. Researcher has made use of statistical techniques of probability
sampling for selecting companies from United Kingdom, Germany and Switzerland.
Collection of specific results would be influenced by this process and it is considered
desirable by researcher. With respect to the topic concerning under this study, researcher has
selected 150 respondents from a large pool of respondents of the selected countries. The
financial reports of selected respondents from year 2006-2016 have been analysed and
evaluated with regard to various aspects of implementing the international standard.
Considering reports for considerable period of time would provide researcher with detailed
examination of applicability of standard.

14IFRS PROS AND CONS FOR INVESTORS
3.2 Sample period:
The sample comprise of financial reports of selected companies from three different
countries for the period of ten years. Financial reports of selected respondents have been
taken from year 2006 to year 2016. These financial reports are prepared by companies either
on annual basis or quarterly basis. Researcher has evaluated data with the help of
investigative method that helps in generation of knowledge about the various impacts of
IFRS implementation.
3.3 Model selection:
Model selection is about the approach used by research while doing study and it is
regarded as vital factor in meeting up objectives of research for completing research in
accordance with problem statement. In order to develop accurate results, researcher is
compelled by employing approach or model to look for each progression so that demanded
operations are undertaken. There are two models used in conducting research that involves
deductive research and inductive research (Hellman et al., 2015). It has been viewed that
deductive approach is about reviewing of models and discovering ideas from using various
sources. This would help in analysing the impact of research work by analysing collected
data. Using this approach, researcher develops a set of hypothesis at the beginning of research
and during process of research, such developed hypothesis are subjected to research.
Since the present research is concentrating on analysing the impacts of IFRS by
different countries on their respective investors, employment of deductive approach by
researcher has been considered suitable for completing and managing then investigation.
Selection of approach has been due to the fact that quantitative method of evaluation is used
by researcher for completing research objective. Attempting of quantitative method has been
done by researcher by dissection of responses that are received from respondents for
collecting section of data analysis (Barth, 2015).

15IFRS PROS AND CONS FOR INVESTORS
3.4 Variable selection:
Selection of variable is employed in section of research design that provides
researcher with planning so that they are able to achieve particular set of research objectives.
Researcher is influenced by selected of variable by relying on highlighted outcomes so that
functioning of paper would be done in accordance with established goals of research work.
There are three ways of selecting variables explanatory research design, exploratory research
design and descriptive research design (Biddle et al., 2016). Under the present study,
researcher has employed descriptive research deign for identification of variables. The overall
research has been directed by relating to descriptive research design. Since, research has
selected large number of samples under present study and conducting quantitative
experimentation, it is useful to employ descriptive research design. Some of the variables that
has been selecting for determining the impact of implementation of IFRS include earning
management, capital structure, growth, profitability and taxation. When a number of
variables are employed and analysis has to be done using multiple variables, descriptive
research is unique approach (Leuz&Wysocki, 2016). Furthermore, it also helps in analysing
comparison between several identified variables. In this regard, researcher can compare data
of various identified variables as derived from financial reports of several companies of
different countries.

16IFRS PROS AND CONS FOR INVESTORS
4.0 Results and findings:
The study examines and puts forward the results concerning the rising or the
comparative effect of the IFRS on the earnings of the investors in respect of the several
countries reporting milieu. The analysis makes it probable to globally contrast on whether the
IFRS helps in lowering the returns of the investors or improving the earnings of the investors
in explaining the role of the nation specific institutional influences in providing the
explanation of the superiority of the reporting along with the principles of reporting.
Correspondingly Brüggemann et al., (2013) set out a preference and overall
conviction that IFRS reducing the earnings. Without specifying the results for individual
jurisdiction it has been found that IFRS has resulted in the reduction in the degree of return
management across 21 nations and hence improved the quality of the earnings. However, a
contradictory result is reported by the researchers that have assessed the inspected the effect
of the IFRS application on the returns of the investors by using the sample of 150 financial
reports for German, Swiss and UK companies.
The results have suggested that earnings of the investors have increased with the
application of the IFRS (Li et al., 2017). The analysis associated with the incentive of the
investors impacting on the earnings and with increased subjectivity. The results derived from
the data suggest that IFRS is considered to be flexible and enable sustainable use of
administration discretion which is more likely to increase the operation of accounting.
By using the example of the listed businesses from the three nations arises with three
different results of the earnings for the investors following the adoption of the IFRS in
German, Swiss and UK companies (Horton et al., 2013). The results derived affirmed from
the findings states that lower, higher and moderate level of earnings for the investors

17IFRS PROS AND CONS FOR INVESTORS
following the adoption of IFRS. The differences obtained in the official environment and
implementation machinery might lead in changing degree of incomes in the listed companies
across the companies.
Equally, on investigating the impact of adopting IFRS on the quality of accounting for
the selected three countries around the world protection of the investors forms the vital
elements (DeFond et al., 2014). The result derived stated that adoption of the IFRS does not
result in increased earnings quality for the investors through reduced return administration
however it is dependent on the other aspects such as protection of the investors. The results
obtained states the fact that the quality of the earnings improves on adopting the IFRS
countries with stronger protection for investors.
Of late the analysis is concerned with the examination of the IFRS on the earnings of
the investors both pre and post adoption of the IFRS by using the financial report of the
sample EU countries. The result derived from the financial report suggested a mixed
conclusion where nations demonstrated reduced earnings for the investors while others have
represented increased earnings for the investors (Christensen et al., 2015). The result is
conflicting to the IASB anticipation that IFRS enhances the superiority of the reporting
however it heaves an example based on the role of the dysfunctional lawful and institutional
quality of reporting environment.
In another empirical study, it has been examined that the earnings of the investors in
public listed companies inside the Switzerland. The results derived suggested that companies
that have opted for the IFRS administered returns to lower the degree that the companies
opting for domestic accounting standards (Chen et al., 2014). To be more precisely the study
discloses that lower return for the investors in companies that have adopted IFRS in
comparison to the companies applying local GAAP.

18IFRS PROS AND CONS FOR INVESTORS
Nevertheless, global comparative study performed on the IFRS has represented the
impact on the earnings of the investors by noticing that the earnings of the investors have
declined recently following the acceptance of the IFRS in countries such as Switzerland. The
reading accounts that nations with strong implementations have comparatively less return
administration. This introduces the emphasis on the quality and efficiency of the IFRS
enforcement in the mechanism plays an vital role in enhancing the quality of the reporting.
The study from the empirical evidences has suggested from the international studies
presented in this section stated a varied assumption. Countries such as UK and Germany have
reported that IFRS have improved earnings quality for the investors through reduced earnings
management than the local reporting GAAP (Doukakis, 2014). Fascinatingly mixed results
are obtained from the analysis using the same method in the diverse countries throughout the
same period. The results obtained provided that some nations have reported a reduced
earnings for the investors while some nations have reported a higher earnings for nations that
have adopted IFRS while few found no impact on post adoption of the IFRS.
The results can be related with the fact that reporting regime is not considered as the
only determinant of the excellence of reporting evidence. It additionally appraises the part of
the other elements that helps in determining the superiority of the reporting namely operative
and robust official reporting implementation equipment and protection of shareholders
(Beneish et al., 2015). The analysis validates the differences between the legal and the
institutional implementation mechanism the results in divergence and inconsistent
implementation of the IFRS along with the uneven implementation mechanism in security
market. As a matter of fact IFRS cannot be considered as the prima facia factor and could not
alone sufficiently provide an explanation of the quality of the accounting information for the
investors.

19IFRS PROS AND CONS FOR INVESTORS
5.0 Conclusion
IFRS has been observed to be one of the most accepted standards of the world that
produces fair and true financial statements that consists of the principles that are adequate for
maintaining the financial statements updated and proportional for the assessment in various
companies and nations. The paper has looked to highlight the pros and cons for the investors
with respect to IFRS and the assessment of the data that has been collected from various
resources explains that incorporation of IFRS has mostly been beneficial for the investors.
IFRS has been found to be assisting the investors for the development of comparative
attribute, allocation of the resources, development of investments, enhanced financial
statements, classified portfolios and cost effective processes as it provides policies and
regulations with respect to the status of the entities.
The paper has even highlighted that there are distinct hurdles as this standard in
certain cases contradicts with the existing regulations, variation in the process of recording
the financial transactions, difference in the distribution of the dividend policies and the issues
associated with the mutual funds. There have been additional hurdles that are existent while
implementing the same in SME and hence the investors have been able to understand the
issues and undertake their investments in an effective manner. There have been various
countries that have incorporated this standard and they have been able to understand the
issues related to the investors and constructed policies that can safeguard the desires of the
investors. Various countries like UK, Germany and Switzerland has been making use of this
standard and USA has recently incorporated this standard and therefore has been facing
issues that has been having an impact on the investors. This paper has even discovered that
IFRS is not the only factor that affects the investment strategies of the shareholders but there
are various external and internal factors that the investors has to look into in order to

20IFRS PROS AND CONS FOR INVESTORS
safeguard their investments. It can be concluded that IFRS has a mixed effect on the investors
as IFRS in certain countries does not have any effect on the investors and hence IFRS can be
implemented in various countries as the benefits are more precise than the cons.
5.1 Recommendation
It is therefore recommended that extensive researches are undertaken on a frequent
basis in order to understand the changes that are taking place in the IFRS standards and hence
the investors can construct their strategies accordingly. The investors should even understand
the various factors that have an impact on the IFRS standard within various countries so that
the investors can process their investment in an effective manner.

21IFRS PROS AND CONS FOR INVESTORS
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