IFRS Adoption and its Impact on Accounting

This assignment provides a comprehensive overview of the impact of International Financial Reporting Standards (IFRS) adoption on various aspects of accounting, including performance, value relevance, and challenges faced by companies in different countries. It includes a list of references to relevant studies and research papers on the topic, providing valuable insights for students and researchers in the field of accounting.

Running head: INTERNATIONAL ACCOUNTING
International Accounting
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Table of Contents
Part 1: Explanation of the advantages of adopting IFRS compared to GAAP reporting standards 2
Part 2: Discussion on the responses of the companies in the world towards full IFRS
convergence.....................................................................................................................................3
Part 3: Discussion on the challenges faced by companies in Malaysia and other countries in
adopting and full convergence of IFRS...........................................................................................5
Part 4: Summary..............................................................................................................................8
References:....................................................................................................................................10

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Part 1: Explanation of the advantages of adopting IFRS compared to GAAP reporting
standards
IFRS is superior over GAAP reporting standards in a variety of ways, which are
elaborated briefly as follows:
Focus on investors:
IFRS ensures timely, accurate and comprehensive financial reporting information
pertinent to the national standards. In addition, the provided information helps in easy
understanding for the investors, since they do not have to rely on other sources for obtaining
information. Moreover, the standardisation and harmonisation of reporting standards under IFRS
have eliminated the payments for the investors in relation to processing and adjusting financial
statements. Hence, it helps in minimising the overall cost for the investors (Houqe, Monem &
van Zijl, 2016).
Comparability:
The IFRS convergence has enhanced the financial statement comparability in EU by
following a single reporting standard under one market, which is the EU. The improvement is
designed not only for the investors, instead for all the stakeholders using the financial statements.
One more reason that has attributed to the success of the adoption of IFRS is due to the period of
transition, since above 8,000 EU listed organisations have adopted IFRS in the same year.
Standardisation of accounting and financial reporting:
One of the significant benefits of IFRS over GAAP is the standardisation of financial
reporting that enhances the financial statement comparability in the main financial markets. This
eliminates the trade barrier as well, as this was one of the significant factors behind the motive of
the EU to implement a single reporting standard (Fiechter, Halberkann & Meyer, 2017).
Enhanced transparency and consistency of financial reporting:
This influential dynamic could be cited as one of the critical benefits of converting to
IFRS from GAAP, since it makes the nations to be consistent on macroeconomic aspects as well

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as financial reporting. This helps in strengthening the relationship between the organisations and
the investors among member nations.
Better access to investments and foreign capital markets:
Since numerous global organisations and other joining nations have developed large base
for adoption of IFRS, it enhances the organisations in accessing to financial markets by
preparing the financial statements under a single reporting framework. One of the primary
reasons for converting from GAAP to IFRS is to enhance comparability in global financial
markets for raising the focus on investors (Abdallah, 2016).
Enhanced comparability of financial information with international competitors:
The financial statement comparability under IFRS would be enhanced if the enforcement
of IFRS expands including more nations. However, the comparability aspect could be worsened,
if a nation uses two sets of reporting standards, which are national reporting standards and IFRS.
There might be negative impact on the local share market because of the difference between
market value and book value, when both IFRS and national reporting standards are in place
(Tuzarová & Mejzlík, 2018).
Relevance:
IFRS lays stress more on economic substance rather than legal form, which enables the
organisations and their stakeholders to gain a fair understanding of the business transactions. In
addition, it reflects to losses and gains within time, which places it in a credible position than
GAAP, as far as the reporting standards are concerned. Finally, the statement of financial
position prepared in accordance with IFRS is more useful because of its consistency and layout
along with the complexity level in contrast to GAAP, which tends to be excessively detailed.
Part 2: Discussion on the responses of the companies in the world towards full IFRS
convergence
It has been observed that the step towards the convergence of IFRS would improve the
performance of the capital market along with spurring international business expansion. By
taking into consideration this development on the convergence of IFRS, it is critical for the

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organisations to make them versed with the situation by analysing their current process of
financial reporting, financial resources, human capital and information systems. Hence, by
considering the effects of the convergence of IFRS, it is necessary to study the responses of the
public listed firms in the world towards full IFRS convergence. Despite the widespread adoption
of IFRS by the global business organisations, the level of preparedness in adopting IFRS has
varied broadly between nations and organisations. According to the research work of Ozu et al.,
(2018), a survey was carried out on the adoption of IFRS in Japan, in which the level of
preparedness of the organisations is gauged depending on the assessment mode and conversion
process. The assessment mode takes into account the analysis of the changes in accounting
policy, changes in system, training scope, changes in cost and stakeholder reactions. On the other
hand, the conversion process mode takes into account preparation for systems of financial
reporting, training course provision, accumulation of additional accounting information along
with enforcement of other procedures.
Another qualitative study has been conducted by Phang & Mahzan (2017) on Malaysian
public listed companies, in which the researchers have arranged for one-to-one interview to gain
understanding on the social and economic effects of the convergence of IFRS. The findings state
that concerns are inherent in the Malaysian listed firms regarding the introduction of IFRS by the
Malaysian authority. This is because it has not taken into account religious, cultural and societal
variations prevalent in the global arena.
In the research work of Chen et al., (2017), various surveys have been conducted to
examine the phase of preparedness of the organisations in adopting IFRS in China compared to
the developed nations like Canada and European Union. The surveys reveal that that sufficient
training and resources, changes in the systems of financial reporting, impact awareness,
engagement of the external consultants and communication to external stakeholders are critical
factors that the Chinese organisations need to take into account in the implementation procedure
of IFRS.
According to Bassemir (2018), KPMG has faced the challenge of developing IFRS-based
infrastructure within its international network of member organisations. The other three global
audit firms like Ernst & Young, PwC and Deloitte have extended support to the development,
application and adoption of IFRS as the only set of greater quality international accounting

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standards. In addition, these organisations including KPMG have sought to develop networks,
resources and infrastructure for supporting the IFRS-based audit as well as advisory service
delivery in their global business operations. However, they face a certain challenge in conducting
the same, which is the coordination of daily operational activities of more than 140 distinct and
independent national practices that are members of the organisation at the time of rendering an
inference on the pertinent IFRS application. Therefore, the audit firms are confronted with the
challenge to function with an integrated and single voice while remaining distinct and
independent legal enterprises.
In the article of Sharma, Joshi & Kansal (2017), the Indian public listed entities would be
confronted with various challenges at the time of implementing IFRS. The main implementation
issues that the organisations are likely to encounter include the following:
 The professionals need to be provided with considerable amount of training to make them
well-versed with IFRS.
 The organisations have to avoid diverge through various interpretation
 The Indian audit firms need to form publications as well as electronic resources for
supporting advisory practices and IFRS-based audit.
 They need to coordinate participation in the process of standard-setting constituting of
responses at national level for projects linked to the standards of the nation.
Part 3: Discussion on the challenges faced by companies in Malaysia and other countries in
adopting and full convergence of IFRS
There are certain challenges that the companies of Malaysia, Nigeria, UAE and Libya
face in adopting and full convergence of IFRS, which are enumerated briefly as follows:
Malaysia:
Certain issues are covered in “Malaysian Financial Reporting Standards (MFRS) 1” and
it has a transition date where an organisation needs to present its entire comparative information
in its initial MFRS-based statements. According to MFRS 101, the Malaysian public listed
entities need to provide three balance sheet statements, two comprehensive income statements,
statement of changes in equity and cash flow statement. In addition, the standard requires the
organisation to present their balance sheet statement at the start of the year while exercising

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utmost caution in making retrospective statements and reclassifying items in financial statements
and accounting notes. It has been expected that the organisations would be able to depict
financial statements that comply with MFRS. However, certain entities in Malaysia could not
present their financial statements accordingly, since they were not MFRS ready (Yaacob &
Ahmad, 2017).
Another challenge that confronted the full IFRS adoption in Malaysia is that whenever
the cost of adherence to MFRS is more than the benefits of the financial statement users and
management judgement of any transaction is needed, exemptions would be granted by IASB. As
a result, it would result in the formation of unlevel playing field amongst the Malaysian public
entities supposed to apply MFRS framework for overall adoption. Thus, for ensuring compliance
it is necessary for the organisations to perform detailed and thorough assessment of their
readiness in becoming MFRS compliant so that any authoritative investigation because of non-
compliance could be avoided (Abdullah et al., 2015).
Nigeria:
The convergence to IFRS in Nigeria requires heavy initial investment like the cost of
training personnel for gaining insight about the global standard, cost to acquire new accounting
packages required for implementation and cost to discard previous accounting packages that is
not line with IFRS. In Nigeria, cost could be defined as the price tag to implement IFRS of the
forgone SAS (Abiodun & Asamu, 2018). The most inherent challenge faced by the Nigerian
public organisations is training personnel and management for preparation of financial
statements, which comply with IFRS. This challenge had taken huge man hours for the Nigerian
organisations. This is because they have to conduct in-house training along with sponsoring
staffs for attending seminars and conferences so that they could understand the new IFRS.
Another challenge faced by the Nigerian companies is the difference between the national
standard (SAS) and IFRS, especially the Nigerian banks. This is because SAS is more
prescriptive than IFRS; for instance, “SAS 10 – Accounting by Banks”. Besides, the accounting
policy choices are more in IFRS and hence, this might lack consistency with “Local Legislations
of Companies and Allied Matters Act (CAMA) 1990” and “Banks and Other Financial
Institutions Act (BOFIA) 1991” (Adeyemo et al., 2017). Furthermore, additional disclosure
needs are required in IFRS and differences could be observed in interpretation and application.

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Thus, IFRS implementation has enhanced the need within the companies to accumulate, evaluate
and report additional data for adherence.
United Arab Emirates (UAE):
The Islamic regulations mainly regulate the UAE public companies and thus, the move
from Saudi GAAP to IFRS had posed challenges to such organisations. One of the primary
challenges is the limited pool of resources, as the number of qualified UAE accountants is 300
only (Perera & Chand, 2015). This shortage was offset by the various expatriates; however, the
Arabic language was another challenge. The statutory financial statements that are developed
according to Saudi GAAP are to be filed with the pertinent authority in Arabic. It is expected that
this process would continue with IFRS transition. This has added pressure on the Arabic
speaking professional accountants for assuring that adherence to IFRS was not lost in translation.
Libya:
Since Libya is yet a developing nation, the organisations in Libya had faced various
challenges at the time of IFRS implementation. The most significant challenge that the firms and
faced was the process of adoption rather than the content of the distinct accounting standards or
the adoption decision. The other significant challenges that the Libyan organisations had faced in
implementing IFRS constitute of the following:
 Complexity of estimation as well as domination of uncertain circumstances due to the
issue of different norms and legislations without the conduction of feasibility studies
(Lahmar & Ali, 2017)
 Depending on few specific systems of governmental regulations and norms, the national
economies often differ in relation to legal systems. In case of Libya, the listed entities
depend on common law and protective norms like antitrust laws and unfair trade.
 The adoption of IFRS has created issues for the taxation laws of Libya in terms of
treatment of tax liabilities aroused on convergence from Libyan GAAP to IFRS. As
adequate care was not exercised initially, there were greater instances of duplication.
 The methods of unfair evaluation value the privatised organisations in Libya because of
the loss of primary trading information.
 Efficiency and technical skills were not sufficient and insufficient knowledge of the
professional accountants of Libya had been another challenge faced in order to
implement IFRS within the nation (Faraj & El-Firjani, 2014).

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Part 4: Summary
With the large scale compulsory adoption of IFRS, various research studies have assessed
the effects of the adoption of IFRS. In order to evaluate the feasibility of IFRS, its benefits have
been discussed widely to show its superiority over GAAP. One of the primary benefits that IFRS
possess is that it helps in providing additional information to the investors. This is because one of
the significant motives of IFRS is to enable the investors in undertaking significant investment
decisions for maximising their overall return on investment. Moreover, the standardisation and
harmonisation of reporting standards under IFRS have eliminated the payments for the investors
in relation to processing and adjusting financial statements. Hence, it helps in minimising the
overall cost for the investors. Along with this, it has been observed that IFRS helps in ensuring
relevance to the users of the financial statements. This enables the organisations and their
stakeholders to gain a fair understanding of the business transactions. In addition, it reflects to
losses and gains within time, which places it in a credible position than GAAP, as far as the
reporting standards are concerned.
The second section of the assignment has highlighted the responses of the global business
firms towards the full convergence of IFRS. Even though the big multinational organisations in
the developed nations have not faced adequate difficulties in implementing IFRS; however,
issues are deemed to be observed in the developing nations and the organisations operating in
those nations. Out of the discussed issues, the most inherent issues constitute of lack of
knowledge among the professional accountants and cost of training. However, the big four audit
firms have responded well to the adoption of IFRS and they have developed adequate
infrastructure for complying with the standard.
The final section of the assignment has focused on identifying those challenges that the
global business organisations operating in Malaysia, Nigeria, UAE and Libya have encountered
while adopting the transition of IFRS. It has been observed that majority of the business
organisations operating in these nations do not have adequate accounting professionals having
considerable knowledge about the standard. As a result, UAE had to consult with the expatriates
of the nation. Moreover, resorting from local standards to IFRS requires numerous changes and
the organisations had faced difficulties in preparing their financial statements based on IFRS. In
addition, the organisations have to face difficulties in disclosing the notes to accounts, as is the
case with the Libyan companies in relation to their tax treatment policy. Therefore, it could be

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inferred that even though IFRS is designed to bring uniformity in financial reporting, various
global organisations have encountered numerous complexities in the initial stage of
implementation.

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References:
Abdallah, W. M. (2016). The Conversion from US-GAAP to IFRS and Transfer Pricing:
Irreconcilable Differences. The Journal of Accounting and Management, 6(1).
Abdullah, M., Evans, L., Fraser, I., & Tsalavoutas, I. (2015, December). IFRS Mandatory
disclosures in Malaysia: the influence of family control and the value (ir) relevance of
compliance levels. In Accounting Forum (Vol. 39, No. 4, pp. 328-348). Elsevier.
Abiodun, J. O., & Asamu, K. (2018). Comparative Analysis of the Pre and Post Adoption of
IFRS on Performance of Listed Manufacturing Companies in Nigeria. Social
Sciences, 5(1).
Adeyemo, K. A., Ajibolade, S. O., Uwuigbe, U., & Uwuigbe, O. R. (2017). Mandatory Adoption
of International Financial Reporting Standards (IFRS) by Nigerian Listed Banks: Any
Implication for Value Relevance?. International Journal of Accounting Research, 3(1),
21-33.
Bassemir, M. (2018). Why do private firms adopt IFRS?. Accounting and Business
Research, 48(3), 237-263.
Chen, C., Lee, E., Lobo, G. J., & Zhu, J. (2017). Who Benefits From IFRS Convergence in
China?. Journal of Accounting, Auditing & Finance, 0148558X16688115.
Faraj, S., & El-Firjani, E. (2014). Challenges facing IASs/IFRS implementation by Libyan listed
companies. Universal Journal of Accounting and Finance, 2(3), 57-63.
Fiechter, P., Halberkann, J., & Meyer, C. (2017). Determinants and Consequences of a Voluntary
Turn Away from IFRS to Local GAAP: Evidence from Switzerland. European
Accounting Review, 1-35.
Houqe, M. N., Monem, R. M., & van Zijl, T. (2016). The economic consequences of IFRS
adoption: evidence from New Zealand. Journal of International Accounting, Auditing
and Taxation, 27, 40-48.
Lahmar, A. T., & Ali, A. (2017). Factors influence Adoption of International Financial Reporting
Standards (IFRS) Adoption in Libya. Global Journal of Accounting and Finance, 1, 18-
32.
Ozu, C., Nakamura, M., Nagata, K., & Gray, S. J. (2018). Transitioning to IFRS in Japan:
Corporate Perceptions of Costs and Benefits. Australian Accounting Review, 28(1), 4-13.

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Perera, D., & Chand, P. (2015). Issues in the adoption of international financial reporting
standards (IFRS) for small and medium-sized enterprises (SMES). Advances in
accounting, 31(1), 165-178.
Phang, S. Y., & Mahzan, N. (2017). The responses of Malaysian public listed companies to the
IFRS convergence. Asian Journal of Business and Accounting, 6(1).
Sharma, S., Joshi, M., & Kansal, M. (2017). IFRS adoption challenges in developing economies:
an Indian perspective. Managerial Auditing Journal, 32(4/5), 406-426.
Tuzarová, S., & Mejzlík, L. (2018). The IFRS Assessment by Publicly Traded Companies.
In The Impact of Globalization on International Finance and Accounting (pp. 341-346).
Springer, Cham.
Yaacob, N. M., & Ahmad, A. C. (2017). First Time FRS Adoption among Top Malaysian Public
Listed Companies. Terengganu International Finance and Economics Journal
(TIFEJ), 2(1), 67-72.