International Financial Reporting Standards | PDF

Running head: INTERNATIONAL FINANCIAL REPORTING
International Financial Reporting
Name of the Student:
Name of the University:
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Abstract
The concerned thesis relates to the understanding of international financial reporting and its
impact on the construction of the financial statements. The introduction and the background have
provided a brief idea about accounting standards and how these aspects have developed with the
course of time. The problem statement has explained the issues pertinent to the topic. The
objective of the paper has provided the elements that would be explained in this paper. The
literature has even given an idea about what other past researches have provided on this topic and
the methodology has looked to address the sort of data used and the procedure that has been used
for the collection of the data. The assessment of the collected data is helpful in the explanation of
the objectives and the results in an overview states that objectives of the paper is addressed and
therefore international financial reporting is interrelated with preparation of the financial
statements for the companies all over the globe.

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Table of Contents
Chapter 1: Introduction....................................................................................................................4
1.1 Background of the Study.......................................................................................................4
1.2 Discussion of the Problem Statement....................................................................................6
1.3 Research Aims and Objectives..............................................................................................7
1.4 Research Question.................................................................................................................7
1.5 Research Gap.........................................................................................................................7
Chapter 2: Literature Review...........................................................................................................9
2.1 Introduction............................................................................................................................9
2.2 Meaning of International Financial Standards.......................................................................9
2.3 IFRS Adoption all over the globe........................................................................................10
2.4 The role of the capital markets............................................................................................13
2.5 Importance of financial reporting in the capital markets.....................................................14
2.6 Relevance of IFRS in the emerging capital markets...........................................................16
2.7 Summary of the literature....................................................................................................17
Chapter 3: Research Methodology................................................................................................18
3.1 Introduction..........................................................................................................................18
3.2 Research Philosophy............................................................................................................18
3.3 Research Approach..............................................................................................................18
3.4 Research Design..................................................................................................................19

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3.5 Choice of methodology........................................................................................................20
3.6 Secondary Data....................................................................................................................20
3.7 Data Collection Process.......................................................................................................21
3.8 Data Analysis Plan...............................................................................................................21
3.9 Ethical Consideration...........................................................................................................21
Chapter 4: Data Analysis and Discussion......................................................................................22
4.1 Introduction..........................................................................................................................22
4.2 Accounting Standards as solution to Information Asymmetry Issues.................................22
4.3 Accounting Quality..............................................................................................................23
4.4 Decision Usefulness.............................................................................................................24
4.5 Positive Accounting Theory Approach...............................................................................25
4.6 Discussion............................................................................................................................26
Chapter 5: Conclusion, Recommendation and Future Work.........................................................28
5.1 Conclusion...........................................................................................................................28
5.2 Addressing the objectives....................................................................................................29
5.3 Recommendation.................................................................................................................30
5.4 Future Study.........................................................................................................................30
Reference List................................................................................................................................31
Bibliography..................................................................................................................................39

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Chapter 1: Introduction
In the present time period, there are several companies and industries that are functional
in the global economy. Every company undertake transactions and therefore record their
transactions and other associated interactions in their financial statement. The advent of
globalisation has increased the need for a common reporting standard that would be effective in
the generation of effective financial reporting among the companies and a common financial
statement that would be helpful in the development of the operational activity and the
maintenance of a stable and healthy economy (Lang & Stice-Lawrence, 2015). This paper
therefore has the intention of addressing the impact of international financial reporting in world
especially in the European Union.
1.1 Background of the Study
In the current economy, globalization has been making a dramatic effect on the global
economy and therefore the borders are getting less and the less precise and the trade and the
cooperation among the organizations located in various continents is now very common. It is
seen that more and more organizations have become global in their operational activities and the
international trade with the help of credits and shares is rising constantly. Appiah et al., (2016)
explained that as the organizations and the need for capital have gone out of the countries, capital
internationalization has become essential. The demand for an open financial market is slowly
becoming stronger and therefore is becoming effective. Globalization makes the harmonization
and the comparability of the financial and accounting documenting one of the priorities.
The aim of the various companies has been to generate a free market where goods, capital
services and labour are able to move along independently. The development of common

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currencies in the European countries has led to the development of transparency of the European
market and therefore the companies with the help of this transparency has been able to assess the
opportunities that are available in relation to the business within the economy (Kaya & Koch,
2015). The incorporation of the International Financial Reporting Standards (IFRS) will even
enhance the transparency of the information of the organizations and therefore would even be a
key step in the commitment of the European Union for a general capital market in Europe. For
the lenders and the investors, it is vital to maintain quality and comparable data and this can only
be attained if the nations cooperate among themselves in creating a general process that would be
like IFRS or IAS.
The IASB in an active manner has been promoting the standard that they have
incorporated all over the globe. Chen & Li, (2015) cited that in more than 100 countries globally,
the utilisation of IFRS has permitted or is demanded. It is seen that many of them have
incorporated the special programs for the converging and the transitioning their national
standards in accordance to IFRS.
After the break up that took place with the Soviet Union in the year 1992, Russia had to
transform their economic process from a planned economy towards a market economy. It is seen
that in a command economy, the process of production are in the form of public ownership and
in this case the states take the authority of the economy and the economic operations is looked
upon to respond in accordance to the direction of the state. On the other hand, within a market
economy the process of production are generally in the form of private ownership, the states
generates a legal structure in which the economic operations are undertaken and the economic
activities are regarded to respond to the market forces. These kinds of transitions generally have
a significant consequence on the process accounting which stops to be an instrument of the state

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economic management and thereby becomes equipment at the disposal of the business society
(Kim et al., 2014).
There are new kind of organizations and firms that are desperate in need of new
accounting standards. In a market economy, the aim of the financial reporting of the
organizations is to provide effective information to the current and the potential investors,
creditors and other parties who are interested in order to facilitate their process of undertaking
decisions (Ali et al., 2016). It is seen that until now, the function and the perception of the
accounting process have transformed in a dramatic manner and the key users of the financial
statements is still the state and the government who are associated with the taxation purposes and
the related departments (Abdullah et al., 2017). It is seen that the suggestions of the other parties
like the creditors, managers and the other associated personnel have become significant in the
current time period. It is due to this factor that the development of the financial standards and
especially the international financial standards has been vital.
1.2 Discussion of the Problem Statement
There has been a rise of the number of organizations that are operational within the
European Union or even outside the Union in the current time period. The incorporation of the
accounting standards is dependent on the external as well as the internal environment of the
concerned companies. It is seen that globalisation has led to the companies being operational all
over the globe (Schneider et al., 2017). Henceforth, the need of international financial reporting
has become vital. Even though it is seen that certain countries may face issues in accordance to
the incorporation of these standards as there may be issues and problems. The incorporation of
these standards have positive and negative effects and therefore assessment of the same needs to

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be done in order to have an understanding of the changes that would be made with the help of
which these standards can be enhanced.
1.3 Research Aims and Objectives
The objectives of the research in accordance to this topic have been explained as follows:
 Assess the impact of International Financial Reporting Standards on the financial
statement of the companies
 Assess how International Financial Reporting Standards help in mitigating the challenges
faced by the individuals constructing the financial reports of an organization
1.4 Research Question
The research question in accordance to this paper is:
Q1. How will International Financial Reporting Standards (IFRS) have an impact on the
financial reports constructed by an organization?
Q2. How does International Financial Reporting Standards (IFRS) help in mitigating the
challenges faced by the individuals constructing the financial reports of an organization?
1.5 Research Gap
The research gap relates to the limitations that is seen in association to this topic, which
earlier researchers have been unable discover. In accordance to this topic, the literature that is
based on accounting establishes a debate in relation to the success of the incorporation of
International Financial Reporting, their relationship with the accounting standards and in this
manner may create issues if it is seen that the accounting statement of the companies are not in
compliance to the available standards (Christiaens et al., 2015). It is seen that there have been
very limited researches based on this topic and therefore their impact and the positives and