International Financial Reporting Standards Adoption

The provided document is an assignment that delves into the importance of international financial reporting standards (IFRS) in providing accurate and reliable information to stakeholders for decision-making purposes. The document discusses the adoption of IFRS in Nigeria, its concepts, and issues related to it. It also examines the influence of institutional infrastructures on implied cost of equity capital around the world. Furthermore, it addresses how frequent financial reporting affects managerial myopia and provides CEOs with opportunities to cheat. Additionally, the document explores how CEO incentives affect corporate tax planning and financial reporting of income taxes. The assignment is relevant to students pursuing studies in accounting, finance, or business.

FINANCIAL REPORTING

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
The context and purpose of financial reporting .....................................................................3
LO 3 ................................................................................................................................................1
Theoretical models of financial reporting and the concepts...................................................1
LO 4 ..............................................................................................................................................5
International differences in financial reporting .....................................................................5
International differences before IFRS ...................................................................................6
Countries responded to IFRS .................................................................................................7
Factors that influence international difference in financial reporting ..................................7
CONCLUSION ...............................................................................................................................8
.........................................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial reporting is the disclosure of the financial information of the company it
consists of identifying the financial performance of the company which assist in developing the
effective decision for the success of organisation. Financial reports consist of income statement,
balance sheet and cash flow statement which are being prepared by the firm to present the
financial information on the basis of which the organisation is able to show accurate and
information to its stakeholders. In this assignment will provide information for the purpose of
financial reporting. Moreover, it will also provide information regarding the different
stakeholder of BDO LLP and meeting their expectation. Furthermore, it will consist the
information about financial reporting standards and the theoretical models. Also, it will include
the difference between the International accounting standards and international financial
reporting standards. In addition to this, the assignment will provide the information regarding
difference in financial reporting in different countries. This assignment will provide information
regarding the purpose of financial statement and following the standards to comply with the
regulatory framework while preparing the financial statement to have the accurate and reliable
information.
LO 1
The purpose of financial reporting
Financial reporting is the method of reporting the financial information in order to
provide the information to the stakeholders for making the decision in context to BDO LLP such
as investors are shown with the financial data as it assist in making investment decision. The
financial information is reported in the statement which consist of income, balance sheet and
cash flow statement (Acharya and Ryan, 2016.). The income statement prepared by the
organisation assist in identifying the profitability on the basis of recording the income and
expenses for the period. Balance sheet is prepared to identify the liquidity of the firm on the basis
of recording the assets and liabilities.
Cash flow statement prepared delivers information regarding the cash flows for the
period on the basis of which the firm is able to determine the cash requirement of the firm for
performing the different activities relating to organisation. The regulatory framework which is
required to be complied while preparing the statement in order to have the accurate and reliable
information.

The regulatory framework of the financial reporting consists of IFRS (International
financial reporting standards) which are the standards provided the IASB. It is important the
organisation to treat the transactions as per the provision stated in the standards in order to have
the accurate and reliable information on the basis of which the stakeholders of BDO LLP are
able to make the effective decision.
The officers which are responsible for the financial reporting consist of management,
directors, stakeholders and external auditors. The conceptual framework of financial reporting
states that objectives, concepts and general purpose of financial reporting (Flower, 2018). The
conceptual framework of the financial reporting provides information regarding the disclosure of
the information in the statement and the measurement basis. It defines the assets, liability, equity,
income and expenses which are considered for preparing the reports. It provides the information
regarding the qualitative characteristics of financial reporting which consist of comparability,
reliability, understandability and timeliness.
Duties and responsibility of officers:
 Management: It is the duty of management to prepare the financial statement as per the
standards in order to provide accurate and reliable information to the stakeholders.
 Directors: The responsibilities of the directors are to oversee the financial statement
prepared by the management. They have ultimate responsibility for ensuring that
legislative requirements are met in relation to financial reporting.
The governance of financial reporting assist in achieving the objectives of the BDO LLP
and provide accountability to stakeholders. The directors of the organisation have the
responsibility to manage the governance risk in BDO LLP. The board is responsible for ensuring
the reliability of financial reporting. For the good corporate governance, it is important that the
organisation have the strong internal controls.
Incorporated organisation is the separate legal entity from the business owner. In the
incorporate organisation, individuals have the limited liability and the risk is reduced whereas
unincorporated organisation are those which does not have separate legal entity different from
owner and thus the liability of the individual in this type of BDO LLP is unlimited and the
members of the organisation are wholly liable for the debts of firm. The incorporated business
prepares the financial reports as per the standards of IFRS it is the legal entity and is required to
comply with the regulatory framework while preparing the financial statement whereas

unincorporated businesses are not bound to follow the standards prescribed by the IFRS they are
not the legal entities and thus it is not mandatory for them to prepare the financial statement.
Purpose of financial reporting
The key purpose of financial reporting is to shows accurate and dependable
information to the users for assisting them in forming rationale decision regarding the
BDO LLP. The financial information is provided to investors in order to provide them
information regarding the liquidity position and attractiveness of the company which will
assist the investors in understanding the returns which will generated by the organisation
on their investment. The objective of financial reporting is to ensure that the BDO LLP
comply with the rules and standard while preparing the financial statement (Flower,
2018). It assists in achieving the objectives of the firm and make the financial
information reliable which assists in attracting the investors towards the organisation.
With the help of financial reporting the organisation is able to measure its performance
and can take action for enhancing the upcoming performance of organisation.
The company by preparing the income statement is able to identify the profit generated
by the firm based on which it will be able to understand the changes in the profit on the basis of
comparing the records of the different period and can make decision through which the firm is
able to increase its profitability. The balance sheet prepared by the firm through which
management of the BDO LLP can determine liquidity position of organisation and can take
necessary steps to improve the liquidity position of the firm in order to attract more investors and
capital investment towards the organisation form performing the different operation of
organisation.
Moreover, the purpose of financial reporting is to determine the financial position and
cash flows for the period in order to identify the future requirement of cash in the BDO llp for
performing the different operation of firm. The main purpose of the financial reporting is to
provide the reliable and understandable information regarding the operation of the firm in order
to make the decision related to BDO LLP (Bonsall IV and et.al., 2017). The cash flow statement
prepared by organisation rendering information about cash flows for the period based on which
the firm is able to ascertain the future requirement of cash to perform the different activities in
organisation.

With the help of financial reporting the firm is able to meet the stakeholder needs and
expectation because the stakeholders of the organisation which consist of managers, employees,
shareholders, government, suppliers, customers etc. require financial information in order to
make different decision. For instance, suppliers of the BDO LLP use the financial statement in
order to identify the creditworthiness of the firm to repay the amount outstanding. so, while
preparing the financial statement it is important that the management consider the standard and
prepared the financial statement after considering the regulatory framework in order to assist the
stakeholders and meet the requirement of the users. financial reporting is important because it
provide the information to the business regarding the growth and development of BDO LLP on
the basis of the analysis of the financial statement.
The financial reporting assist in preparing the budgets which are required for identifying
the variance sin the performance and on the basis of which the BDO LLP is able to make
decision and formulate policies which will help in reducing the deviation in the performance to
meet the objectives and performance goals of the firm. The main purpose of financial reporting
is to provide the accurate information regarding the firm operation and performance in order to
make the effective decision by the users regarding the organisation for different purpose. There
are various decisions which are taken by the stakeholders on the basis of financial reporting
which consist of credit, investment, taxation etc. (Bonsall IV and et.al., 2017). The financial
statement provides information regarding the result of the operations, financial position and the
cash flow of the BDO LLP.

LO 3
Theoretical models of financial reporting and the concepts
The financial reporting is defined as all the financial statements and the results thereof
that is the profit or the loss suffered is communicated to the users of the financial statements. In
other words, it can also be discussed as the communication of the accounting information and
message to the users of the business statement such as creditors, investors, employees,
shareholders and many more (Powers, Robinson and Stomberg, 2016). It also includes the
revealing the profit or the loss suffered and the financial position that is the balance sheet and the
financial performance of the organization to the different types of stakeholders for a specified
period of time. The main objective or the intention of the financial reporting is to furnish the
accounting data to the administration of the organisation so that the management can use this
information in doing the planning and developing of different types of strategies and policies for
making decision making easy and simple.
For understanding the financial matters across the international market the International
Financial Reporting Standards are used (IFRS). The International Financial Reporting Standards
are some standards that are issued by the International Financial Reporting Standards foundation
along with the help of International Accounting Standard Board (IASB). These regulators render
some common global language for all the business across the entire world. It is known as a
common global language that is the same medium or base to make the financial statements
because all the business in every corner of the world has to follow the International Financial
Reporting Standards so that the comparison between the different companies situated in the
different countries can be done easily. The use of IFRS makes it much simpler to check the
comparability of the different countries because all the companies across the world follows the
same standards of accounting as issued by the IFRS.
Difference between International Accounting Standards and International Financial
Reporting Standards
IAS IFRS
It stands for International Accounting
Standards (Zainudin and Hashim, 2016).
The IFRS stands for the International Financial
Reporting Standards.
The IAS are the older accounting standards These are the non- moving of accounting
1

that is used and followed by all the companies
for the presentation and the preparation of the
financial statements.
regulation which are developed by an
independent organization developed to provide
guidance on the planning and making of the
reports relating to the finance of the company.
The goal of the International Accounting
Standards is to work for the purpose of
harmonizing and improving the regulations
relating to the accounting and the procedures
related to the presentation of the information
which are financial in nature.
The goal of IFRS is to provide a common
global framework which specified that how the
public companies have to prepare and display
their financial problems (Kim, Shi and Zhou,
2014).
The IAS were published between 1973 and
2001.
These standards were publicized after 2001 as
these standards have replaced the IAS.
The IAS are issued by the International
Accounting Standard Committee (IASC).
The IFRS are issued by the International
Accounting Standard Board (IASB.)
Role and use of International Financial Reporting Standards
The IFRS that is International Financial Reporting System is defined as the common
global language which is set for all the business organization at the global level. It sets some
standards in the field of the accounting so that the companies and their accounting and financial
statements are comparable and understandable at the global level. The benefits which the
companies can avail by following the IFRS are discussed in the following points-
 The major benefit of following the IFRS for the organization is that the information
provided by the statements of finance is prepared in accordance with the standards of
IFRS are more easy and understandable for the stakeholders and the investors of the
company. Also, the revelation of the financial documents helps the company in attracting
more new investors.
 Because all the companies have to follow the IFRS so all the financial statements of all
type of business organizations are prepared according to the same standards and
principles (Reheul, Van Caneghem and Verbruggen, 2014). And because the principles
used are same and standardized so it is effortless to analyze the business documents of
2

financial nature of different companies situated in the different countries. This is helpful
and beneficial for the government to record and compare the data of the companies.
 The another major benefit of IFRS is that standardization of the all the financial reporting
has been done which means that now it will amend the equivalence of all the statements
financial in nature and accounting information in the global financial market (Edogbanya
and Kamardin, 2014). this helps the investors because the investors before investing can
compare the financial statements of different companies and analyse that which company
is more profitable to invest.
 The IFRS uses a principle based working rather than using rule based working. The
principle based philosophy is defined as the style of working wherein the goal of each
principle is to reach to a reasonable valuation and it states that there are many ways to get
the work completed. This is beneficial for the employees because the personal goals are
also met by using these standards.
 With the application IFRS, the companies are able to standardize their diverse accounting
policies and they try to eliminate the incomparability eliminate of the statements and the
accounting information across the world.
 Another benefit of using IFRS is that if the company uses the IFRS which is applicable to
all the institution and business organizations all over the world. The use of IFRS has
made the financial statements more recognizable for both the potential collaborators and
the investors as well.
 The use of IFRS also increases the exposure of the companies into the global market
which provides access to the companies to the foreign market which increases the inflow
of the foreign exchange. The country currently using the IFRS system is India. The
benefits and the drawbacks of using IFRS by India are as follows-
Advantages:
 There can be various benefits to the India which are representing their annual
statement with the influences of IFRS standards. However, in accordance with such
operational advantages where it can be said that, it will help them in generating the
international investors to the firm.
Disadvantages:
3

 It is required that there must be proper guidelines and framework presented to
organisation which must represent the clear and transparent details regarding the
financial statements to be prepared.
Equity theory
The main purpose of the theory is to attain a balance between the employee's input and
the resulting output at the workplace. If the person is able to find the balance between the inputs
and the outputs of stakeholders, then he would be more productive in his working. The inputs
include motivations, skills, hard work, technical know- how (Pucheta‐Martínez and García‐
Meca, 2014). Whereas the output includes the resulting work out from the inputs, perks, salary,
bonus etc.
Legitimacy theory
This theory is based on a very generalized assumption or the perception of the people that
the activity and actions of the organization or the business enterprise must be proper, correct and
desired within a societal accepted system including values, beliefs, attitudes, norms and many
more.
Model of financial reporting
This concept refers to as a model of developing the financial statements so that these
statements can be communicated with the financial information users which are the stakeholders
of the business organization (Ndofor, Wesley and Priem, 2015). For this the company uses the
different types of models. Some different types of models are as follows-
Three statement model- This model comprises of the use the three basic statements which assist
the organization in deciding the financial presentation of the establishment. These three
statements are the profit and loss account, the balance sheet and the cash flow statements. The
main feature of this model is that it integrates all the three statements in such a way that it
accurately captures all the links and relation between the different component in all the three
statements which are, the profit and loss account, the balance sheet and the cash flow statements.
Credit rating model- this model is also derived from the three statement model and is designed
with the aim to project the data predictions for three to five years. This financial model also helps
in calculating many other parameters such as collateral's’ quality, conduct of exiting loan
accounts, future demand growth and strength and quality management. It is generally used by
banks when a firm applies for loans in order to evaluate the firm’s credibility in terms of
4

borrowing potential and the applicable interest rate (Kraft, Vashishtha and Venkatachalam,
2017).
Models of audit
Product audit- this model helps in the scrutiny and proper evaluation and examination of a
particular commodity or service, for example the processed material produced by the business
enterprises, or hardware or the software used by the company and also to evaluate the additional
requirements if any.
Process audit- it helps in verifying that the processes which are used by the company are
followed properly or not.
LO 4
International differences in financial reporting
The financial reporting standards provide the principle for preparing the financial
statement. The international financial reporting standards provide the guidelines and rules for
the treatment of transaction in the financial statement. The principles on which the financial
reporting is done consist of consistency and comparability principles (Zainudin, and Hashim,
2016). As per the financial reporting principles the financial information must be reliable,
verifiable and understandable. The financial reporting principles include using the guidelines
provided by the financial reporting standards. There are differences in the financial reporting of
different countries as the different countries uses the different standards for reporting the
financial information. For example, US uses the GAAPS for reporting the financial information.
The difference between the international financial reporting standards and GAAPS is that
IFRS is based on principles whereas GAAPS standards are based on rules. The principles
provided by the international financial reporting standards Involves the use of the principles for
the calculation of inventory on the basis of FIFO methods because in IFRS LIFO method of
inventory is not allowed (Ndofor, Wesley and Priem, 2015). Moreover, the GAAPS uses cost
method to value fixed assets whereas on the other hand International financial reporting standard
uses the revaluation model. The principles of financial reporting are different in different
countries because of the different standards followed by the companies located in the different
countries for examples US is using its own GAAPS standards for reporting the financial
information.
5

The principles are those on the basis of which the different transaction relating to the
business are treated while preparing the financial statement. The organisation is use generally
accepted accounting principles rather than using international financial reporting standards. As
there is difference in the treatment of transaction, as many of the standards which are provided
by IFRS are not clear due to which the firms face problems in reporting the transaction. The
difference financial reporting principles includes the full disclosure of the financial information
in the financial statement. As per this principles, the BDO llp is required to follow the full
disclosure principles through which the firm is required to include all the information regarding
the business operations with the help of notes to accounts. Moreover, the principles of financial
reporting is treatment of transaction through the firms and stakeholders in the BDO llp. Financial
reporting is capable of comparing the financial statement of one company with that of another
(Ndofor, Wesley and Priem, 2015). Principles of financial reporting state that the organisation is
required to include the material transaction in the financial statement which have their influence
on the decision making of stakeholders. The principles of the financial reporting include cost,
matching, revenue, and expense principles on the basis of which the treatment of the transaction
are made in the accounts.
International differences before IFRS
There were various international differences in the financial reporting before the
companies around the world had not adopted the international financial reporting standards.
Before the firms were not able to compare the financial statement of the different companies for
identifying the performance with that of the other companies situated around the globe but after
the adoption of IFRS the companies are able to identify their profitability and performance by
comparing with of the other companies and are able to set the performance goals in order to
increase their performance and profitability (Kraft, Vashishtha and Venkatachalam, 2017).
Moreover, before the adoption of international financial reporting standards the investors were
not able to compare the companies in order to take effective decision regarding their investment
because all the firms were using their own rules for reporting the transaction in the financial
statement. the international differences in international financial reporting before IFRS which the
firms are not able to identify their financial position and performance in the market.
6

Countries responded to IFRS
The international financial reporting standards which are issued by international
accounting standards board. With the adoption of IFRS the companies are provided with the
standardization for the treatment of financial information in order to record them in report. The
countries can permit companies to use IFRS instead of using GAAPS. The different countries
responded in different ways to international financial reporting standards. Many countries such
as UK accepted the International financial reporting standards which are being issued by IASB
whereas various counties such as US are following the rules provided under GAAPS for
reporting the financial information.
The financial reporting is important in different countries because it assist in identifying
the financial position and performance of the BDO llp and help the management and the
stakeholders of the firm in making the different decision in related to the organisation. The
different countries are using different standards for recording the transaction for instance, UK is
using the principles stated as per the International financial reporting standards whereas US is
using the generally accepted accounting principles for reporting the financial information.
It is evaluated that there are differences in financial reporting across the countries due to
various factors influencing on the BDO LLP operations. The organisation follows the standards
which are being followed in the countries due to which there are firms which are using different
principles for reporting the financial information. The financial information is reported in the
income, balance sheet and cash flow statement in order to have the different information which
are provided by this statement. The income statement prepared by the organisation provide the
information regarding profitability earn by organisation whereas balance sheet is the statement of
financial liquidity which provide information to the stakeholder regarding the liquidity position
of organisation (Edogbanya and Kamardin, 2014). There is difference in financial reporting
because the organisation prefers to use their own countries standards rather the international
financial reporting standards.
Factors that influence international difference in financial reporting
There are various factors due to which the BDO llp in the different countries face
problems in reporting the financial information. The factors due to which the organisation have
difference in their financial reporting includes the difference in the legal system. The legal
system of the different countries is the factors which have their significant influence on the
7

Financial reporting of the companies in different counties. another factors which influence the
difference in the financial reporting in different countries is due to taxation because the
difference in the tax rate in different countries affect the financial statement prepared by the
organisation because of the taxation rate is higher than the income statement will provide low
profitability as compare to lower tax rate.
The providers of financing such as band, government, shareholder etc. influence the
difference in the financial reporting in different countries as the providers may require the firm
tom use the different accounting principles for the treatment of the transaction (Acharya and
Ryan, 2016). The economy and political factors also have their great influence on the BDO LLP
for preparing the financial reports because which the economic changes the organisation have to
face problems in recording the transaction as per the specified principles which leads to
difference in the financial reporting of the organisation.
CONCLUSION
From the above assignment it has been concluded about financial reporting which is the
recording of transaction in the statement form to provide them to stakeholders in order to assist
them in decision making. This assignment has provided information regarding conceptual
framework of financial reporting that has provided understanding about the qualitative
characteristics of financial reporting such as relevance, comparability, understandability etc.
Moreover, the study has provided information regarding the purpose of financial reporting which
is to provide accurate and reliable information to stakeholders in order to assist them in making
decision. Moreover, it has contained information regarding the international financial reporting
standards and international accounting standards for treatment of transaction while recording the
information. furthermore, it has provided information regarding the different factors which have
influence on international difference in financial reporting which has involved legal system,
taxation, economic and political factors etc.
8

REFERENCES
Books and journals
Edogbanya, A. and Kamardin, H., 2014. Adoption of international financial reporting standards
in Nigeria: Concepts and issues. Journal of Advance Management Science, 2.
Kim, J. B., Shi, H. and Zhou, J., 2014. International Financial Reporting Standards, institutional
infrastructures, and implied cost of equity capital around the world. Review of
Quantitative Finance and Accounting. 42(3). pp.469-507.
Kraft, A. G., Vashishtha, R. and Venkatachalam, M., 2017. Frequent financial reporting and
managerial myopia. The Accounting Review. 93(2). pp.249-275.
Ndofor, H. A., Wesley, C. and Priem, R. L., 2015. Providing CEOs with opportunities to cheat:
The effects of complexity-based information asymmetries on financial reporting
fraud.Journal of Management. 41(6). pp.1774-1797.
Powers, K., Robinson, J. R. and Stomberg, B., 2016. How do CEO incentives affect corporate
tax planning and financial reporting of income taxes?. Review of Accounting
Studies.21(2). pp.672-710.
Pucheta‐Martínez, M. C. and García‐Meca, E., 2014. Institutional investors on boards and audit
committees and their effects on financial reporting quality. Corporate Governance: An
International Review. 22(4). pp.347-363.
Reheul, A. M., Van Caneghem, T. and Verbruggen, S., 2014. Financial reporting lags in the non-
profit sector: An empirical analysis. Voluntas: International Journal of Voluntary and
Nonprofit Organizations. 25(2). pp.352-377.
Zainudin, E. F. and Hashim, H. A., 2016. Detecting fraudulent financial reporting using financial
ratio. Journal of Financial Reporting and Accounting. 14(2). pp.266-278.
Acharya, V. V. and Ryan, S. G., 2016. Banks’ financial reporting and financial system
stability. Journal of Accounting Research. 54(2). pp.277-340.
Flower, J., 2018. Global financial reporting. Macmillan International Higher Education.
Bonsall IV, S. B. and et.al., 2017. A plain English measure of financial reporting
readability. Journal of Accounting and Economics. 63(2-3). pp.329-357.
9