The Influence of IFRS Implementation on Organisation's Competitiveness

The Influence of International Financial Reporting Standards (IFRS) Implementation on
Organisation’s Competitiveness
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Background
International Financial Reporting Standard (IFRS) is a standard that seeks to unify
accounting systems so that businesses operate using only one uniform standard. The benefits of
IFRS for organizations are that companies can venture into the global market and use the same
uniform standard, which cannot be the same with use of different standards. Additionally,
organization reporting of accounting information is made easy and centralized. Monitoring and
control is achieved and the final results are revenue improvement (Ghasmi, 2016, p25).
Introduction
The paper begins by examining theories related to IRFS and in this, research two theories
were examined: positive accounting theory and normative theory. Also three opportunities from
IFRS’s convergence were examined and in the end a conceptual frame work is given.
Theories
Positive Accounting Theory
The theory takes into account real events that are happening, predict and interpret them
into accounting approaches. Also, the theory endeavors to give explanation and prediction. The
theory is cognizant of the fact that economic consequences exist in the process of explaining and
predicting choices. It explains that organizations organize themselves efficiently because they are
striving to make profits and therefore can be seen as having entered into a continuous contract
(Lajnef, Ellouze, and Mohamed, 2017, p40). Since firms aim at becoming efficient, they will
seek to reduce costs such as monitoring costs, negotiations, etc., which causes contract costs.
These contract costs are translated into accounting information like financial ratios and net
income (Kaya, 2017). In the process of doing this, an organization chooses policies and these
policies are selected based on the changing circumstances of the company and putting into

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consideration opportunistic behavior. In general, an organization put in place policies by
compromising in between making policies to reduce costs, being flexible during varying
circumstances and taking into account opportunistic behavior (Ghanbari, Manesh, Khorasani,
Hesam and Nejad, 2016, p175).
The developers of positive theory, Watts & Zimmerman proposed three hypotheses:
bonus plan, debt covenant, and political cost. The bonus hypothesis explains the techniques
organizations uses when giving bonus, the debt hypothesis point out that an organization having
a high debt-equity-ratio will select a method that shifts earning from future to the present year,
and political cost explains that a large organization selects a method the puts earning of the
current year to the future year. Despite the exercise of opportunistic behavior in the theory, it is
established that the theory gets misused. Organizations manipulate their results or reduce them
based on the final analysis such as executive compensations, debt ratio and the size of the
company (Kaya, 2017).
Normative theory
The theory describes the differences that exist between dissimilar bookkeeping structures
and the manner in which these accounting systems can be different from one another. The
philosophers supporting this theory advocates for a standardized system as well as a system that
is more superior over the rest. Normative accounting enthusiast seeks to get a comprehension of
accounting use in practical situations and make a comparison to its capability of meeting the
objectives like those of other systems. The theory is prescriptive in nature when a comparison is
made to other method of doing accounting (Stefan-Duicu and Stefan-Duicu, 2018, p144).
The theory not only advocates for a uniform standardized system but also a system that is
much more superior to what exists amongst other players. People studying Normative theory