Corporate Reporting: Analysis of IFRS and Market Efficiency

This report provides a comprehensive analysis of corporate reporting, specifically focusing on the adoption and impact of International Financial Reporting Standards (IFRS). The introduction highlights the benefits of IFRS, such as improved comparability, clarity, and reduced costs of financial statement preparation, ultimately leading to better capital allocation. The discussion delves into the effects of IFRS adoption on market liquidity, cost of capital, equity valuation, and the behavior of market participants, including stockholders and analysts. The report examines how IFRS influences share prices, trading volumes, and foreign investment, emphasizing the role of IFRS in attracting foreign capital and reducing geographical barriers. The report also includes case studies illustrating adjusting journal entries and notes to financial statements. The conclusion underscores the importance of a strong financial infrastructure, including high-quality accounting standards, in fostering capital market growth and international financial stability, referencing support from the World Bank and IMF for IFRS adoption.

Running head: CORPORATE REPORTING
Corporate Reporting
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Introduction................................................................................................................................2
Discussion:.................................................................................................................................3
Conclusion:................................................................................................................................6
Answer to Case Study 1:............................................................................................................7
Answer to 1:...............................................................................................................................7
Adjusting Journal Entries:..........................................................................................................7
Answer to 2:...............................................................................................................................8
Answer to 3:.............................................................................................................................11
Notes to Financial Statements:.................................................................................................11
Answer to Case Study 2:..........................................................................................................15
Answer to (i)............................................................................................................................15
Answer to (ii):..........................................................................................................................15
Answer to (iii):.........................................................................................................................16
Reference List:.........................................................................................................................17

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Answer to question 1:
Introduction
The anticipated benefits of having an international accounting standards are
considered as convincing. The usage of one set of accounting standards by the organizations
across the world possess the ability of improving the comparability and clearness of fiscal
info and lowering the financial statements cost of preparations1. On implementing the single
set of accounting standards the capital participants would have the higher quality information
and can undertake better decisions. Hence, market distribute the funds more proficiently and
businesses may attain a lesser cost of capital.
The opinions have been laid down to back the decisions of IFRS for monetary
reporting of consolidated listed entities in the member’s states across the world. There are
other jurisdictions that have cited the identical jurisdictions that have cited identical reasons
for implementing the IFRS standards2. Reflecting on the demand for the higher quality
standards the acceptance of single set of bookkeeping standards helps in improving the
superiority and comparability of monetary reporting and promoting the expansion of the
nation-wide capital marketplaces along with the mix of the international markets.
1 Christensen, Hans B., et al. "Incentives or standards: What determines accounting quality
changes around IFRS adoption?." European Accounting Review 24.1 (2015): 31-61.
2 Li, Siyi, Theodore Sougiannis, and I. Wang. "Mandatory IFRS Adoption and the Usefulness
of Accounting Information in Predicting Future Earnings and Cash Flows." (2017).

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Discussion:
One of the central query is whether the adoption of IFRS have transformed available
market participants in a manner that it is beneficial for the market to be highly efficient where
IFRS are used. Evidences gathered have stated that variations in the market liquidity and
businesses cost of capital as the method of gauging the influence of IFRS adoption3. There
are large number of large scale evidences gathered have stated that the adoption of IFRS
promotes market liquidity by improving the introduction of IFRS. The adoption of one set of
global financial standard helps in lowering the cost of firms capital and an increasing the
valuation of equity that occurs before the official adoption date.
As stated by numerous researchers the adoption of IFRS helps in benefiting the
company with the help of reduced costs of capital resulting in increased disclosure and
improved information comparability4. According to evidences gained the effect of using the
IFRS on share prices and trading provides unusual return on instability and trading amount.
Research have decided that information subjects of incomes statements have resulted in
enhanced IFRS adoptions by lowering the lag in reporting, increasing the analyst following
and improving the foreign investment.
There are several studies that have discovered the effect of IFRS for market
participants5. In respect to stockholders studies have provided the evidences that numerous
3 Cascino, Stefano, and Joachim Gassen. "What drives the comparability effect of mandatory
IFRS adoption?." Review of Accounting Studies 20.1 (2015): 242-282.
4 DeFond, Mark L., et al. "Does mandatory IFRS adoption affect crash risk?." The
Accounting Review 90.1 (2014): 265-299.
5 Florou, Annita, and Urska Kosi. "Does mandatory IFRS adoption facilitate debt
financing?." Review of Accounting Studies 20.4 (2015): 1407-1456.

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benefits can be associated with the organizations with use of improved quality comparable
standards. According to qualitative evidences making an investment in the foreign firms
through an individual investor in the open market have increased the trading activities after
adopting the one set of bookkeeping standards.
The adoption of one set of bookkeeping standards have increased the cross border
holdings by lowering the processing costs of information’s for the overseas investors6. The
adoption of IFRS helps in improving the comparability of the financial information and
indirectly reducing the geographical barriers. Research by scholars have stated that
harmonization of accounting standards is regarded as the more effective method attracting the
foreign capital then an improvement in the individual reporting regimes. Adoption of one set
of accounting standards have resulted in higher significance and development for investors
that are more probable to use the monetary reports for making decisions.
Numerous research has indicated that the mandatory adoption of the IFRS have
benefitted the security analyst. After the adoption of IFRS the IFRS firms have better
accurateness in their predictions in comparison to the analyst that are non-IFRS companies7.
Studies have concluded that IFRS have enhanced the information environment by
enlightening both the superiority of information and the comparability. There are other
researchers that have found improvement in the accuracy of forecast based on the studies of
the individual nations consisting of both the developed and developing market economies.
6 Ramanna, Karthik, and Ewa Sletten. "Network effects in countries' adoption of IFRS." The
Accounting Review 89.4 (2014): 1517-1543.
7 De George, Emmanuel T., Xi Li, and Lakshmanan Shivakumar. "A review of the IFRS
adoption literature." Review of Accounting Studies 21.3 (2016): 898-1004.

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Several research have stated that the IFRS have impacted the trading in the securities
market. Evidences suggest that IFRS have wider impact in the debt markets than the equity
market8. According to authors there has been a rise in the foreign equity investment following
the adoption of the IFRS are restricted to nations with higher or improved quality of
governance. Nevertheless, an increase in the overseas debt investment flows are not reliant on
the quality of governance but are reliable with the contracts in bond that is used to offset the
weakness at the country level for protection of investor.
The results obtained from the studies have provided that the extensive adoptions of
the IFRS has introduced benefits for the capital markets. Scholars have concluded that the
benefits originate from the nature of the IFRS and the usage of mutual accounting standards
by the companies from the different nations that improves the comparability of information
the overseas analyst and the investors9. The studies related to the development of the capital
market represents a strong links among the nations lawful and monetary structure along with
the maturity of the capital markets. The enforcement of public and corporate are regarded as
the necessary factors in the expansion of the markets noting the practice in some of the
mutual law nations to use the instruments that characteristically observed the civil authorities.
8 Doukakis, Leonidas C. "The effect of mandatory IFRS adoption on real and accrual-based
earnings management activities." Journal of Accounting and Public Policy 33.6 (2014): 551-
572.
9 Christensen, Hans B., et al. "Incentives or standards: What determines accounting quality
changes around IFRS adoption?." European Accounting Review 24.1 (2015): 31-61.

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Conclusion:
On a concluding note, the vitality of the recognised background for the market growth
it is not very surprising that initiatives undertake to encourage the capital markets growth
consist of development of strong financial infrastructure. This involves using a higher quality
of accounting standard. According to World Bank and IMF they have promoted the adoption
of IFRS to assist the growth of the capital markets which in turn promotes international
financial development and stability.

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Answer to Case Study 1:
Answer to 1:
Adjusting Journal Entries:

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Answer to 2:

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Answer to 3:
Notes to Financial Statements:
Recognition and measurement:
1. Revenue: The revenue has been measured at the fair value based on the
considerations received for the receivables10. The revenues are identified at the risk
and rewards based on the proprietorship of the goods that have passed the purchaser
on the agreed terms of delivery.
2. Trade and other payables: The trade and other types of payable consists of the
amounts which consists of the services that are reported by the company at the end of
the accounting year11.
3. Light fuel and Power: The light power and fuel consists of the unpaid amount of the
electricity for the account of June for 2018 that totalled $8000.
4. Financial Assets and Liabilities: The monetary assets and the liabilities are
counterbalanced with the net amount of the assets that are reported in the balance
sheet presently are recognized at the amount with the intention of settling and
realising the assets along with the liabilities simultaneously. The company’s property
plant and equipment are measured at costs following the deductions of the
depreciation and proportion of the overheads.
10 Cascino, Stefano, and Joachim Gassen. "Have unified standards made financial reporting
more comparable?." LSE Business Review (2016).
11 Demmer, Matthias, Paul Pronobis, and Teri Yohn. "Financial Statement-Based Forecasts
and Analyst Forecasts of Profitability: The Effect of Mandatory IFRS Adoption." (2016).