Financial Analysis Report: Accounting Standards and Convergence

This accounting financial analysis report examines the implications of uniform versus diverse accounting standards, focusing on International Financial Reporting Standards (IFRS). The report explores the advantages and disadvantages of each approach, considering the impact on small and medium-sized enterprises (SMEs) and multinational corporations. It discusses the challenges countries face when adopting IFRS, including transition issues and valuation changes. The analysis also addresses the question of whether accounting convergence should be pursued, concluding that convergence should be carefully considered and potentially limited to listed companies to avoid negatively impacting smaller businesses. The report highlights the complexities of global accounting and the need for standards that balance the needs of various stakeholders.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting financial analysis report
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1ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
Case Study 2:...................................................................................................................................2
1. Explaining why only one uniform accounting and reporting standard may not necessarily
represent a win-win situation:..........................................................................................................2
2. Discussing the advantages and disadvantages of having diverse accounting standards that are
the product for each country’s national environment:.....................................................................3
3. Discussing the issue raised by the country when adopting International Financial Reporting
Standards:........................................................................................................................................4
4. Indicating whether convergence should be pursued:...................................................................5
References:......................................................................................................................................6

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Case Study 2:
1. Explaining why only one uniform accounting and reporting standard may not
necessarily represent a win-win situation:
The one uniform accounting and reporting standard may not necessarily represent a win-
win situation for everyone, as the standard would not contemplate with the laws of the country.
The uniform accounting standard will have negative impact on the performance of the small-
scale companies, as the preparation of accounts will increase their expenses. The uniform
accounting and reporting standard will force companies all around the world to prepare the
financial accounts in accordance with the published standards regardless of their operations. This
will put strain in the financial position of the small and medium companies who are following
the uniform standard1.
The second problem that is situated with the uniform accounting and reporting standard
are the noncompliance with the laws and regulations of the country. The laws and regulations are
relevantly different in nature, which can alter the evaluation of the uniform accounting standard,
as different laws and regulations are imposed. The uniformity would not be win-win situation in
this scenario, which will in turn have negative impact on the performance of the organisation.
Hence, from the evaluation it is detected that uniform accountings standard is not a win-
win situation for all organisation, as small and medium companies are not able to comprehend
the high level of expense incurred while preparing the financial report. Moreover, the small and
medium companies do not need the uniform accountings system, as they do not want to list their
1 IFRS (2019) Ifrs.org <https://www.ifrs.org/issued-standards/list-of-standards/>

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holding in international market. Therefore, uniform standard can be maintained by multinational
companies and organisation who need foreign investments.
2. Discussing the advantages and disadvantages of having diverse accounting standards
that are the product for each country’s national environment:
Diverse accounting standard that is being maintained by countries allow around the world
has both advantages and disadvantages, which has impact on the financial reporting of the
organisation. The diverse accounting standard allows small and medium scale industries in the
world to minimise their actual expenses in preparing the financial report, which is not possible
under uniform accounting and reporting policy. The diversity will provide the breathing space
for the medium and small companies in the country, which is not required by multinational
companies. In addition, many countries for promoting small scale industry use diverse
accounting method, as it helps them to motivate the regional business.
There is significant disadvantage of the diverse accounting standard for the multinational
companies that is operating in the world market. The major disadvantage for the big corporations
who are intending to list their shares in the international market is the double accounting method,
which needs to be prepared for supporting both the domestic and international requirements. The
expenses listed for completing the financial report as per the requirements will increase for the
companies, which will have negative impact on their financial report. Moreover, the diverse
accounting measures will represent alternative valuation for each investor, as they will assume
different level of information for their valuation. Hence, adverse accounting standard is effective
for small and medium scale companies who are require the benefits from the national
environment.

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3. Discussing the issue raised by the country when adopting International Financial
Reporting Standards:
There are certain issues that has been raised by the countries that has adopted IFRS in
their region. The major issues are faced by the organisation preparing the transition of the annual
report from old accounting standard to IFRS measure. The change in from the old financial
reporting structure to the new IFRS standard will increase the difficulty of recognising different
level of assets and liabilities of the organisation. In addition, the changes in the preparation of
current financial report directly affects the auditors and accountants of the organisation, as they
need to follow the new regulations in preparing the annual report. Hence, the first annual report
prepared by the auditor and the accountant can have problem due to the lack of adequate
knowledge in preparing the financial report2.
The other issue that is highlighted from the implementation of the IFRS accounting
standard is the change in the valuation of the organisation. The change in the accounting standard
will alter the method of calculating depreciation, fixed asset and liabilities of the company. This
alternation in the calculation will have direct impact on the valuation of the organisation, which
is conducted by financial banker, investors and market analyst. This change in the valuation of
companies using the IFRS system will directly alter their share price and have negative impact
on the capital market of the country adopting the IFRS.
2 IFRS Implementation Issues (2019) Iasplus.com
<https://www.iasplus.com/en/meeting-notes/iasb/2015/january/ifrs-implementation-issues>

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4. Indicating whether convergence should be pursued:
The convergence of the accounting standard to one IFRS system is considered to be
inappropriate in some viewpoints. The adoption of the IFRS system will only benefit the
companies who want to list their shares in different exchanges all around the world. This would
eventually help big corporations to gather the required level of funds to support their operations.
However, the implementation of the universal accounting standard will negatively affect the
profitability of small and medium scale industries all around the world, as the preparing of the
financial report in new accounting standard will raise their cash outflows. Moreover, the
accounting standard will only benefit the multinational companies and big corporations that are
raising capital from share issues in different stock markets. Therefore, convergence can be
adopted by the countries for companies that are listed in the share market. This would help the
companies to produce universal annual report, which can be used for analysing their current
valuation. Moreover, the universal accounting standard needs to be restricted to listed
companies, where small and medium companies need to be excluded from the universal
accounting standard until they are listed in the annual report. Hence, from the evaluation it is
detected that convergence should be perused with resection, where only listed companies need to
follow the requirements of the standard in preparing the annual report.

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References:
IFRS (2019) Ifrs.org <https://www.ifrs.org/issued-standards/list-of-standards/>
IFRS Implementation Issues (2019) Iasplus.com
<https://www.iasplus.com/en/meeting-notes/iasb/2015/january/ifrs-implementation-issues>