Reasons for Global Adoption of IFRS: An In-depth Analysis

This report examines the reasons behind the global adoption of International Financial Reporting Standards (IFRS), driven by the increasing need for harmonized accounting standards in a globalizing financial market. It highlights the benefits of IFRS for investors, such as providing a single accounting language for easier performance comparison across multinational corporations. The report also addresses the attractiveness of IFRS due to its principle-based approach compared to the rules-based GAAP standards. Furthermore, it identifies several barriers to IFRS adoption, including concerns about complexity, inadequate information in specific areas like lease accounting, and the lack of a single enforcement body leading to inconsistent application. The report concludes by noting the absence of a viable alternative accounting approach and suggests that harmonizing IFRS and GAAP could potentially reduce complexity, emphasizing the need for a gradual and well-understood transition.

Global adoption of IFRS 1
Reasons for the global adoption of International Financial Reporting Standard (IFRS)
by Student Name & Number
Course & Course Code
Professor
University
The City & State
Date

Global adoption of IFRS 2
Reasons for the global adoption of International Financial Reporting Standard (IFRS)
International Financial Reporting Standard (IFRS) was adopted because of the increasing
need for a globally convergent or harmonized accounting standards. Although IFRS has
received support globally, some jurisdictions are still hesitant to accept it. This blog address
issues that surround the adoption and acceptance of IFRS in the global platform.
The benefits of IFRS to the investors
The financial and economic markets are becoming global. Financial reporting and
performance comparison requires a standardized and high-quality accounting standard. IFRS
gives investors an opportunity to rely on single accounting language which makes it easier to
interpret companies' activities (Bayerlein & Farooque, 2012, p. 98). Currently, IFRS has been
accepted in over 200 jurisdictions and is fully applicable in 85 jurisdictions for domestically
listed corporates. Investors of Multinational Corporations can comfortably use IFRS to
analyse the performance of the companies across different jurisdictions (Nijam & Jahfer,
2016, pp. 69-78).
The attractiveness of IFRS as a global accounting standard
The International Accounting Standards Board (IASB) developed IFRS in collaboration with
other accounting boards such as FASB, and US-GAAP among other bodies. IFRS is
attractive because it is based on the principle aspect of transactions as compared to the rules-
based GAAP standards. IFRS is more attractive because it addresses the economic relevance
of each transaction (ICAEW, 2018).
Possible barriers to the global adoption of IFRS
There are several barriers that have been identified as possible barriers to the global adoption
of IFRS accounting standards. First, some users hold that the principle aspect of IFRS makes

Global adoption of IFRS 3
it too complicated to apply. For Example, US entities fear that the adoption of IFRS would
lead to the loss of key information contained under GAAP because they consider the latter as
more intensive (Kumar, 2015, pp. 141-4). Second, IFRS does not provide adequate
information to address lease accounting, accounting for insurance entities and revenue
recognition. Third, IFRS might fail to support full comparability of entities because some
jurisdictions have opted to edit the IFRS accounting principles and standards. Lack of a
single accounting body that has been entrusted with uniform adoption and enforcement of
IFRS forces forms to apply the established standards differently (Joshi, et al., 2016, pp. 211-
32).
Third, the U.S investors are confused about which accounting standards to use between
GAAP and IFRS. The US Securities and Exchange Commission (SEC) have allowed given
companies to use GAAP or IFRS or both which leads to lack of uniformity. Lastly, the
adoption of IFRS has been politicised. For instance, the full adoption of IFRS in the
European Union since its acceptance in 2015 has been hindered by local politics (Jackling,
2013, p. 209).
An alternative accounting approach
Currently, there is no other alternative accounting approach that has been proposed besides
IFRS. It would be interesting to see how complete harmonisation of the IFRS and GAAP then
converging them into a single accounting standard would reduce the current complexity and
confusion. However, the harmonisation should not be rushed. The investors and other users
should be given adequate time to learn and understand the IFRS language (ICAEW, 2018).

Global adoption of IFRS 4
References List
Bayerlein, L. & Farooque, O., 2012. Influence of a mandatory IFRS adoption on accounting
practice:Evidence from Australia, Hong Kong and the United Kingdom. sian Review of
Accounting,, 20(2), pp. 93-118.
ICAEW, 2018. World Adoption of IFRS. [Online]
Available at: https://www.icaew.com/library/subject-gateways/accounting-standards/
worldwide-adoption-of-ifrs
[Accessed 11 Nov 2018].
Jackling, B., 2013. Global adoption of international financial reporting standards:
Implications for accounting education. Issues in Accounting Education, 28(2), pp. 209-220.
Joshi, M., Yapa, P. W. & Kraal, D., 2016. IFRS adoption in ASEAN countries: Perceptions
of professional accountants from Singapore, Malaysia and Indonesia. International Journal of
Managerial Finance, 12(2), pp. 211-240.
Kumar, K., 2015. International Financial Reporting Standards (IFRS) Adoption on Financial
Decisions. J Account Mark, Volume 4, pp. 141-144.
Nijam, H. M. & Jahfer, A., 2016. International financial reporting standards: a review of
status of adoption and approaches for evaluation. International Letters of Social and
Humanistic Sciences, Volume 69, pp. 69-78.