ACC30008 Accounting Theory: Global Impact of IAS 38 Adoption Analysis

This report examines the global impact of adopting IAS 38 (or its equivalent) on accounting practices. The report begins with an executive summary, followed by an introduction outlining the purpose of analyzing the adoption of IAS 38 across the globe. It then details the generalized adoption of IAS 38, emphasizing its role in setting recognition, criteria, disclosure requirements, and measurement bases for intangible assets. The main body of the report analyzes the impacts of IAS 38 adoption, including its effects on accounting harmonization, market efficiency, and information presented in financial statements, along with increased investor capacity, and improved quality of financial statements. The report concludes by summarizing the key findings, emphasizing the standard's influence on financial reporting, investor decisions, and the allocation of financial resources. The report also references key academic literature related to the topic.

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IMPACT OF ADOPTION OF IAS 38 (OR ITS EQUIVALENT) AROUND THE WORLD
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Executive Summary
The report is about adoption of the AIS 38 and its impacts across the globe. Its adoption is a
substantial fiscal alteration and brings about introduction of various researches. The IAS 38
sets out recognition, criteria, disclosure requirements and measurement bases for the
intangible assets that are not dealt with particularly in any other standard. The main objective
of the standard was to help in prescribing accounting dealings for the intangible assets that
were not handled predominantly in the other IFRS. It usually sketches accounting requests for
the intangible assets, termed as non-financial assets short of any fleshly identifiable and
substance. Under these criteria, intangible assets are primarily evaluated at their cost value
and amortized on the methodical basis over its valuable life. Furthermore, the analysis shows
that the decisions to adopt the AIS 38 played a crucial role in international dissemination and
acceptance of the AIS 38. In addition, the AIS 38 specifies on means of measuring carrying
amount of the intangible assets and required appropriate disclosures of the intangible assets.
To be more specific, adoption of the AIS 38 is found to make results more informative and
permits better accounting and lessens pleasure that traditional accounting systems are in
existence in the Continental Europe as long as the management is in a position to manipulate
provisions, conceal economic losses, embellish outcomes as well as create hidden reserves.

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Table of Contents
Executive Summary...................................................................................................................2
Introduction and Purpose...........................................................................................................4
Adoption of AIS 38....................................................................................................................4
Generalized Adoption of the IAS 38......................................................................................4
Impact of adoption of the AIS 38...........................................................................................5
Conclusion..................................................................................................................................7
REFERENCES...........................................................................................................................9

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Impact of Adoption of IAS 38 around the World
Introduction and Purpose
As accounting is mostly moulded by political and economic aspects, synchronization of the
accounting standards and principles is practically an unavoidable concern of increased
incorporation of the policies and market (Ramanna & Sletten 2014). This is witnessed by the
adoption of the AIS 38 in numerous countries across the globe. Amongst the largest nations
in the world, it was only Japan, U.S, and India that had not adopted AIS 38 substantially
joined with them. The AIS 38 adoption had noteworthy economic revolution and provided
the risk to different research. With these considerations, this paper presents a detailed
analysis of some of the impact of adopting IAS 38 across the globe. The purpose or objective
of this report is analysis some of the foremost impacts of AIS 38 adoption in the world.
Adoption of AIS 38
Generalized Adoption of the IAS 38
The AIS 38 adoption across the globe is a substantial financial renovation. The standard is
said to have been founded from consequential amendments of the intangible assets disclosure
from improvements to the AIS 16 (Zeghal & Mhedhbi 2006). In essence, the IAS 38 sets out
recognition, criteria, disclosure requirements and measurement bases for the intangible assets
that are not dealt with particularly in any other standard. To be more specific, the AIS 38
usually sketches accounting requests for the intangible assets, termed as non-financial assets
short of any fleshly identifiable and substance (Lourenço, Branco & Castelo 2015). Under
these criteria, intangible assets are primarily evaluated at their cost value and amortized on
the methodical basis over its valuable life. These measurement criteria were mainly revised in
2004 and were practically employed to measurement of the intangible assets that were

ACC30008 Accounting Theory 5
attained in the business combination taking place on or after the March 8th 2004 (Ramanna &
Sletten 2009). Adoption of the AIS 38 is viewed as a relevant event with considerable effects
in the world. Decisions to adopt the AIS 38 play a crucial role in international dissemination
and acceptance of the AIS 38 (Chua & Taylor 2008). The primary objective of the AIS 38
was to help in prescribing accounting dealings for the intangible assets that were not handled
predominantly in the other IFRS. This policy required an organization to recognize intangible
assets provided that particular criteria were achieved. Also, the AIS 38 specifies on means of
measuring carrying amount of the intangible assets and required appropriate disclosures of
the intangible assets. (Judge, Li & Pinsker 2010).
It provides for the acquisition of intangible assets by an organization in numerous means with
the main one being through distinct procurement, acquirement as part of the firm mixture and
inside produced intangible assets (Zeghal & Mhedhbi 2006). According to this standard, all
intangible assets are to be recognized formerly at cost plus the direct attribution charges and
where there is a business combination, cost tends to correspond to fair value (Gordon &
Porter 2009). The standard establishes that amortization criteria used are straight-line
technique that reflects a speedier amortization of assets. Generally, according to the AIS 38,
intangible assets are to be amortized by their useful life as from the time the assets are readily
available for use (Rusu 2012).
Impact of adoption of the AIS 38
Different scholars provide some evidence that effects of the AIS 38 or its equivalent adoption
entail three key components; accounting harmonization, market efficiency as well as
information presented in the financial statements (Sahut, Boulerne & Teulon 2011). The main
impact of AIS 38 adoption was a considerably high increase in the credibility of AISB
projects across the globe. Further, adoption of the AIS 38 is said to trigger significantly

ACC30008 Accounting Theory 6
capacity of investors in making some cognizant financial decisions, reducing misperception
that could arise from presence of diverse means to assess financial performance and status of
numerous nations. This results in reduced risks for the investors as well as lower capital
expense of the firm (Zeghal & Mhedhbi 2006).
Also, adoption of the AIS 38 would trigger reduced expenses linked with the preparation of
the financial information in line with the set standards. Adoption of the AIS 38 could also
result in greater incentives for the international investment and would also permit more
efficient allocation of the financial resources across the globe (Chua & Taylor 2008). To be
more specific, adoption of the AIS 38 make results more informative and permits better
accounting and lessens pleasure that a traditional accounting systems are in existence in the
Continental Europe as long as the management is in a position to manipulate provisions,
conceal economic losses, embellish outcomes as well as create hidden reserves. In many
countries, adoption of the AIS 38 is linked with significant paradigm shift (Georgescu &
Afrăsinei 2015). For instance, its adoption is linked to augmented complication in accounting
systems, which necessitates advanced level valuation as well as the greater commitment of
the managers at numerous levels in an organization.
Adoption of the AIS 38 had some limited impact on financial reporting owing to significant
non-compliance, the absence of improvement in the transparency of results and persistence of
the national accounting standards as well as comparability measures. Nonetheless, it was
established by Sahut, Boulerne and Teulon (2011) that mandatory adoption of the AIS 38 or
its equivalent had some macro-economic benefits and some advantages for different capital
markets across the globe. With the fact that AIS 38 or its equivalents result in increased
comparability and quality of the financial statements, its adoption is said to result in

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improved investor’s capacity in making some informed financial decisions (Beneish, Miller
& Yohn 2010).
Adoption of the AIS 38 also enables access to better information due to use of measurement
and recognition criteria that better show economic reality of the firms. In essence, it is stated
that adoption of the AIS 38 or its equivalents improves the functionality of the global capital
market by giving high-quality and comparable information to different investors (Ball 2016).
Further, adoption of the AIS 38 is viewed to have some positive impact on the information
utilization, to the extent that accounting information that is prepared following the AIS 38.
Also, its equivalents are viewed as having relatively advanced superiority, and therefore it is
regularly utilized in paying administrative and in investment decision-making (Zeghal &
Mhedhbi 2006).
The AIS 38 has changed ways on how intangible assets were measured, treated and
recognized. In essence, it derecognizes anything that has been internally generated and write
down previously re-valued intangible assets to the historical costs since an organization is
unable to retain the evaluation unless there are some secondary markets (Alsuhaibani 2012).
This means that AIS 38 would have some important impacts on financial statements of those
firms that are forced to derecognize particular intangible assets. Another impact of adoption
of the AIS 38 is an increase in some firms having some issues in attaining their current debt
covenants, and thus such firms end up adjusting their financial reports with the aim of
meeting their bank’s debts covenant needs (Márquez-Ramos 2008). The standards also affect
a number of the total assets reported or disclosed in the financial statements.
Conclusion
In conclusion, the AIS 38 usually sketches accounting requests for the intangible assets,
termed as non-financial assets short of any fleshly identifiable and substance. It is evident

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that the standard establishes that amortization criteria used are straight-line technique that
reflects a speedier amortization of assets and intangible assets are to be amortized by their
useful life as from the time the assets are readily available for use. Under these criteria,
intangible assets are primarily evaluated at their cost value and amortized on the methodical
basis over its valuable life. Furthermore, it can be concluded that the decisions to adopt the
AIS 38 played a crucial role in international dissemination and acceptance of the AIS 38.
This is based on the notion that the standard help in prescribing accounting dealings for the
intangible assets that were not handled predominantly in the other IFRS. Also, the AIS 38
specifies on means of measuring carrying amount of the intangible assets and required
appropriate disclosures of the intangible assets. It can also be concluded that adoption of the
AIS 38 triggers significantly capacity of investors in making some cognizant financial
decisions, reducing misperception that could arise from diverse means to assess financial
performance and status of numerous nations. This in turn results in reduced risks for the
investors as well as lower capital expenditures of the firm. To be more specific, adoption of
the AIS 38 make results more informative and permits better accounting and lessens pleasure
that a traditional accounting systems are in existence in the Continental Europe as long as the
management is in a position to manipulate provisions, conceal economic losses, embellish
outcomes as well as create hidden reserves. With the fact that AIS 38 or its equivalents result
in increased comparability and quality of the financial statements, it can also be concluded
that adoption of AIS 38 result in improved investor’s capacity in making some informed
financial decisions, practical allocation of the financial resources as well as improved funding
or investment conditions worldwide.

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REFERENCES
Alsuhaibani, A 2012, ‘The expected impact of IFRS adoption on Saudi Arabia based on
lessons from other countries: A focus on the telecommunication Business,’ Procedia-Social
and Behavioral Sciences, 62, 1190-1198.
Sahut, JM, Boulerne, S & Teulon, F 2011, ‘Do IFRS provide better information about
intangibles in Europe?,’ Review of Accounting and Finance, 10(3), 267-290.
Ball, R 2016, ‘IFRS–10 years later,’ Accounting and Business Research, 46(5), 545-571.
Beneish, MD, Miller, BP & Yohn, T 2010, ‘The effect of IFRS adoption on cross-border
investment in equity and debt markets,’ Document de travail, disponible à l’adresse Internet
suivante: http://ssrn. com/abstract, 1403451.
Chua, WF, & Taylor, SL 2008, ‘The rise and rise of IFRS: An examination of IFRS
diffusion,’ Journal of accounting and public policy, 27(6), 462-473.
Georgescu, IE & Afrăsinei, MB 2015, ‘Analysis of the impact of adopting the IFRS by the
companies listed on BVB,’ Procedia Economics and Finance, 20, 259-267.
Gordon, TP & Porter, JC 2009, ‘Reading and understanding academic research in accounting:
A guide for students,’ Global Perspectives on Accounting Education, 6, 25.
Judge, W, Li, S & Pinsker, R 2010, ‘National adoption of international accounting standards:
An institutional perspective,’ Corporate Governance: An International Review, 18(3), 161-
174.

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Lourenço, IM, Branco, ME, & Castelo, D 2015, ‘Main consequences of IFRS adoption:
analysis of existing literature and suggestions for further research,’ Revista Contabilidade &
Finanças, 26(68), 126-139.
Márquez-Ramos, L 2008, ‘The effect of IFRS adoption on trade and foreign direct
investments,’ In International Trade and Finance Association Conference Papers (p. 19).
bepress.
Ramanna, K & Sletten, E 2009, ‘Why do countries adopt international financial reporting
standards?.
Ramanna, K & Sletten, E 2014, ‘Network effects in countries' adoption of IFRS,’ The
Accounting Review, 89(4), 1517-1543.
Rusu, A 2012, ‘IFRS adoption around the world-a brief literature review1,’ Anale. Seria
Stiinte Economice. Timisoara, 18, 814.
Zeghal, D & Mhedhbi, K 2006, ‘An analysis of the factors affecting the adoption of
international accounting standards by developing countries,’The International Journal of
Accounting, 41(4), 373-386.