IFRS Adoption in Australia and Canada: A Comparative Analysis

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Accounting Theories and
Current Issues
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Abstract
The report will shed light on the usefulness of the financial reporting regulation in
Organizations.IFRS or International Financial Reporting Standards are accounting
standards that are issued by IFRS Foundation for providing a global platform to firms for
doing business activities. The report focuses on the important aspects of these
standards and how different companies are applying these standards in their financial
and business operations to enhance their profitability and productivity. It also provides
an easy and understandable ways for companies in intercontinental countries to do
business with each other. The report will also provide study about the key issues that
are responsible for the adaptation of IFRS in the firms.
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Table of Contents
Introduction..............................................................................................................................................4
Relevance of Conceptual Framework of Financial Reporting.................................................5
Usefulness of Conceptual Framework of Financial Reporting...........................................................6
Comparison of Countries adopting IFRS............................................................................................7
Conclusion................................................................................................................................................13
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Introduction
Every organization has to abide by certain standards while recording the financial
transactions. These reflects that the firm’s reports are in accordance with the law and
can be used for further business activities. The main aim of IFRS is to provide a set of
rules that makes international trade easier. The report raises vital factors such as key
issues that influences the countries to adapt the accounting principles of IFRS. It also
mentions the benefits that the firms enjoys from the provided principles.IFRS is adopted
by 120 countries in the world. These standards specify how the companies are
supposed to maintain, compile, report and summarize their reports. IFRS has made
trade much easier in different parts of the world. It has become very easier for firms
looking for mergers to consolidate the accounts.
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Relevance of Conceptual Framework of Financial Reporting
The principal purpose or aim of the Conceptual Framework was to support the IASB for
developing the future IFRS. It is so because it provides a detailed framework for setting
the respective accounting standards that can be used by the firms to resolve the
disputes that used to arise between the firms due to different accounting policies.
A conceptual framework should consider the theoretical issues that surrounds the
financial reporting and its effects and impacts on the operational activities undertaken in
the firm (De Villiers, et.al., 2017). The framework forms a coherent foundation that is
responsible for development of accounting standards. These are applicable to various
disciplines, but these are compared with the generally accepted accounting principles
(GAAP). It is one of the most recognized frame of accounting standards that is being
followed by countries like US.
The relevancy of the framework is extremely important as they are the medium or the
base through which vital decisions are made on the basis of economic, theoretical
methods of recording of transactions. This is a benchmark through which the
transactions are measured. The transactions are then communicated to other users on
the basis of these reports.It is a well-known fact that after application of conceptual
framework of principles, the accounting information received is extremely reliable and
accurate as well. But, after the application of these standards, there has been
tremendous changes in the records, few of which are mentioned below:
 There were consistency issues with the records in terms of accruals.
 Standards were often termed as failure rather than being proactive indetermining
the best strategy (Secundo, et.al., 2016).
 There were certain biasedness found in the composition of the financial
accounts.
 There were certain theoretical issues that were not addressed in the earlier
standards.
Therefore it can be said and stated that absence of conceptual framework would lead to
propagation of the accounting methods that are based on certain rules, whose main
objective is to treat all the financial transactions with detailed specific rules and
regulations.
Various countries and companies have adopted the IFRS to bring transparency in their
statements and bring a standardized format in recording their transactions, so that it is
easier for them to understand the business activities of other companies. In situations
like Mergers & Acquisition, the managers and accountants face issues regarding the
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consolidation of accounts of both the companies. This tenuous process is simplified by
a standardized set of principles.
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Usefulness of Conceptual Framework of Financial Reporting
There are various ways through which the usefulness of the framework of Financial
Reporting can be described. It can be summarized in the following manner:
 Identifying the main objective of the financial statements.
 Issuing of the reporting entity.
 Recognizing the partied that are using the similar framework.
 Providing high-quality global standards that intend to achieve consistency all over
the world (Ahmed, et.al., 2017).
 They aspire to achieve agreement and global convergence.
 The financial results obtained from following the methods of IFRS are
comparatively more accurate.
A uniform platform of accounting principles are very helpful in aiding the financial
activities. The purpose of Financial Reporting is to promote uniformity in the accounting
practices followed around the world. It also reduced hassles and problems for the
accountants. Countries with a greater quality corporate governance systems adopt
IFRS as it provides several direct economic benefits.
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Comparison of Countries adopting IFRS
Canada is one country that has adopted IFRS. It is required in all the listed companies
and financial institutions. It has also made mandatory for its Domestic companies to
only trade internationally with companies that have also adopted IFRS.
Provided below is the comparison of the implementation and applicability of principles
and practices of IFRS in Australia and Canada.
Basis of Difference Australia Canada
Reasons for Adopting
IFRS
It adopted IFRS for
bringing a uniform set of
principles for dealing with
accounting issues. It was
adopted as there were
various issues arising
related to the accounting
practices. Many
companies were misusing
the loopholes of earlier
existing accounting
standards and this was
appreciating their value on
Paper (Muda, et.al., 2017).
This was a major concern
as it became a major issue
when there were business
between inter-continent
nations.
Canada adopted IFRS for
a positive change in the
accounting policies as they
reflected to be better in
treating the transactions of
in a much accurate
manner. The values of the
assets are appreciated by
the application of IFRS
than the CGAAP that was
earlier used in Canada.
Another reason for the
reason for adoption of
IFRS was that it provided
better internal control over
the reporting of financial
statements. It has also
improves relations
between the investors and
the external
communication plans.
Transitional Issues
Faced
The transitional issue while
in adoption of the IFRS in
Australia were categorized
into different categories of
cultural, intellectual, legal
and political. The
accounting professionals
of the country lacked
understanding of technical
knowledge, manner of
computation, and
additional knowledge that
was required to adopt
There were several
difficulties that companies
in Canada faced while
transitioning from their
accounting standard to
IFRS. The biggest issue
that was most commonly
faced was that it took a lot
of time to transit. It was an
excruciating time
consuming compliance
exercise (Gürtürk and
Hahn, 2018).
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IFRS. There were many
drastic changes that were
needed to be implemented
for the adoption of IFRS.
The transition from the
previous accounting
standard was very difficult.
Another issue that
surfaced while adoption of
IFRS was that there were
many choices under the
standards of IFRS and this
required a raise of high
professional judgment
(Nobes and Zeff, 2016).
Also the cost required for
the implementation were a
major issue faced by
Australia.
There were various
complexities switching as
IFRS contains a lot more
standards and it was
difficult to abide by all of
them.
The cost of transition was
different for different type
of countries. The costs
were incurred according to
the size, nature and
business of the firm.
The companies had to hire
finance employee that
were well versed with IFRS
and had to train the
remaining staff. This
increased the overall
costs.
Several measures were
required to manage all the
standards, policies and
practices mentioned in the
IFRS, as the companies
earlier were not used to
requisition of such kind of
additional data.
Challenges incurred
while adoption
The challenges that
incurred in the adoption
process were lack of
training and education. Not
every professional was
guarded with the efficiency
and knowledge of the
standards of IFRS.
There were also
uncertainty about the
compatibility of the
Australian law with the
standards of IFRS
adoption as these are to
be presented in certain
formats. The Australian
entities were also
concerned about the
treatment of tax.
There were various
challenges that occurred in
front of Canada while
adopting the IFRS. There
was difference in the
presentation of the
financial statements in the
IFRS and the standards
applied by Canada,
CGAAP (Handley, et.al.,
2016).
The accountants had to
learn the new methods that
were now applicable. As
the standards defied by the
IFRS are more towards the
transparent method, a lot
of financial information had
to be reflected in the newly
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The biggest challenge that
surfaced was that the
presentation under IFRS
accounting was different
than that of the domestic
standards, due to this all
the business contracts
needed to be re-negotiated
with regards to depiction of
exact value in IFRS
(Bahadır, et.al., 2016). The
earnings and the equity
valuation that were
presented by the IFRS are
not value relevant in
comparison to Australian
GAAP.
framed financial
statements.
The companies has to test
every standard before
applying it in their financial
statements.Due to this, a
lot of firms were against
the adoption of IFRS. The
costs of small sized
organizations increased
drastically. They had to
hire professionals at higher
salary and this was out of
their pockets.
Another vital challenge that
the company faced was
that there was difference in
the final values of the
financial statements. It
took time for the
organizations to adjust with
the changes of the new
accounting standards and
practices.
Benefits of IFRS Australia had reported that
it faced various benefits
after the adoption of IFRS.
The primary benefit that
can be witnessed was that
there was tremendous
reduction in confusion and
uncertainty between the
financial statement users
of foreign countries.
The adoption of IFRS have
resulted in substantial cost
savings associated with
dealing with foreign fiscal
statements.
The firms have also
registered significant
improvement over the
business activities that
were earlier little difficult to
comprehend with. The
results of the financial
Canada has also
reportedly faced
tremendous benefits after
the adoption of IFRS. They
have witnessed an
increase in the economy
and has also seen growth
of its international
business. Through the
adoption of IFRS, the
country has attracted a lot
of foreign investors and
this has led to enormous
foreign capital flows in the
country (Zeghal and
Lahmar, 2016).
The financial statements
that have been prepared
using the common set of
accounting standards have
aided the investors in
comprehending the
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reports are also very
accurate and there is
visible increase in the
assets of the firms
associated with IFRS.
transactions in a better
way.
After application of the
IFRS, the financial industry
is able to raise funds from
the foreign market at a
much lower cost and this
has boosted the trade.
Using the accounting
standards the
professionals have also
received new opportunities
for doing business in
different parts of the world.
Similarities The accounting standards
of the IFRS are same in
every country. The
application is similar as
this has made it easier for
countries to trade with one
another.
Differences The difference between
the applications of IFRS
between both the countries
is in its taxation policy
(Eriki, et.al., 2017).The
process of accounting
standards are the same,
but the taxation laws are
different. The percent of
tax levied on the business
activities in each country is
different. These are
subject to their respective
govt.
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After reading the in-depth analysis of impact, challenges, benefits faced by Australia
and Canada after the adoption of IFRS, it can be said that the adoption was successful
in both the countries.
There are various instances that indicate that the adoption was successful. Though the
countries dealt with various issues while the transition, but all of that had been resolved
now. Both the countries are practicing their business with the implications of IFRS
accounting standards. To comprehend this in detail, there are certain points given
below:
Positive Impacts of IFRS in Australia:
 There has been significant increase in the financial reporting of Australia.
 The adoption has brought optimistic effecton the Australian Economy, as it has
been well received by the investors and analysts of publicly listed Australian
Companies (Dowa, et.al, 2017).
 After the application, the Australian companies have surged greater heights at
the global market. The skills of the accountants have also increased
tremendously.
 The imports of Australia have increased ever since the transition. There have
been boom in the imports and exports as now conducting business has become
much easier.
 It has not only had an impact on the global economy, but has also boosted the
local economy of the country.
 The financial value of the Australian companies have increased manifold and this
is a good sign for attracting new business.
 The transition has also enhanced the implication of ethics in the accounting
process.
Positive Impacts of IFRS in Canada:
 After the adoption of IFRS in the country, the gates of international trade had
further opened up for Canada.
 The country is now equipped with the latest technology to deal with the
accounting transactions. The new developed software are very fast and
responsive.
 The application of new standards have improved the relevancy of reporting of
financial documents as evaluated by the association with several other
organizations (Hasan and Rahman, 2017)
 The equity value of the shares of the companies have increased in the respective
market of the country.
 It has brought greater transparency, ability and lower costs to the companies.
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