Advantages of IFRS: Impact on Globalization of Capital Markets

This essay discusses the advantages of International Financial Reporting Standards (IFRS) in the context of the globalization of capital markets. It highlights that IFRS, issued by the International Accounting Standards Board (IASB), serves as a global standard for preparing financial statements for public companies. With approximately 120 countries obliging or allowing IFRS, and around 90 conforming fully, the essay emphasizes IFRS's role in addressing issues arising from cross-border transactions and the free flow of international capital. The advantages of IFRS include enhanced transparency, strengthened accountability, improved economic efficiency, and increased comparability of financial information. The essay concludes that the harmonization provided by IFRS is essential in the modern globalized capital market due to factors like interdependence of trade, cross-border investment, and capital mobility, making its adoption crucial for enhancing financial reporting.

Running head: ACCOUNTING THEORY AND APPLICATION
Accounting theory and application
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1ACCOUNTING THEORY AND APPLICATION
Introduction
IFRS (International Financial Reporting Standards) are set of the accounting standard
that is issued by the IASB (International Accounting Standards Board). It is reaching to the
global standard for preparing the financial statements of public companies. Near about 120
countries and the reporting jurisdictions obliges or allows the IFRS for the entities listed
domestically. However, near about 90 entities have already conformed fully to the IFRS
propagates by IASB (Ifrs.org, 2019).
Body
Modern economists generally depend on the transactions carried on to cross-border
level as well as free flow of the international capital. More than 1/3rd of the entire financial
transactions carried out across borders and it is expected that the number will grow further in
future. Further, the investors prefer investment and diversification opportunities globally
while the entities raise capital and carry out international operations or undertake the
transactions. If the national accounting standard is applied for reporting the value in the
financial report it may be computed on differential basis. These issues are addressed by IFRS
through providing the high quality and internationally identified accounting standard set that
enhances accountability, efficiency and transparency to the global financial market (Li,
Sougiannis & Wang, 2017). Various other advantages of IFRS are as follows –
 Transparency – IFRS enhances transparency through improving international quality
and comparability of financial information that allows the investors and other
participants in the market in taking knowledgeable economic decisions.
 Accountability – IFRS strengthens the accountability through dropping information
gap among the capital providers and people with whom they invested the money.
Further, the standard offers required information for holding the management to the
accounts. As the information source of global comparison, IFRS is considered as
vitally important to the regulators all over the world.
 Efficiency – IFRS contributes to the economic efficiency through assisting the
investors in recognising the risks and opportunities throughout the world which in
turn improves the allocation of capital. Further, for the purpose of business using of
the single and trusted language of accounting reduces the capital cost and lowers the
costs associated with international reporting (Zaidi & Paz, 2015).

2ACCOUNTING THEORY AND APPLICATION
 Comparability – improved comparability for financial information of entities and
enhanced communication quality to the stakeholders reduces the uncertainty of
investors, reduces the risks and enhances the market efficiency which in turn
minimizes the capital cost.
 Group companies – in case of the group companies having foreign subsidiaries it is
not required to prepare individual financial statement for each company rather it can
be included in one single financial statement if IFRS is followed by all the entities in
the group. It further allows the multinational groups to apply common language of
accounting which in turn enhances the decision making and management reporting
(Barth et al., 2018).
Conclusion
From the above it can be concluded that the harmonization is required in modern
globalized capital market as different factors like interdependence of the trade, cross border
investment, increase in complexities of business, capital mobility and global slowdown have
significant influence on global capital market as well as economy. Hence, adoption of IFRS is
required as it enhances the harmonization in reporting context of financial report.

3ACCOUNTING THEORY AND APPLICATION
Reference
Barth, M. E., Landsman, W. R., Lang, M. H., & Williams, C. D. (2018). Effects on
Comparability and Capital Market Benefits of Voluntary IFRS Adoption. Journal of
Financial Reporting.
Ifrs.org., (2019). IFRS . Retrieved 25 January 2019, from https://www.ifrs.org/use-around-
the-world/why-global-accounting-standards/
Li, S., Sougiannis, T., & Wang, I. (2017). Mandatory IFRS Adoption and the Usefulness of
Accounting Information in Predicting Future Earnings and Cash Flows.
Zaidi, S., & Paz, V. (2015). The Impact Of IFRS Adoption: A Literature Review. Journal of
Theoretical Accounting Research, 10(2).