Contemporary Issues in Accounting and IFRS Convergence Report

This report examines the contemporary issues surrounding the convergence of International Financial Reporting Standards (IFRS). It begins by outlining the goals of the International Accounting Standards Board (IASB) and the IFRS Foundation in creating globally accepted financial reporting standards. The report then explores the institutional perspective, utilizing New Institutional Theory (NIS) to understand how countries adopt accounting standards, highlighting the processes of isomorphism and the influence of both economic and institutional factors. Factors driving IFRS convergence are discussed, including the growth of multinational companies, increased cross-border transactions, and accounting scandals. The report also addresses barriers to global convergence, such as differences between IASB GAAP and US GAAP and the arguments for and against convergence. Case studies are presented comparing the accounting practices of BHP Billiton Limited and Sandfire Resources NL, revealing similarities and differences in their financial reporting. The report concludes by acknowledging the challenges and ongoing nature of IFRS adoption while emphasizing the importance of creating a globally accepted financial reporting framework.

CONTEMPORARY ISSUES IN ACCOUNTING

Answer 1 :
International Accounting Standards Board (IASB) and the IFRS Foundation aimed at
development of a single set of highly qualitative & understandable financial reporting standards
which are globally accepted, enforceable in nature and based upon segmented principles.
There was a unique group of financial reporting standards once among the developed countries
called "national GAAP". The year 2005 is considered as the starting of a new revolution in
global business and the conversion of thirty year efforts into creation of financial reporting rules
to be accepted all over the world. Since that year, 27 European Union member states along with
countries like Australia, South Africa, Russia and New Zealand adopted International Financial
Reporting Standards (IFRS). Few countries like Korea, Canada, Mexico, Brazil, Argentina and
China adopted IFRS from then. (Atkinson, 2012).
INSTITUTIONAL PERSPECTIVE
Researchers have used New Institutional Theory (NIS) in subjects such as political science,
business, management, information technology and sociology. In the terms of accounting, many
case studies are being explained by NIS in international accounting & auditing and management
accounting. NIS is used as a means to understand the behavior of an organization or a country or
a state for the adoption of accounting standards (Berry, 2009).
Considering the initiatives of IFRS Convergence, institutionalization is a process through which
a nation accepts the national standards of accounting that are absorbed in the favor of
harmonized international accounting. It has been a practice in previous years of using the
processes of isomorphism in many nations (Boyd, 2013). It is not that only Anglo Saxon
countries uses IFRS that are based mostly on judgmental based financial reporting, shareholders
satisfaction or micro economics but harmonized IFRS are also adopted in countries having
accounting norms which are different such as code law countries. Let us take an example, China
has been using IFRS since 1997 or Kazakhtan which is a USSR country, tried adopting IFRS
since 1991.

In terms of IFRS Convergence, NIS is used for researches in terms of both quality and quantity.
As stated by Rodriguez and Craig (2007), NIS explains the development of international
accounting since the years of its beginning. When a country wants to replace its accounting
standards with IFRS norms, the reason should be economically justified, that is, it should bring
economic benefits to the nation such as declining in cost of capital, which has led to increament
of foreign investors in the capital market (Datar, 2015). However, research shows that a country
adopts IFRS more for legalized Institutional matter and less in economic terms.
FACTORS DRIVING IFRS CONVERGENCE
The most important factor for IFRS convergence is increase of businesses expanding globally.
The number and size of 'multinational companies' that are looking forward for opportunities of
investment and trading has gradually increased since past few years. Thus, for the sake of having
the interest of MNCs in one's company, it is required for all the companies to have consistent
accounting standards so that companies can be compared in terms of their financial position and
performance (Picker, 2016).
The increased number of cross border transactions in equity securities and bank international
transactions has been absorbed since last few decades. Thus, the preparation of financial reports
has to be prepared using consistent accounting standards as such reports are capable of being
compared and are used by shareholders, stock brokers, investors, researchers and analysts for
their investment making decisions (Kuti, 2014).
As already discussed about European Union (EU), is considered to be one of the primary reasons
of international convergence. The main reason for such strong influence is EU's goal of a united
business environment and a common market in Europe so that it can compete with US.
Another reason influencing international convergence is corporate failures and accounting
scandals in US and Australia such as Enron case, HIH insurance scandal and Worldcom case
shook the public confidence in accounting and auditing industry. Thus, in case of occurrence of
any such collapses again, the blame could come on accounting standards and that is why, to
avoid such criticism, IFRS adoption is more coming into existence (Datar , 2016).

Another reason that has influenced countries like Australia to adopt IFRS is saving of significant
costs as in AASB (Australian Accounting Standard Board) responsible for revising and
analyzing accounting standards is costly in nature (Holtzman, 2013).

Answer 2 :
As visible through various researches, there is a strong move towards international convergence
all over the world. However, there are still significant barriers that need to be controlled before
there is a convergence worldwide. There has to be a convergence between IASB GAAP and US
for the purpose of following one set of accounting standards throughout the world. Currently,
there are a number of differences between them for which the IASB and FASB are working
together to eradicate the differences but until and unless they aren't reconciling, there will be
divergence in the accounting standards used for a continued period of time (Knubley, 2010).
The arguments for the convergence of financial reporting standards has been enumerated by
various authors so as to include :
 Increased comprehensive comparable cross national financial reports ;
 Increased international capital flows ;
 Cost savings of MNCs and raised level of accounting uses ;
 Use of low cost financial accounting standard standards for countries having limited
resources
According to research of Fisher, 2003 the international convergence should be in existence so
that the practices of representing financial reporting between countries turns out to be same and
the differences in presenting accounting transactions are eliminated. This would enhance the
capability of comparing financial reports as well as it would serve as a global approach for the
MNCs and other potential investors for making investment decisions (Lerner, 2009).
According to research of Goeltz, 1991, the comparability between the financial information
would be a strong initiative for the free movement of capital a over the world so as to enjoy the
best possible results. However, the arguments say that the international capital market is already
progressing despite of the absence of globally recognized reporting standards. Therefore, it has
been a constant argument that there will be no impact on the continued development of the
international market. Another arguable fact is that the potential investors, analysts or brokers or
portfolio managers will not be make decisions based only on the information provided in
financial statements but there are several other factors to be considered for making the best

possible decision. Therefore, it is not important that the comparison can be made only if such
financial reports are made using consistent accounting standards.
According to Henderson and Peirson, 2000 research, the different accounting standards of
various nations are acting as a barrier for the development of international market by levying
unreasonable costs of compliance on MNCs. This can be explained better in the following way.
Companies that want their shares to be listed in another country's market needs to comply with
various other norms of that particular company. For example, New Zealand companies have to
prepare their financial reports in accordance with US GAAP norms to list their shares on US
stock exchange and have to prepare a reconciliation statement between US GAAP and NZ
GAAP. This is, thus, costly and consumes alot of time and has also led to some weird results. For
example, in 1993 Daimler Benz reported DM615 million as its profits but under US GAAP, it
became a loss of DM1839. However the same researcher argues that such requirements needs the
country to sacrifice their sovereignty over their own accounting and financial standards.
Considering the local priorities and needs, some of the countries which are industrialized have
developed their own set of financial standards as every country possesses different business
environment, cultures, languages, law and order and social political environments (McLaney &
Adril, 2016).

Answer - 3 :
For the comparison purposes, let us take the companies in the mining sector called BHP Billiton
Limited and Sanfire Resources NL. Sanfire Resources NL is an Australian company listed on
Australian securities exchange. The consolidated financial statements for the year ending June
2017 were issued in accordance with Director’s resolution on 29th August, 2017. In a similar
way, BHP Billiton Limited is one of the leading companies with huge market value listed on
ASX. Bhp Billiton Limited prepares it's financial statements in accordance with Australian
Corporations Act, 2001, UK Companies Act, 2006 and accounting standards and interpretations
collectively known as IFRS. On the other hand, Sanfire Resources prepares its financial annual
reports as per Corporations Act, 2001, Australian Accounting Standards and other authenticated
requirements of AASB. The financial reports also comply with IFRS norms (Noreen, 2015).
The preparation of financial reports of BHP is on the basis of Historical cost principles.
However, it doesn't include-
 Derivative financial instruments and some other financial statements which are valued at
fair value and
 Certain noncurrent assets classified as held for distribution or sale, which are measured at
the lower of carrying amount or fair value less disposable cost.
On the other hand, the financial reports of Sanfire are also prepared in the basis of historical cost
basis. But its exclusions are different from that of the former company, that is, it doesn't include
trade receivables, cash settled share based payments and AFS investments (available for sale)
which are measured on the basis of fair value. BHP's annual reports Includes such accounting
policies in the notes that includes the recognition and measurement basis used and are relevant
for understanding financial statements (Piper, 2015).
However we do not notice much of the differences in the accounting policies adopted by both the
companies. This, for the basis of comparing, we observe similarities more than differences. This
could be understood more by the following two or three points.
Both of these companies have valued their trade receivables on the basis of fair value which are
then measured using effective interest method at amortized cost. Both of the companies allows

the credit period of 30 days. However, in case of Sandfire, other receivables are valued as per
stated in the previous statement while the trade receivables are stated at fair value only.
In case of BHP, a continuous monitoring is being made to assess the credit quality of counter
parties and identify the indicators of impairment. Such receivables are considered due or
impaired as per Group's terms and conditions (Irvine, 2008) . As on 30th June 2017, receivables
of US $19 million were due but not impaired as the majority of them are due for less than 30
days. In case of sandfire resources, the receivable is considered impaired if there is financial
difficulties of debtors, default payments or if they due for more than 90 days. Such impairment
amount is recognized in the income statement. However, currently there is no provision of
impairment loss and trade receivables are at $12.803 millions.
Both of these companies value its inventories at Lower of cost and net realizable value where
cost is calculated on the basis of average weighted costs. However in case of BHP Billiton Ltd,
processed inventory is valued as per absorption costing basis. In both the cases, cost includes
costs of purchasing raw materials, production costs including allocated overheads while NRV is
the difference of estimated selling price less the estimated costs that would be necessary for
completion (Piper, 2015).
Thus, we can conclude that while comparing, we are finding similarities more than the
differences. However, an enhanced study couldn't be made due to large differences in scale of
operations. However, the presentation of BHP Billiton Limited is better than Sandfire Resources
in terms of quality as it discloses disclosures as maximum as possible (Ramírez, 2018).

Answer - 4 :
It is true that adoption of IFRS is not a matter of some days after all a global acceptance of such
financial and accounting practices will take s lot of time. However, we need to focus on the
bigger picture where IFRS objectives are to create a globally united nation that delivers a true
and fair representation of a company's information. The accounting and auditing industry have
learnt lessons from previously collapses that have shaken the public trust and confidence. Thus,
with the increasing need of satisfying stakeholder's needs, the IFRS adoption has became vital
for the accounting and auditing industry (Nobes, 2015) .
Thus, IFRS adoption will help in preparation of financial reports which are finer qualitatively
and quantitatively. Such qualitative reports will help in bringing the dreams of having one global
nation into existence. Such reports are important to maintain the trust of public in companies, of
the companies in such norms and of the overall public in the accounting industry. We can
visualize such adoption in one of the countries, that is, India who has finally replaced its
accounting standards with Indian Accounting Standards (IndAs) that are in consistent with IFRS
norms.
Though IFRS norms demands a comprehensive disclosures, it is more better to have such
financial reports that delivers the needs such as comparison purposes, true and fair presentation,
understandability and would help the stakeholders to extract their required information from such
reports whether external or internal (Raun, 1962). It is true that the total changes would be
dramatic for the next few years but only time would tell whether such global efforts would be
able to generate the expected results and the world will visualize low cost reports that are highly
useful and comparable.
A significant number of countries have adopted IFRS but a fully adoption has been made by a
handful countries. However, we need to understand that adoption of a single set of accounting
standards would be ultimately in the interest of the public that would contribute to the effective
capital flows within countries. Such an adoption would help in economic growth all around the
world. Thus, we can conclude that where the challenges are tough, the results would be worth
(Seal, 2012).
Thus, we can conclude that convergence of IFRS will lead to improved financial reporting.

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