The Effects of IFRS Adoption on Corporate Financial Reporting

This essay examines the effects of International Financial Reporting Standards (IFRS) on corporate financial reporting, focusing on the transition from local Generally Accepted Accounting Principles (GAAP). It highlights how IFRS impacts the comparability and interpretation of financial statements, potentially distorting figures and affecting financial ratio analysis. The essay also addresses qualitative aspects of financial reporting not adequately covered by local standards, such as bankruptcy prediction, where IFRS is argued to be more conservative and reliable. It emphasizes the importance of qualitative characteristics like relevance, faithful representation, verifiability, and comparability in IFRS, ensuring useful financial information for decision-making. The analysis supports the increasing adoption of IFRS due to its enhanced ability to provide a clearer and more reliable view of a company's financial health compared to local accounting standards.

Effects of IFRS on Corporate Financial Reporting 1
EFFECTS OF IFRS ON CORPORATE FINANCIAL REPORTING
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Effects of IFRS on Corporate Financial Reporting 2
Effects of IFRS on Corporate Financial Reporting
International Financial Reporting Standards IFRS is slowly becoming the dominant
accounting standard among many corporations in the world today. Despite this new
development, the transition of corporations from their local and individual country Accounting
standards to the new standards set by IFRS have been a bit disruptive to the users of financial
statements especially the investors. One of the most affected qualitative aspects of an
organization's financial statements is the comparability and interpretation of trend analysis as
impaired by the differences between the local Generally Accepted Accounting Principles
(GAAP) and International Financial Reporting Standards (IFRS). These differences have an
effect of distorting the figures that are being presented in the financial statements hence causing
serious variances when it comes to computation and interpretation of financial ratios under the
two different standards (IFRS and local GAAP) (King, Drummond & Rose, 2012, np.).
Qualitative Aspects of Financial Reporting Not Satisfied by Current Reporting Standards in
Pursuant of IFRS
There has been a lot of debate when it comes to aspects of financial reporting that are not
currently being satisfied by the local financial reporting standards. This debate has led other
corporations to opt at adopting some aspects of IFRS. A number of states in Africa, Europe,
United Kingdom and Asia have already adopted IFRS standards in their financial reporting. US
is the latest country to deliberate on replacing the local US Generally Accepted Accounting
Standards(USGAAP) with IFRS standards. The arguments behind all these deliberations are
based on the following arguments.

Effects of IFRS on Corporate Financial Reporting 3
Local Standards Do Not Give a Right Prediction of Bankruptcy
One of the main reasons why IFRS is gaining more popularity as compared to local
accounting standards in Australia is the fact that IFRS standards stand at a better chance of
predicting bankruptcy than the local Australian Generally Accepted Accounting Standards
(AGAAP). The reason behind this is that IFRS standards have more conservative accounting
procedures as compared to AGAAP which requires that the managers and financial statement
preparers to write off a substantial amount of intangible assets that might have been previously
capitalized and valued upwards under the local accounting standards ("IFRS Qualitative
Characteristics Of Financial Reporting - CAKART", 2018, np.). The rules of IFRS standards are
also being supported by researchers who have identified that financially troubled companies
usually tend to capitalize intangible assets and revalue them upwards more frequently than
financially sound firms.
IFRS Places More Emphasis on Qualitative Characteristics of Financial Statements in
Reporting IFRS conceptual framework provides for
recognition of the importance of the qualitative aspects of useful financial reporting so that the
most useful information is provided to the users of financial statements for the appropriate
making of decisions about the reporting company. The qualitative aspects apply to all the
sections of the financial information in general purpose and to the specific set of accounts
presented in the annual report ("Conceptual Framework for Financial Reporting 2018", 2018,
np.). Qualitative characteristics aspects of the aspects touch on, relevance, materiality, and
faithful representation. As per IFRS, useful financial information is that which is relevant and
represents faithfully what it is purported to be presented. The usefulness of financial information
is also centred on its ability to be verifiable, comparable, understandable and has the ability to

Effects of IFRS on Corporate Financial Reporting 4
reflects an entity's aspect of relevance based on the magnitude of items being valued in the
financial reports ("IFRS Qualitative Characteristics Of Financial Reporting - CAKART", 2018,
np.).
References
Conceptual Framework for Financial Reporting 2018. (2018). Retrieved from
https://www.iasplus.com/en/standards/other/framework
IFRS Qualitative Characteristics Of Financial Reporting - CAKART. (2018). Retrieved from
https://www.cakart.in/blog/ifrs-qualitative-characteristics-of-financial-reporting/
King, A., Drummond, S., & Rose, S. (2012). Unwieldy rules 'useless' for investors.