Accounting Theory Workshop 5 - 3101AFE, Trimester 1 2020

This document presents solutions to an accounting theory assignment, addressing key concepts in international accounting. The assignment explores the impact of funding sources on reporting practices and the accounting profession, contrasting Continental European countries with the United States, the United Kingdom, Canada, and Australia. It delves into the benefits of adopting International Financial Reporting Standards (IFRS), including reduced preparation time and increased foreign direct investment, while also examining the challenges of convergence between IFRS and US GAAP, and the potential limitations of global IFRS adoption, such as manipulation risks and increased workload for accountants. The assignment applies accounting theories to the adoption of IFRS in Australia, discussing the smooth transition, cost savings, and positive impacts on foreign investment and capital markets. References from academic journals are also included to support the findings.

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Name of the Student
Name of the University
Authors note

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Answer 1
Since the Continental European countries relied mostly on internal investors, the
periodical reports made by the accountants and the accounting profession was considered weaker
and trivial in terms of influence. On the other side, Countries like the United States of America,
United Kingdom, Canada and Australia who raised funds from external investment sources saw a
huge accession in demand for professional accountants. As a result of this, they were weighed as
comparatively stronger in numbers, in terms of duties performed, judgements made and
influence.
Answer 2
The countries which adopted IFRS have witnessed a lot of advancements, and some of
the salient benefits they procured are added below
 A significant decrease in time, money, physical and mental efforts in preparation of
periodical reports.
 Easier to control and oversee
 The benefit of more flexibility in accounting
 Huge increase in the number of Foreign Direct Investments made
 Compared to GAAP in 2004-06, much higher return on equity of 70%
 A sole authoritative body to govern reports
 Huge investments in small and medium scale enterprises
Answer 3(a)
 Compared to US GAAP, reports prepared under IFRS provide investors with accurate
and larger data.
 Assists and supports investors in making decisions.

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 Preparation of reports does not incur processing or analysing charges.
3 (b)
Due to the convergence of FASB and IASB, one of the primary concerns of companies
operating in more than one country is that they are forced to keep multiple accounting books.
Also, the set of rules to be framed depends on the willingness of nations, their political, cultural
and social structure.
3 c)
Once again, due to convergence of IFRS and GAAP, the companies based in the US have
to follow IFRS accounting practises under the guidelines set by GAAP. The periodical reports
and the recognition of assets, liabilities, revenue and Inventory turn out to be a bit more complex
than usual IFRS practises(Lin et al., 2019).
Answer 4
Even though IFRS is not a globally adopted accounting standard so far, the companies
might face these difficulties if that happens.
 IFRS provides the companies with an extraneous amount of flexibility, and this can be
misused to manipulate the reports to their convenience.
 Smaller companies most probably will find it difficult to cover costs of transition
 The more and unnecessary workload on accountants
 The changes during the transition should be made from the grass-root level, including
changes in the entire educational syllabus structure of the country(Mita et al., 2018).
Answer 5

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The theory mentioned here is the adoption of International Financial Reporting Standards
or IFRS by Australia. So IFRS is nothing but a set of standards which are designed and
developed by the International Accounting Standards Board or IASB. The idea behind IFRS was
a single set of accounting standards, applicable in all countries, adopted globally and centralised
governance. Currently, more than 100 countries practise IFRS as it came in as a replacement for
International Accounting Standards.
Application of IFRS in Australia
 Australia adopted the IFRS system back in 1st January of 2005.
 Even though there were a lot of predictions on the policy backfiring, the actual transition
was smooth for all major sectors.
 Moreover, the companies were able to save a lot of expense in the preparation of reports
and other accounts.
 Furthermore, in the future, Australia witnesses a huge rise in the amount of Foreign
Direct Investments, also a reduction in the cost of capital and better functioning of the
capital market.
There were a lot of confusions and negative predictions revolving around the adoption of
IFRS by Australia. The entire transition process, on the other hand, was well balanced and
performed smoothly, thereby breaking the misconceptions around IFRS adoption.

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References
Lin, S., Riccardi, W.N., Wang, C., Hopkins, P.E. and Kabureck, G., 2019. Relative effects of
IFRS adoption and IFRS convergence on financial statement comparability. Contemporary
Accounting Research, 36(2), pp.588-628.
Mita, A.F., Utama, S., Fitriany, F. and Wulandari, E.R., 2018. The adoption of IFRS,
comparability of financial statements and foreign investors’ ownership. Asian Review of
Accounting.