Evaluating the Impact of IFRS on Global Financial Reporting Practices

Financial reporting is a critical tool for businesses worldwide, providing essential information to stakeholders about an organization's financial health. The adoption of International Financial Reporting Standards (IFRS) plays a pivotal role in enhancing transparency and trust. IFRS aims to standardize financial statements across different countries, making it easier for investors, creditors, and other stakeholders to compare and analyze financial data. This essay delves into the importance of financial reporting, examining how scandals can be mitigated by adhering to these standards. It highlights case studies from various regions, including the Middle East North Africa (MENA) region, where macroeconomic factors influence IFRS adoption. Additionally, it explores the cultural impacts on financial statement comparability and the transition challenges faced by developing countries like Indonesia. The essay concludes that robust financial reporting practices are indispensable for building stakeholder trust and ensuring informed decision-making.

International Financial
Reporting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Purpose of financial reporting............................................................................................1
2. Outline conceptual framework and qualitative characteristics of financial information . .2
3. Important stakeholders of company...................................................................................2
4. Highlighting value of financial reporting ..........................................................................3
5. Producing financial statements ..........................................................................................4
6. Presenting financial ratios..................................................................................................7
7. Difference between IAS and IFRS.....................................................................................8
8. Benefits of IFRS.................................................................................................................9
9. Varying degrees of compliance with IFRS......................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial reporting plays vital role in providing effective information to stakeholders' to
take enhanced decisions with much ease. The enclosed report deals with importance of financial
reporting to organisations. The financial statements prepared by accountants are governed by
professional bodies which has accuracy in such statements. The report also discusses about the
professional bodies such as IAS and IFRS which have immense benefits to organisation as well
as stakeholders'. On the other hand, financial ratios are also computed for the company. The
qualitative characteristics of financial information are also discussed which provides clarity to
users of accounting information to assess financial health of organisation.
1. Purpose of financial reporting
Financial reporting is important for various stakeholders as it provides much needed
information to them in the best possible way. The preparation of financial reports is not an easy
task as talented accounting professionals are required (Stent, Bradbury and Hooks, 2017). This
report helps company to ascertain whether profit is made or loss has been incurred in a particular
period. As such, it is relevant for stakeholders as well as management of the company to take
better and effective decisions.
Another purpose is that investors and creditors require such information to assess whether
to provide funds to organisation or not. If financial position of organisation is strong, this means
that higher returns will be provided to investors. On the other hand, creditors analyse financial
reports by determining debt paying capacity of company and as such, these stakeholders' seeks
financial reports to analyse financial health of company.
Financial reporting is used to prevent scandals which are prevailing internationally. As
such, fair reports are prepared by company which is then provided to stakeholders' and as a
result, they seek reports for assessing financial position of organisation quite effectively (Graham
and et.al, 2017). It has sectioned of liabilities and assets which is much relevant to stakeholders.
Moreover, financial reports are also used for the purpose of imparting information to
stakeholders about the capital which is sufficient for future growth or not. As such, clarity is
observed as lenders and investors seeks financial reports.
The elements of financial reporting are balance sheet, cash flow statement, income
statement, changes in stockholder’s' equity. These financial statements are important to be
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prepared carefully as it is reflected in financial reports. Moreover, it is also used for bidding and
labour contracts as well. Thus, financial reports are useful tool for exhibiting true financial
information of the company quite effectively.
2. Outline conceptual framework and qualitative characteristics of financial information
Conceptual framework are used to distinct and organise the various ideas having all the
information which is important and real so that they could be easily remembered. This is also
regarded to as the generally accepted theoretical principles forming the important part of
particular field of enquiry (A conceptual and regulatory framework, 2018). There are mainly 4
characteristics of this framework which are relevance, reliability, comparability and
understandability this will be helping the financial information to b more accurate and reliable.
Purpose-
The main purpose of the financial information systems is to provide useful data which
will be the base of economic decision making for the company. This framework is also providing
rule and standard for accounting so that this could set a limit and lead to creation of set of rule.
One of the primary function of conceptual framework is to assist IASB so that they could
develop for future IFRS and could review the existing one.
The characteristics which are stated will be making financial information more reliable as
the framework would be relevant, reliable, comparable and understandable to the user of the
information. Thus, this will be helping in furthermore accuracy of data which is given.
Regulatory framework-
This is the policy and guidelines which are governing the control and implementation of
adopted action plan and principles. The International Accounting Standards Board (IASC) will
be providing the framework (A conceptual and regulatory framework, 2018). This is also a rule
based standards of accounting which is regulated by specified piece of legislation like that
protection of environment.
3. Important stakeholders of company
Stakeholders are the people who are whether directly or indirectly connected to the
business with some or the other motive they are having some interest in the financial information
or performance of the organisation. Some stakeholders of business are as follows:
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Employees- they are internal stakeholders of the company who are been employed into
organisation so that profits could be achieved and targets are fulfilled (The Importance of
Stakeholders, 2018).. They will be in use of financial information so that they could determine
that whether they would be getting their salary or bonus this year or not. They will be affected by
the financial performance of business in both direct and indirect manner.
Shareholders- they are the main stakeholders of company as they are the one who invest their
money into company in order to earn profits in form of dividend. For analysing in which
company and in what amount to invest they will be in need of financial information of that
business. Shareholders are the source of investment for any firm so they are likely to see and
analyse the accounts of company.
Suppliers- they are external stakeholders of the company who are making available all type of
raw materials and machines for the company (The Importance of Stakeholders, 2018). Suppliers
are also having interest within the financial information of company for the purpose to analyse
that whether they will be getting the money in return to the raw materials which they are
supplying to firm. As suppliers are the creditors of firm so they are interested in financial
information.
Customers- they are also important stakeholders of firm who will be determining the profits and
sales for company and customers are in need of statements so that they could make the decision
of purchasing product and service of that company.
4. Highlighting value of financial reporting
All the stakeholders of the company are in need of financial reporting for different
reasons which are as under:
This will be important as will be facilitating statutory audit of the firm and auditor will be
expressing their opinion (Importance of Financial Reporting, 2018)
This financial reporting is backbone to financial plan, analysis and making decision making and
are used by various stakeholders.
The whole public will be analysing performance of businesses and that of management.
The firm will be able to comply with statues and regulatory requirements and then filling the
financial statements to ROC and government agencies as well.
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This will also be important for filling the stock exchange and published their annual results are
required.
They will also be helpful in purpose of bidding and labour markets as company will be able to
furnish their financial reports and statements.
They will also be including the financial performance of the firm and telling how they are
earning profits and sales revenue for the firm (Importance of Financial Reporting, 2018) .
5. Producing financial statements
1. Income statement
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Depreciation charged-
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2. Statement of financial position
3. Statement of changes in equity
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Interpretation:
It can be interpreted that net income of ROB plc is 30720 which reflects revenues and
expenses made in the period. The current assets and current liabilities are 32000 and 28900
respectively. While changes in equity is 87350. This implies that business has sufficient capital
and will be able to function well in the coming period.
6. Presenting financial ratios
Particulars Formula 2016 2015
Profitability ratios
Net profit margin Net profit / net sales * 100 1.61% 8.46%
Liquidity ratio
Current ratio Current assets / Current Liabilities 0 0
Efficiency Ratios
Asset turnover ratio Net sales / Average total assets 0.18% 0.03%
Capital structure ratios
Gearing ratio Company debt / Shareholders'
Equity
0.14% 0.17%
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From the above calculated ratios, financial position of Legal and General group plc has
been highlighted quite effectively. The profitability, efficiency, liquidity ratios are being
calculated which shows that financial position of the company is not good. Starting with the
profitability ratios such as net profit margin reflects that net profit was good in 2015 which has
declined in 2016 financial year with huge margin. As in 2015 year, net profit margin was 8.46 %
and in 2016 year, it has come to 1.61 %. This implies that Legal and General group is not able to
control expenditures which has resulted into decreased profits (Graham and et.al, 2017).
Furthermore, liquidity ratio such as current ratio is also not good as in both financial
years, it is 0. This means that financial position is not good of the company as liabilities are more
than assets and as such, assets are absorbed by such liabilities. This should be dealt by company
in effective way so that it may come to ideal ratio of 2 : 1. Coming to efficiency ratios such as
asset turnover ratio which is little bit increased from the past year as in 2015 was 0.03 % and in
2016 is 0.18 %. This implies that company is not efficiently utilising assets to generate sales
which has resulted into decreased asset turnover ratio. Capital gearing ratio in 2015 year is 0.17
% and in 2016 is 0.14 % which shows that company is not using debt in functioning daily
activities. However, it should take blend of debt and equity to carry out activities (Kettunen,
2017).
7. Difference between IAS and IFRS
IAS IFRS
1. IAS (International Accounting Standards) is
a professional body which guides accountants
to prepare effective books of accounts by
recording proper entries by complying with
guidelines provided by it.
2. In event of any contradictions, principles
governed by IAS are dropped and is passed on
to IFRS to resolve the same.
3. IAS has limited scope with respect to IFRS
1. IFRS (International Financial Reporting
Standards) is also professional body but
completely differs from IAS. It is based on the
principle that accountants must follow legal
framework provided by it so that true and fair
financial information may be imparted to users
of accounting information.
2. In such contradictions, IFRS guides and
resolve the underlying issues.
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(Janowicz, 2017).
4. IASC (International Accounting Standards
Committee) has issued standards to IAS which
is now completely replaced by IASB
(International Accounting Standards Board).
5. The accounting standards provided by IAS
guides accountants to maintain proper
accounting records in effective manner. This
provides accuracy in financial reporting quite
effectively.
6. Classification of equity instruments are done
through FVPL (Fair Value Through Profit and
Loss)
3. The scope of IFRS is much wider than IAS.
4. On the other hand, standards of IFRS is
issued by IASB.
5. On the other hand, standards of IFRS differ
from IAS. It provides legal framework which is
required so that transparency in financial
reporting may be imparted to users of such
information. As such, rules and regulations are
required to be followed by accountants.
6. While in this, instruments are classified
according to Fair Value Through
Comprehensive Income.
8. Benefits of IFRS
IFRS have enough benefits to organisations. The benefits are listed below:
1. Shareholders' are benefited because company is legally imbibed to follow rules and
regulations provided by IFRS. The shareholders' are benefited as information with reference to
dividend policies are produced by organisation and this highlights clarity to them (Ward and
Lowe, 2017). The financial position if strong, then more subscribers will be attracted to company
and as such, company will also be benefited by having larger capital for carrying out day to day
activities with much ease.
2. The benefits are being provided to investors and creditors as well. Investors are benefited as
they come to know about the financial health of firm and as such, they have clarity whether to
invest in the company or not. While, creditors make out decisions whether debt should be
provided to company or not. This is done to analyse debt paying capacity of firm. As such, IFRS
provides clarity to these stakeholders' as well.
3. The legal framework provided by IFRS are universally accepted by companies and as such,
transparency and clarity in financial information is done which is then reflected in financial
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reports. Stakeholders such as external or internal are much benefited by such guidelines of
professional body. Such information is utilised by stakeholders to take better and effective
decisions (Stent, Bradbury and Hooks, 2017).
4. IFRS guidelines are also helpful for companies as through this, it is able to provide correct and
accurate financial information to users of financial information. As such, company provides
clarity of financial health to stakeholders' which in turn helps company to generate high funds as
shareholders' subscribes to shares of the organisation.
5. The financial reports are provided with qualitative characteristics of financial information
such as comparability, understandability, reliability and timeliness which is helpful to investors
and creditors to take better and enhanced decisions with much ease.
6. The investors can easily compare financial statements of two different companies as they are
following same financial statements format. This means that gross profit, operating income and
net profit fall under same category and as such, financial statements are easier to evaluate even to
two different organisations quite effectively.
9. Varying degrees of compliance with IFRS
The above examples of ROB plc and Legal and General group plc, it can be conveyed
that both are using effective legal framework by complying with rules and regulations in
effectual manner. This is required so that financial reports are prepared with much ease and
highlights financial health of company (Maradona and Chand, 2017). This is required so that
proper information may be provided to users of accounting information having transparency and
accuracy so that they may take effective and enhanced decisions. This also helps company to
have legal identity and as a result, stakeholders' rely on such financial reports to take decisions.
According to IAS 38 which states that customers' lists and publishing titles are restricted
or prohibited which is required by companies to follow so that they may function effectively by
providing relevant information only. This impacts organisation as it has to abide by such rules. In
addition to this, IAS 29 A states that financial statements such as balance sheet, cash flow
statement and income statement must be prepared by adopting legal framework so that reliable
information may be provided to users of accounting information quite effectively (Financial
reporting). This should be followed by organisation, if it does not follow this, reliability of
financial information is lost. This means that business transactions should be listed in ongoing
period and as such, transparency is completely observed.
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CONCLUSION
Hereby it can be concluded that financial reporting is important tool internationally as
well. The scandals can be removed up to great extent by furnishing financial reports by
company. This will provide effective results to company as shareholders and other stakeholders'
will be able to know financial health of company quite effectively. Thus, financial reporting
provides much needed information to stakeholders' to take better and effective decisions with
much ease.
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REFERENCES
Books and Journals
Graham, A. and et.al, 2017. Macroeconomic Determinants of International Financial Reporting
Standards (IFRS) Adoption: Evidence from the Middle East North Africa (MENA) Region.
Kettunen, J., 2017. Interlingual translation of the International Financial Reporting Standards as
institutional work. Accounting, Organizations and Society. 56. pp.38-54.
Janowicz, M., 2017. Business combinations under common control in International Financial
Reporting Standards–is authoritative accounting guidance needed?. Zeszyty Teoretyczne
Rachunkowości. (93 (149). pp.97-111.
Ward, C.L. and Lowe, S.K., 2017. CULTURAL IMPACT OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS ON THE COMPARABILITY OF FINANCIAL STATEMENTS.
International Journal of Business, Accounting, & Finance.11(1).
Stent, W., Bradbury, M.E. and Hooks, J., 2017. Insights into accounting choice from the
adoption timing of International Financial Reporting Standards. Accounting & Finance. 57(S1),
pp.255-276.
Maradona, A.F. and Chand, P., 2017. The Pathway of Transition to International Financial
Reporting Standards (IFRS) in Developing Countries: Evidence from Indonesia. Journal of
International Accounting, Auditing and Taxation.
Online
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The Importance of Stakeholders, 2018 [Online] Available Through:
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sa=t&rct=j&q=&esrc=s&source=web&cd=13&cad=rja&uact=8&ved=0ahUKEwiWp7Kcye
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