The Influence of IFRS Implementation on Organizational Competitiveness

This literature review explores the impact of International Financial Reporting Standards (IFRS) implementation on organizational competitiveness. It begins by examining relevant theories, including positive accounting theory and normative theory, discussing their key concepts and implications for financial reporting. The review then analyzes the opportunities arising from IFRS convergence, such as increased international market access, enhanced market efficiency, and improved management, monitoring, and control. The document provides a conceptual framework illustrating the relationships between globalization, IFRS, and organizational outcomes, offering a comprehensive overview of how IFRS adoption can enhance a company's ability to compete in the global market. The review also highlights the benefits of IFRS, including increased transparency, comparability, and efficiency, while acknowledging potential challenges and the importance of strong enforcement mechanisms. This document is a student submission for Desklib, a platform providing AI-based study tools.

The Influence of International Financial Reporting Standards (IFRS) Implementation on
Organisation’s Competitiveness
Student’s Name:
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Background
International Financial Reporting Standard (IFRS) is a standard that seeks to unify
accounting systems so that businesses operate using only one uniform standard. The benefits of
IFRS for organizations are that companies can venture into the global market and use the same
uniform standard, which cannot be the same with use of different standards. Additionally,
organization reporting of accounting information is made easy and centralized. Monitoring and
control is achieved and the final results are revenue improvement (Ghasmi, 2016, p25).
Introduction
The paper begins by examining theories related to IRFS and in this, research two theories
were examined: positive accounting theory and normative theory. Also three opportunities from
IFRS’s convergence were examined and in the end a conceptual frame work is given.
Theories
Positive Accounting Theory
The theory takes into account real events that are happening, predict and interpret them
into accounting approaches. Also, the theory endeavors to give explanation and prediction. The
theory is cognizant of the fact that economic consequences exist in the process of explaining and
predicting choices. It explains that organizations organize themselves efficiently because they are
striving to make profits and therefore can be seen as having entered into a continuous contract
(Lajnef, Ellouze, and Mohamed, 2017, p40). Since firms aim at becoming efficient, they will
seek to reduce costs such as monitoring costs, negotiations, etc., which causes contract costs.
These contract costs are translated into accounting information like financial ratios and net
income (Kaya, 2017). In the process of doing this, an organization chooses policies and these
policies are selected based on the changing circumstances of the company and putting into

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consideration opportunistic behavior. In general, an organization put in place policies by
compromising in between making policies to reduce costs, being flexible during varying
circumstances and taking into account opportunistic behavior (Ghanbari, Manesh, Khorasani,
Hesam and Nejad, 2016, p175).
The developers of positive theory, Watts & Zimmerman proposed three hypotheses:
bonus plan, debt covenant, and political cost. The bonus hypothesis explains the techniques
organizations uses when giving bonus, the debt hypothesis point out that an organization having
a high debt-equity-ratio will select a method that shifts earning from future to the present year,
and political cost explains that a large organization selects a method the puts earning of the
current year to the future year. Despite the exercise of opportunistic behavior in the theory, it is
established that the theory gets misused. Organizations manipulate their results or reduce them
based on the final analysis such as executive compensations, debt ratio and the size of the
company (Kaya, 2017).
Normative theory
The theory describes the differences that exist between dissimilar bookkeeping structures
and the manner in which these accounting systems can be different from one another. The
philosophers supporting this theory advocates for a standardized system as well as a system that
is more superior over the rest. Normative accounting enthusiast seeks to get a comprehension of
accounting use in practical situations and make a comparison to its capability of meeting the
objectives like those of other systems. The theory is prescriptive in nature when a comparison is
made to other method of doing accounting (Stefan-Duicu and Stefan-Duicu, 2018, p144).
The theory not only advocates for a uniform standardized system but also a system that is
much more superior to what exists amongst other players. People studying Normative theory

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strive to get a comprehension of accounting aims put in practice and make a comparison to
ascertain its ability to outstand the aims of other systems. The theory is inclined to be inflexible
as compared to other approaches in managing accounting theory (Birch, 2016, p107). The theory
informs the organization’s policymakers what is to be done in relation to what the theory states
which is in contrary to other approaches that examine the present occurrences taking place in the
company. Normative begin with theory and get a deduction to a particular policy whereas
positive begins with particular policy and simplifies until the advanced-level ideologies
(Rodriguez-Fernandez, 2016, p145).
Opportunities from IFRS’s convergence
International opportunity
The implementation of IFRS fosters transparency in an organization thereby ensuring that
there is quality of information as well as comparability. As a result of these, investors and
players in the market are able to make well-informed economic choices. Additionally, IFRS
eliminates the information gap that arises between the investors and corporations who are
bestowed with the task of taking charge of investor’s capital (Hanefah and Singh (2012, p88).
IFRS put standards that ensure that managers can be held responsible and also present important
information to regulators. This, therefore, fosters accountability. Moreover, there is economic
efficiency where investors are able to identify opportunities as well as risks in the international
market and hence enhances the distribution of investment. It is established by Parvathy (2017,
p20) that IFRS has facilitated people with skills and knowledge to move and apply the skills
anywhere around the globe. Hanefah and Singh (2012, p89) augment that the convergence of
standards and particularly IFRS has allowed the adoption of a uniform standard in which

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corporations world over can measure each other’s level of competition in a uniform manner. This
creates uniformity in the manner of doing business.
The expansion by corporations to the international market is increasing. IFRS becomes a
useful tool when an organization is to compete in an equal measure with other organizations
globally. The competitive global market requires uniformity of standards that allows clients to
measure the value of a product or a service against a standard. Even though this does not
correlate well with IFRS, when accounting systems in a corporation follows IFRS standards,
what follows is that good and services have to rhyme with policies set (Jeffers and Askew, 2010,
p1). Organizations globally are aware that there are immense market opportunities and
particularly in the emerging markets. The only way of venturing into these markets is by putting
in strategies to fit the international market. IFRS become one of the strategies of standardizing
the financial system within the organization to conform to IFRS guidelines (Parvathy (2017,
p22).
Increased Higher Return on Equity and Market Efficiency
When an organization adopts IFRS, there is increased disclosure of information,
comparability and the level of capital is reduced, however, this takes places in regions with
stringent law enforcement. Additionally, research establishes that IFRS reduces future
disclosures, fasten reporting time, and augment foreign investment. On the other hand, it is
reported that IFRS increases trading activity on investments and thus encouraging more foreign
equity funds by investors. Jinadu, Ojeka, and Ogundana (2016, p99) assert that IFRS adoption is
able to improve comparability, however, they cautioned that the way of implementing IFRS is
important and Madawaki (2012, p152) point that in order to improve and enhance international
investment, both the legal guidelines and enforcement are crucial. Hansen, Miletkov, and

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Wintoki (2013) add that there is an increase on foreign investment when an organization adopts
IFRS as part of their businesses because financial information’s comparability is enhanced and
barriers like regional distance are greatly reduced. They also suggested that a more effective way
of attracting foreign capital is through harmonization.
In view of the above, it is clear that the adoption of IFRS in the organization increases the
market efficiency, increases the disclosure of information, and enhances comparability and thus
reducing the level of capital. However, this takes places when there are stringent law
enforcement measures. Additionally, research establishes that IFRS reduces future disclosures,
quicken reporting time, and augment foreign investment. On the other hand, IFRS increases
trading activity on investments and thus promoting more foreign equity investments by investors.
When an organization has embraced IFRS, the efficiency in the market is improved and this
implies that the company is going to benefits because a fast market will work in favor of the
organization. Even though this is crucial, a number of organizations are still not aware of the
benefit that can be attained through the adoption of IFRS.
Efficient Management, Monitoring, and Control
IFRS is known to eliminate issues of misunderstanding and assist shareholder and
companies to simplify investment decisions. Even though there is a strong rift in US’s firms who
are rooted with a strong moral stand to their own standard system, it is clear that IFRS has a
strong force, and companies across the US are contemplating to adopting the system since nearly
a half of the world’s firms have taken the direction. Moreover, when compared with IFRS, the
American system is prone to errors as well as a lot of auditing queries when applied together
with IFRS (Gu, Ng, and Tsang, 2019, p40).

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IFRS is a global standard and when adopted it will act as a unifying system based on
accounting standards. This will permit decision makers and policy personnel to have a central
body that oversees compliance standards globally and a committee set so as to be modifying the
standards. This will remove the burden from countries since the present accounting standards are
set by legislative bodies in each nation. It will, therefore, create a centralized and authoritative
body (Mohammed, Che-Ahmad and Malek, 2019, p156).
The presence of IFRS will allow the organization to reduce the time taken to make
reports like the financial statements. The result is that there would be fewer costs associated with
the task since there are no more multiple regulations to adhere to in relation to where the
organization is operating. The number of reports will drastically reduce to only one report thus
saving on labor, money and time (Hastuti, Ghozali, and Yuyetta, 2016, p1810).
Therefore, IRFS ensures efficiency in the organization’s systems, safe time, labor and
cost that are associated with traditional un-unified systems that differ from country to country.
An organization is able to control and monitor other branches spread globally from a central
place. Also, the organization’s get regulated from a central point.
Conceptual Framework
Figure 1: Conceptual Framework
GLOBALIZATION
BENEFITS
(POSITIVE)
BENEFITS
(NEGATIVE)
IFRS ORGANIZATION

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Independent Variable (Globalization): The changes in the global market as a result of
modernization compels organizations to shift focus in the manners of doing business given that
the global market is now small ad companies expand to emerging markets. This is an
independent variable since it does not affect any of the other variables and it cannot be affected
by the other variables. This variable causes a change in the other variables (Bouchareb, Ajina,
and Souid, 2014, p267).
Intervening variable (IFRS): IFRS is an intervening variable. The aspect of globalization and
the need to expand to international markets cannot be easy if conventional methods of doing
business are adopted and particularly in accounting matters because regions have different
accounting standards. A unified approach brought about by IFRS serves as a remedy to the issue.
Organizations adopting IFRS can venture to the global market and use a unified standard system
for all its operations. This is a two-way process in that organization will seek adoption of IFRS
and IFRS will be implemented in the organization (Ocheni, 2015, p7).
Dependent Variable (Organization): The organization I a dependent variable. In order to
succeed in the global market, the company must embrace IFRS. The adoption of IFRS by the
organization will result in positive benefits such as International opportunity, efficient
management, monitoring, and control, and increased higher return on equity and market
efficiency. If an organization does not adopt IFRS, the results will be negative and the business
will be affected (Bouchareb, Ajina, and Souid, 2014, p267).

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