Research Paper on International Accounting: IFRS Adoption Effects

This report analyzes the research paper titled "The Effect of IFRS Adoption on the Financial Reports of Local Government Entities" by Manzurul Alam and Kamran Ahmed, focusing on the impact of International Financial Reporting Standards (IFRS) adoption in Australia. The study examines the shift from Australian Accounting Standards (AAS) to IFRS, highlighting changes in assets, equity, and surplus, as well as implications for debt financing. The paper explores the benefits and challenges of IFRS adoption, including the need for specific accounting mechanisms and the impact on financial performance. The findings indicate that IFRS adoption can lead to significant modifications in financial reporting, influencing debt contracts and financial incentives for local government entities. The research also provides insights into the conceptual differences between IFRS and AASB, emphasizing the effects on equity, surplus, and the overall financial landscape. The report concludes with the positive impacts of IFRS adoption on the Australian economy.

Running head: RESEARCH PAPER ON INTERNATIONAL ACCOUNTING 1
Research Paper on International Accounting:
“The Effect of IFRS Adoption on the Financial Reports of Local Government Entities”
Student Name
Institutional Affiliation

RESEARCH PAPER ON INTERNATIONAL ACCOUNTING 2
Table of Contents
Summary of the Article...................................................................................................................2
Major International Accounting Implications from the Study........................................................4
Effects of IFRS Adoption on Debt Financing.............................................................................5
Conceptualization and Focus Contribution Effects of IFRS Adoption...........................................6
References........................................................................................................................................9

RESEARCH PAPER ON INTERNATIONAL ACCOUNTING 3
Summary of the Article
The primary journal used in the research mainly named as “The effect of IFRS Adoption
on the financial reporting of local government entities.” The article was written by Manzurul
Alam and Kamran Ahmed and aims at establishing different accounting changes and components
such as assets, equity as well as surplus. This journal also explains various accounting policies as
well as the criteria which need re-evaluation as far as the overall concept is concerned.
Moreover, the article gives the preferable mechanism of changing the accounting policies from
the overall Australian Accounting Standards or also known as (AAS) to the International
Financial Reporting System abbreviated as (IFRS). The analogy that the IFRS is a both a
paradigm and paramount shifting in line with financial reporting analysis is what drives the
various changes in the accounting docket. In this case, the article demarcated that among the
countries which need this IFRS system, is Australia and the technique will hasten the local
government in the country (Ahmed, & Alam, 2012).
Indeed, Australia was the first country to adopt the system which later on was also
adopted in the USA and European Union. The study indicated that Australia adopted the
makeable IKFS system in line with accounting policy in 2004. Afterward, pressure compiled the
U.S.A. and the European Union to adopt the IFKS system. IFKS mainly founded ground on the
basis that there is assets reconciliations and requirements in terms of the GAAP when using the
system. Thus, Ahmed and Alam mainly explored and evaluated the impacts of the IFRS adoption
in the local government of Australia in terms of the surplus, the equalities, assets as well as the
liabilities (Ahmed, & Alam, 2012). In this case, they based their studies on the annual local
government report on various significance of adopting the norm in the country. In the research
recommendation, Ahmed and Alam suggested that the use of PwC tat implementation tool when

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dealing with the IFRS at the local government level is more complex. This is because the system
primarily requires and involves preferably country-specified accountings which have
contradictory standards as compared to the IFKS. As a result, there are a number of conversional
issues which emerge and these include fixed asset valuation, building and land leases, joint
associations as well as pension plans. Thus, the controversial issues hastened the debate during
the implementation exercise conducted by the Financial Reporting Council also known as (FRC).
Ono of the major concern was on the substantial changes which were being evident because of
the use of the makeable IFRS in the country.
In essence, the adoption of the IFRS brought in numerous modifications and changes in
the overall existing Australian standards. Thus, the ranges varied from the formats to costs as
well as the profit benefits which different companies recorded annually and demarcating that
IFRS impacts were significant to the country. Moreover, the analysis conducted by the Ahmed
and Alam, mainly aimed at appraising the accounting firms and policy in line with the use of the
IFRS, posing on the necessary modifications as a result of the AAS as well as IFRS introduction
(Ahmed, & Alam, 2012).
Moreover, this journal also appraised various decision making criteria pertaining the local
government in the country as a whole. Subsequently, analysis on the larger and smaller IFRS
council also appraised in this study as it was viewed to have implications on the coping aspect.
Ahmed and Alam conducted an empirical analysis to verify the implications of the IFKS in local
government and all its entities. The empirical results indicated that there various losses recorded
when changing the accounting policy and these losses are more imminence in the surplus and
accounting equity elements. In addition, in their review Ahmed and Alam used the 117
Australian annual reports for the local government and, in this case, various components were

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identified and appraised. Through the use of various key components, it was noted that
reconciliation had imminent impacts which showed variance for the elements that is between the
makeable AASB alongside IFRS, and the equity as well as surplus. Furthermore, consistent
results were established from the appraisal of the private sectors on the various implications of
the adoption of the IFRS in local government of Australia. Thus, it evident from the analysis that
the paper had positive impacts on the larger council and the local government as far as the IFRS
is concerned. In fact, it is established that there are various positive contributes which countries
more so the ones that are yet to adopt the analogy can use and be of beneficial to them in the
long run. Thus, this study was not essential in giving an in-depth understanding but also had
various importance in the IFRS adoption and utilization for the various countries both the ones
which have established the norm and those that are yet to adopt the technique.
Major International Accounting Implications from the Study
This study explored the impacts and factors involving the use of IFRS in the Australia as
a whole. The case study and evaluation mainly depicted on the local government and its entities.
Thus, this analysis played a major role which had various implications for both the accounting
sector at the local level and at the international level. First and foremost, the analogy assisted in
the creation of a simplified accounting mode and thus, this can be used to run various
multinational firms and business entities across the board. Therefore, different multinational
firms will gain and record huge profit benefits if adopt this system. Although, the first benefits
which Australia gained by adopting the system was not highlighted and appraised significantly,
the subsequent utilization and audits indicate that huge benefits have been recorded since the
adoption of the system. However, Deegan (2010) noted that there is need to adopt a decisive
mechanisms and enforcement of accounting standards and implementations channel in line with

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the IFRS for various positive outputs and outcomes to be attained in the process. Thus, the
various implications mainly discussed as follows
Effects of IFRS Adoption on Debt Financing
Chen et al., (2015), indicated that the use of the IFRS and its utilization for various
aspects such as standard setters, regulators as well as accounting companies often offers high
quality and effective information which obviously reduces all the asymmetries in line with the
borrowers and the capital lenders. In this case, IFRS offers a more detailed and disclosure
analogy which tends to enhance firms’ comparability, increasing the better measurement as well
as recognition of more liabilities. Kim et al., (2011), however, concluded that IFRS use also
assists in reducing all the related scopes as far as the earnings in the management is concerned.
Also, news regarding the good and bad recognition are speculated and spread further through the
use of the fair accounting value. Furthermore, most firms are currently enjoying the propensity
more so for the debt contracts and this increases their loan limits and ratings.
The evaluation of the institutional financial incentives is on the fluctuating mode bearing
in mind the evaluation of the mandatory IFRS adoption on the credit contracts. The adoption of
the Australian government on the use of the IFRS basis in their accounting system has caused
numerous changes, both to the local governments and the national government. It is understood
that in reference to the government entities, the changes that have been envisaged due to the
IFRS accounting standards have imposed some major modifications that are significant as far as
the financial performance are concerned (Houqe, et al. 2008). Most of these modifications
caught the various governments unaware citing the needs for analysis of the underlying methods
and concepts concerning the accounting changes in the processes and new formats of
presentations.

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The expectation was that the various government entities were to prepare beforehand so
that the adoption of the IFRS accounting principle would not find them in an awkward position
in Australia. The fact is that after the adoption of this new accounting principles, most of the
government entities found out that the implementation of the IFRS became costly as well as time
consuming ordeal (Goodwin, et al. 2008). This led to the questioning whether there are any real
benefits in the use of the IFRS accounting standards by all the sectors, especially the local
institutions of the government, just as it had been claimed by the AASB.
The applicability of the IFRS to all the sector in Australia, being applicable to both the
profit and non-profit making entities led to the analysis of these standards in Australia reporting
by the local government, the governmental department as well as the government itself in a three
tier financial reporting systems (Chua, & Taylor, 2008).
Conceptualization and Focus Contribution Effects of IFRS Adoption
The findings from the article proved the necessary knowledge for conceptualization that
as the equity increased under the AASB equity standards, there were increased accumulation of
surplus, retained profit or loss, error correction prior year, as well as the interest of the council
(Cascino, & Gassen, 2015). The finding also found out that the common item that made equity
to go down such as the understanding of the assets as well as capital and savings that were never
recognized before the use of the IFRS accounting standards. The analysis of the changes in
elements such as assets, surplus, reserves, and capital are very significant in determining the real
conceptual difference between the IFRS and the AASB (Ahmed, & Alam, 2012).
Some of the key concepts for a conceptualized emphasis on the contribution impacts of
the use of the IFRS accounting standards on debt financing in international accounting involve
reconciliation of the assets and liabilities concepts, the size effects, equity, and surplus effects.

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According to the findings in the article, it is found out that more than 135 companies that are
listed in the Australian Stock Exchange did not influence their income and equity from their
IFRS (Soderstrom, & Sun, 2007). In the same way, most of these firms registered an increasing
certain modifications to their net income and equity in perfect response to their sizes. In general
argument, the article shows that the use of IFRS in within the core operations of business in
Australian economy has raised the net income businesses in Australia (Chua, et al. 2012). The
equity of these firms increases or decreased under the IFRS for businesses while the small firms
experienced higher surplus or deficient fluctuations, the same was lowly registered in the
medium scale or large firms under the IFRS specifications in Australia.
Based on the article, the differences that were shown in aggregation upon the use the case
accounting standard on the balance sheet prepared under its principles and those of the AASB
were important at 5% significant level. However, the countering alteration in total asset had no
real significant (Ball, 2006). Concerning the effects of the IFRS adoption on the debt financing
in international accounting, the given finding shows that implementation of the IFRS standards
has induced some alterations in the government institutions in Australia (Chua, Cheong, &
Gould, 2012).
Some factors in the analysis of the article come out in the IFRS accounting standards.
The selected reasons that mostly frequented the impact of the IFRS adoption on the debt
financing in global accounting included devaluation and amortization, employee rewards among
others. The rating involved the changes in the average profit (loss) and equity. Most of these
factors were found to either increasing the income or making the income to decline.
Brown (2011), indicated that the local accounting under the IFRS has positive impact on
the economy of Australia. Investors and analysts of most of the publicly traded companies in

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Australia have improved their competitiveness and comparability against their peers in the globe
(Akman, 2011). It is important significant to realize the important aspects of the IFRS are its
effectiveness of the accounting practice to the economy of Australia. The subscription of the
IFRS enables the economy to leverage the global market especially the accounting into true
globalism whereby the accountants hare their skills across the various location (Soderstrom, &
Sun, 2017).
The IFRS has improved the level of reporting finances in Australia and the similarities
reporting financial records in businesses and institutions and in other countries in the world. The
quality and comparability of financial information has improved since the adoption of IFRS,
investors and analysts can be in a position to better predict the future performance of companies.
The strategic direction of the Australian government overview of its accounting resources
involved developing conceptual framework for purposes of the adopted IFRS accounting
standards (Houqe, et al. 2008). These accounting standards were aimed at facilitating the
Australian economy by making the cost of capital to go down in order to enable the firms within
the economy to compete effectively from the global perspective.
In conclusion, the debate on the implications of the use the IFRS into the financial
reports in Australia involves the impact of the use of the accounting standard on the Australian
financial performance of the businesses and the quality of the accounts. These adoptions created
various modifications of the financial performance reports of the various companies in Australia
to their various stakeholders. The significant contributions made through the understanding of
the influences of IFRS requires knowledge of the changes made in the accounting surplus and
equity due to the accounting policy changes that has resulted in changing from AASB to IFRS.

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10
References
Ahmed, K. & Alam, M. (2012). The effect of IFRS adoption on the financial reports of local
government entities. Australasian Accounting, Business and Finance Journal, 6(3), pp.109-120.
Ahmed, K., Chalmers, K. & Khlif, H. (2013). A meta-analysis of IFRS adoption effects. The
International Journal of Accounting, 48(2), pp.173-217.
Akman, N.H. ( 2011). The Effect of IFRS Adoption on Financial Disclosure: Does Culture Still
Play A Role?. American International Journal of Contemporary Research, 1(1), pp.6-17.
Ball, R. (2006). International Financial Reporting Standards (IFRS): pros and cons for investors.
Accounting and business research, 36(sup1), pp.5-27.
Brown, P. (2011). International Financial Reporting Standards: what are the benefits?.
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Callao, S., Jarne, J.I. & Laínez, J.A., (2007). Adoption of IFRS in Spain: Effect on the
comparability and relevance of financial reporting. Journal of International Accounting, Auditing
and Taxation, 16(2), pp.148-178.
Cascino, S. & Gassen, J., (2015). What drives the comparability effect of mandatory IFRS
adoption?. Review of Accounting Studies, 20(1), pp.242-282.
Chua, W.F. & Taylor, S.L., (2008). The rise and rise of IFRS: An examination of IFRS diffusion.
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Chua, Y.L., Cheong, C.S. & Gould, G., 2012. The impact of mandatory IFRS adoption on
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