International Financial Reporting Standards (IFRS) Impact on Investors

This report examines the International Financial Reporting Standards (IFRS) and its implications for investors. It discusses the advantages, such as the development of high-quality international standards and uniform financial reporting, and disadvantages, including issues with fair value accounting and the influence of local politics. The report highlights the practical implications of IFRS adoption, the impact of local market realities, and the need for periodic reviews of assets. It emphasizes the importance of adopting high standards to maintain the integrity of the IFRS brand and the potential long-term effects of globalization on accounting practices. The document references various studies and provides insights into the ongoing debate surrounding IFRS adoption, treating it as an economic and political experiment. The report concludes that only time will reveal the true benefits and drawbacks of IFRS for investors, making it a valuable resource for understanding the complexities of global financial reporting.

International Financial
Reporting Standards
(IFRS): Pros and Cons
for Investors

Introduction
• Pros and cons for investors in regard to International Financial Reporting
Standards
• The paper was published on September 2005 and is based on the PD
Leake Lecture
• Uniform standards should be implemented as it will help in producing
uniform financial reporting that seems quite immature (Trajkovska,
Temjanovski and Koleva 2016).
• It is understood that are substantial differences noted among the
countries who are engaged in implementation of IFRS that is now at risk
as concealed by a veneer of uniformity.

Advantages of IFRS
• It can be considered that extraordinary success had been
achieved in developing a comprehensive set of high
quality International Financial Reporting Standards that
include almost 100 countries who shows interest in
adopting them and in obtaining convergence in standards
with significant non-adopters

Disadvantages of IFRS
• It can be considered that there are several issues linked
with the current fascination of the IASB as well as FASB
standards with fair value accounting.

Practical implication
• International Financial Reporting Standards is one of the standard that
had become forefront on the immediate agenda as it had started its
commencement from 2005
• Most of the companies are involving for the release of their first full-year
IFRS compliant with the financial statements
• With the evolution of globalization, it can be seen that irrational activities
took place after considering economic and political concern.
• The implication are being treated as one of the primary driving forces
behind the majority of actual accounting practices that are likely to
remain domestic in nature for the near future (Kaya and Koch 2015).

Matching the selected concept with
the conceptual knowledge
• The concept had took place to a minor degree when European Union had carved out
from IAS 39 in the application of fair value accounting for the interest rate hedging
activities.
• Furthermore, the European version of IAS 39 had mainly emerged in response to
significantly by enduring political pressure from the France Government to which they
have responded to pressure from domestic banks as it concerns for bringing volatility in
balance sheet components.
• Effect of local politics as well as local market realities on IFRS had shown little visibility
as compared to prolonged political debate that took place on IAS 39
• By considering two standard such as IAS 36 and IAS 38, it can be commented that these
two need periodic review of long-term tangible as well as intangible assets for probable
impairment to fair value (den Besten et al. 2015).

Summary and practical
contribution
• Highest standards is needed to be adopted by companies to manage the lowest quality
regimes as it will attract free use of IFRS brand name in that case.
• Uniform international standards will help in reducing the level of competition among
different systems.
• The long-run implication of global politics can be understood well be that the IASB becomes
a body that is representative, polarized, bureaucratic and politicized.
• Some of them have disagreed and is of the opinion that widening of globalization of markets
as well as politics means somewhat narrowing of rule differences among nations where the
treatment is optional degree of uniformity and mostly not clear as well.
• IFRS adoption can be treated as one of the economic as well as political experiment that is a
leap of faith and only time can say about the advantages and disadvantages of IFRS to
investors.

Reference List
• Chawla, G., Forest, L. and Aguais, S., 2016. Some options for evaluating significant deterioration under IFRS 9. The Journal of Risk Model
Validation, 10(3).
• den Besten, P.S., Georgakopoulos, G., Vasileiou, K.Z. and Ereiotis, N., 2015. The Impact of IFRS Adoption on Earnings Quality: A Study Conducted
on Foreign Issuers in the United States. International Business Research, 8(11), p.139.
• Gafa, A.N., Sri, S. and Halim, D.P., 2015. The Comparison of Accounting Conservatism Level Between Before and After the Convergence of IFRS in
Indonesia with Earnings and Accrual Method. In Proceeding: International Conference on Accounting, Business & Economics, hal. 324 (Vol. 333).
• García, M.D.P.R., Alejandro, K.A.C., Sáenz, A.B.M. and Sánchez, H.H.G., 2017. Does an IFRS adoption increase value relevance and earnings
timeliness in Latin America?. Emerging Markets Review, 30, pp.155-168.
• Gorgieva-Trajkovska, O., Temjanovski, R. and Koleva, B., 2016. Fair value accounting–pros and cons. " Journal of Economics", Faculty of
Economics, University Goce Delcev, Stip, Macedonia, 1(2).
• Guillaume, O. and Pierre, D., 2016. The convergence of US GAAP with IFRS: A comparative analysis of principles-based and rules-based
accounting standards. Scholedge International Journal of Business Policy & Governance ISSN 2394-3351, 3(5), pp.63-72.
• Kaya, D. and Koch, M., 2015. Countries’ adoption of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for
SMEs)–early empirical evidence. Accounting and Business Research, 45(1), pp.93-120.
• Marra, A., 2016. The Pros and Cons of Fair Value Accounting in a Globalized Economy: A Never Ending Debate. Journal of Accounting, Auditing &
Finance, 31(4), pp.582-591.
• Novotny-Farkas, Z., 2016. The interaction of the IFRS 9 expected loss approach with supervisory rules and implications for financial
stability. Accounting in Europe, 13(2), pp.197-227.
• Persons, O., 2014. A principles-based approach to teaching International Financial Reporting Standards (IFRS). Journal of Instructional
Pedagogies, 13, p.1.
• Trajkovska, O.G., Temjanovski, R. and Koleva, B., 2016. FAIR VALUE ACCOUNTING-PROS AND CONS. Journal of Economics, 1(2).
• Utama, S., Farahmita, A. and Anggraita, V., 2016. Economic Consequences of IFRS Adoption in Indonesia. American Journal of Economics, 6(1),
pp.79-85.