Introduction - How IFRS Enhances Financial Reporting Worldwide
IFRS is a worldwide accepted accounting rule and principle that many companies use to prepare financial statements. Financial reporting is a set of data representing a company's financial position and performance in a financial year. In the year 2022 total of 167 jurisdictions adopted IFRS. Before the year 2005, every European firm applied its "domestic accounting standard" to make its financial report. It makes huge changes in the practice of representing financial statements. Besides the country Europe, many other countries have also adopted IFRS. However, these countries adopted IFRS in the year 2005. The essay has included a discussion of the adoption of IFRS and the main point of this discussion is the benefits of IFRS for the improvement of financial reporting.
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Adoption of IFRS by countries and its impact on financial reporting
IFRS or "International financial reporting standard" is a bunch of accounting standards and principles that are followed by companies to represent their financial statement. This standard was created and controlled by the IASB "International Accounting Standard Board". However, before the adoption of IFRS, each country had its own accounting principles to make its financial reports. Therefore it creates diversity in the international financial market by using different financial standards. However, IFRS gives the chance to investors to compare a company's financial position in the international market. Accordingly, these standards have control over the principles and practices that should be used by companies to prepare their financial report (Ali et al. 2021). Furthermore, IFRS and IAS are not the same as IAS is the old accounting standard that was replaced by IFRS in the year 2002. However, the main goal of these standards is to make a financial statement that is easy to understand and compare among the companies in the global market.
In the year, 2002 the European parliament first adopted the IFRS standard, however, the application of this standard to make financial reporting in the country's company started in the year 2005. However, the impact of this standard on a country's financial system depends on the application and reason for this standard adoption by the country. According to the author Mensah (2021), the adoption of this standard has a major issue among countries worldwide, of the organization's different practices of uniformity and comparability of financial reporting. However, this study is based on the improvement of financial reporting in a country's organization after adopting the IFRS to represent their financial report in a year. Accordingly, diversity in preparing accounting reports in the international market makes it difficult to understand the financial statement of a foreign company by investors. From the viewpoint of the author, Musa (2019) adoption of IFRS by countries has enhanced the quality of financial reporting worldwide. Accordingly using the same accounting standard to represent financial reports eliminates these difficulties also beneficial to show the proper way to create a financial report. Moreover, these standards help to identify a company's position in the global market by comparing the company's financial report with the other listed company.
Benefits of the adoption of IFRS accounting standards
Adopting the IFRS accounting standards has improved the effectiveness and accountability within the market in the world. This can be denoted that the adoption process has also improved "transparency” making it compatible with international standards. This has also improved the quality of the financial data and information which is beneficial for the potential investors and other parties in the market that can assist in the decision-making process. The "accountability" factor in the adoption of IFRS accounting standards has helped in decreasing the gap between the information which is related to the capital and individuals having the funds. The standard established control over the management of the accounts along with the importance of the information that is derived from IFRS accounting standards.
The "effectiveness" of the IFRS standards has assisted with the overall economic development where the investors were able to detect the profitability factors. The regulations and the standards of the IFRS have also helped in the identification of the risks and opportunities of each company where the investors can make a rational decision. Furthermore, this has helped in the enhancement of the "capital distribution" on profitable companies and projects which is deemed to be beneficial for potential investors. As per the information of ifrs.org, (2023), the standards are effective for the organization as it is cost-effective in terms of cost of capital which lowers the cost of international reporting. There is synchronization among the various countries with the use of the IFRS which makes it easier for the compilation and understanding among the investors and the participants in the same industry.
The adoption of the IFRS structure provides a financial statement that is precise, detailed, and conducted in a timely manner which can be reliable as per the national standards. This can be denoted that the prepared financial statement under the IFRS standards is easier to understand and perceive by potential investors without the requirement of other external sources. This also helps small-time or new investors to make investment decisions where this standard makes it simple and easy to understand. As per the opinion of Rajala, (2019), insurance companies' valuation is also utilized under this standard which results in the ability to compare to the insurance companies. The accounting standards have the ability to eliminate the trade barrier where Europe has adopted the IFRS standards. This is due to the standards having the ability to compare the financial statement developed which is effective in every important financial industry.
The communication of financial information and data through the financial statement is the primary purpose for the development of accounting standards. There are additional disclosures under the measurement of the items in the accounting which is regulated by the IFRS. According to the view of Baksaas and Stenheim, (2019), the benefit of the use of accounting standards is on the basis of the quality and the assessment of the items. The development of the financial statements is the fulfillment of the requirements where there is no use in asking for help from an external source. This is mostly seen in the case of the preparation of financial statements which is according to the specific needs of the company.
There is also the consideration of the economic significance which is related to the capital costs and the effectiveness of the distribution of the capital. There is a transition that has been noticed in the EU due to the adoption of IFRS which has provided details regarding the accounting and legal systems. The benefits have been assessed on the basis of the two elements where the improvement states that IFRS has a higher quality reporting than the GAAP. According to the view of Musa, (2019), the "tax system" is deemed to be another element of the successful transition to the IFRS where the monitoring of the business-level factors is one of the impacts. The covenants which are on the basis of the adoption of IFRS are one of the methods where the moderation and the borrower's uncertainty have been inferred. In the UK the implementation of the IFRS standard where the modifications have been separated reflects the views on a comparison against the quality of information.
The appointment of the managers is through the stakeholders of the company where the opportunities are detected. The financial report is one of the important tools that can help in monitoring and overlooking the "principal-agent relationship" which is for the assessment of the relationship between the manager and capital. On the other hand, the incorporation of the new rules has resulted in the "asymmetrical models" for accounting where there is no requirement of the lease distinction for the lessee. As per the opinion of Stancheva-Todorova and Velinova-Sokolova,(2019), the impact of the IFRS 16 on the company's financial statement, financial ratios, and KPIs can lead to the rise of the value of the assets. This also consists of the consideration of the changes in the purchase behavior of the consumers, business model, and the lease products. The implementation of the new standards has an influence on the performance metrics and the financial statements where there is also the concern regarding the application cost.
The adoption of the FASB structure can help in resolving the issues in the accounting process and the questions that have been raised. The concepts and theories regarding the FASB are the primary factors where accurate decisions and issues are assessed. There is rationality in the framework that can help in resolving complicated issues in financial accounting. As per the information in fasb.org, (2023), there is the elimination of unnecessary elements due to the inconsistency of the benefits in the alternative solutions. This helps in the ascertainment of the consistency and the effectiveness in the procedure of making the standard which comprises the valuation of the assets. Furthermore, this framework is beneficial for improvement detected in the goals and theories that can give access to the information of financial accounting.
There is consistency that has been seen for the internal factors consistency which is on the way to the standard development. There is a considerable amount of impact seen in the software industry as this structure provides compatibility and collaboration which is related to future plans. According to the opinion of Ciesielski, (2022), the changes in the cash flow statements where other benefits and obligations have been considered. This is for the security of the abilities where there is transparency for the outline and enhancement of the sales which is recorded. This framework can help in the understanding of financial information and data along with the restraints that can help in the accurate development of the statements.
Identification and Measurement of the benefits
The principles of the IFRS are identified and measured through the combination of the rising business elements that have been established. The principles are identified through the detected acquired assets, estimated liabilities along the interest that is non-controlling. The identification of the financial methods in the financial statements is when the entity is in contract with the financial instrument. The risks that have been raised during the period of the financial instrument can help in the identification of the value of the assets. The measurement is on the basis of the fair value related to the financial assets and liabilities along with the basis of the financial instruments.
The measurements are based on the "amortized cost" where the recognition is on the maturity investment along with the loans and receivables. This can be denoted by the assessment of the financial assets which is inclusive of positivity and maturity. Furthermore, financial liabilities where there has been no recognition of the fair value indicate the profit or loss. The "fair value" is assessed through the profit or loss whereas, on the other hand, this is required on the basis of another measurement. The measurement of this accounting standard is also conducted on the fair value where there has been trading implemented on the financial assets and liabilities. This is not comprised of the hedging tools where the assets and liabilities have been delegated for the fair value measurement.
The category of the assessment of the financial assets for the sale has not to be considered under the overall financial assets. All of the available financial assets are used for assessment on the basis of the fair value for the benefits of the IFRS. There is also the recording of the "unrealized changes" that are under the comprehensive income whereas the "realized changes" are in the profit or loss. Under the fair value computation of the "realized changes" which is reported at the realization time in the profit or loss account. There are various conditions that have the consent regarding the special hedge under the process of hedge accounting.
The benefit can be measured through the modifications in the estimation of the capital market responses on the reporting quality. According to the opinion of Sampaio et al. (2020), the changes in the economic scenarios are indicated by the insights that happen around the adoption of the IFRS. The ascertainment is also implicated through the direct measure or the changes in the disclosure which is adhered to the financial statements. The income statement that disaggregation is depends of the IFRS as the permission given to the auditors is a misstatement. Furthermore, the adoption of the IFRS helps in the enhancement of the market liquidity that has modifications the financial reporting quality through the impact of the economic situation.
The beneficial factor for the implementation of the IFRS is the financial reporting that has been the standardization which enhances the financial statements comparability factor. As per the views of Tran et al. (2019), the adoption of the IFRS is a requirement for cautious integration in the domestic and international economies. This can also be detected through the enhancement in the overall management and the quality of the information. Additionally, there is also the enhancement of the performance of the business with the adoption of the IFRS which when compared to the previous accounting standards. Identification of the factors regarding the adoption of the IFRS which is seen in the ASEAN countries in the field of financial and auditing accounting information
The adoption of the IFRS can be seen in the process of logic, uniformity, transparency, and workability in the financial statements. According to the opinion of Adhana, (2020), the various factors that are seen in the process of IFRS are necessary for the "cross-border economic" and the incorporation in finance. This has indicated the achievement of harmony among the several countries which denoted the success of the adoption of the IFRS through the utilization and logic. The adoption by the EU of the IFRS accounting standards has impacted the "domino effect" on other countries which has indicated the unity of taking the "accounting standard" under one standard. However, there has been a difference in the legal factors for the merging of the plan and the harmonization where there is an 87% in the domestic adaption of the standards.
The recognition of the benefits of the IFRS can also be ascertained through the deferred taxes during the application of the standards. There is the requirement for the tax asset or liability which is on the basis of the assets and liabilities that are estimated on the amalgamation of business. There is also the identification of the tax effects on the differences on a temporary basis, there are also the carryforwards and risks in income tax. According to the view of Leitner-Hanetseder and Lehner, (2022), there is also the recognition of the book value and market value that has impacted the importance of the decision-making process that is on the financial statement. The overall value of the data is also one of the insights which state the relationship between the decision and retaining structures.
The analysis of the similarities and differences that can be seen in the adoption of the FASB is the comparability. The comparison that has been identified and measured is a form of qualitative feature where consistency is the main characteristic. The efficiency of the benefit is also detected through the company's earnings and stock returns where the impact on the comparison can be analyzed. On the other hand, there is also the analysis of the comparison on the cross-national which is based on the level of the business. As per the view of Jung et al. (2020), there is a test that is on the comparison of the financial statements which is on the EU member countries which are higher in quantity on the first implementation of IFRS standards. This can be further stated from the measurement of the benefit that along with the convergence of the financial statement there is also the sharing of the same legal system. This has established the overall improvement and also the harmonization among the EU countries where there is a similar legal system working.
The benefit can be measured through the difference between the estimated expenses and the advantages of the IFRS implementation. The increase in the perceived costs is due to the adoption in regards to adaptability on the worldwide level, overseas communication, and clear financial information. As per the views of Nakamura et al. (2022), shareholders' information is denoted as one of the perceived costs that are for the adoption of IFRS which is not indicated to be one of the barriers to the process of adoption.
The benefit is also indicated through the slow transition and increase that can be seen in the "European stock market" which has shifted to another point. In Germany, the adoption of the IFRS has increased to 60% in the total assets which are compared with similar countries. According to the opinion of Abdullah and Tursoy(2021), the performance of the company and the capital structure are also considered to be a method to measure the level of benefit. This can be denoted that there has been an increase in performance but a decrease in the relation between the capital framework and organization performance.
Conclusion
The assignment can conclude that the adoption of IFRS by several countries has created diversity in the financial markets worldwide. The standards have overall monitoring of the principles and practices which are utilized by many companies. There is an analysis where this standard can ascertain its position in the international financial market. Furthermore, there is the preparation of the accounting reports where which is deemed to be difficult for the investors of the foreign company. The benefits of the adaption of the IFRS are that this can help with the three factors, which are "transparency", "effectiveness" and "accountability". The relay of the financial information and the method through which the communication is carried out is also an important aspect of the IFRS. The comparability on the basis of the benefits can be deemed from the impact of the tax system. Additionally, there are also the benefits of the accounting standards which is advantageous for the investors in the decision-making process.
References
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