Perceived Benefits of IFRS Adoption

Questions:

1. Global standardization requires the United States to adopt IFRS. What do you think are some of the factors that might discourage it from fully adopting IFRS?

2. What are the perceived benefits that would flow when a country adopts IFRS?

3. Assuming you were a ‘free-market’ supporter, you oppose not only the standardization of international accounting standards in Australia, but also fundamentally the implementation of accounting regulations within Australia. You are required to provide and explain the ‘free-market’ arguments in favour of reducing or eliminating accounting regulations in Australia.

4. Assuming you are now a ‘pro-regulation’ supporter, you are required to provide your counter arguments in favour of regulation. Your counter arguments should address and build upon issues relating to the ‘free-market’ arguments which you have discussed in part (3) above. 

The International Financial Reporting Standards are a guideline to how organizations should treat their company accounts and make them understandable to an international way. This in simple terms means that an accountant from any part of the world should understand the books of accounts of an organization despite the country of origin. This helps creating the international equality through the shareholding and trading activities. Adoption of the standards replace the national standards of which many countries have joined while others feel they should be independent hence leave the international guidelines (Jeanjean & Stolowy, 2008). Their formal standards replace the accounting standards of countries creating uniformity which creates a harmonized accounting against the different countries. They have helped organizations across the world in interpretation of their accounts and financial statements. Despite the international recognition of the standards, there exist some factors that discourage some countries from fully adopting the policies of the organization.

Countries have in the recent past come out from the jurisdiction of the guidelines as they push for independence through their own ways as they advocate for their own rules for writing and reporting on the financial statements of the organizations. The independent accounting regulations in the different countries are strong in some areas while others have less regards for the regulations. The IFRS are internationally recognized, however, the United Sates has some reservations on why it should not fully adopt the standardization from the body.

The global standardization has necessitated all the countries in the world to adopt the guidelines made by the IFRS as the uniform standard measurements within which they should prepare their books in an organization. However, the United States has adopted most of the guidelines but has in the recent past had some factors that have discouraged it from fully adopting the guidelines and requirements from the IFRS (Chua et al, 2012). This has raised the attention of the important stakeholders in the country as they push for disassociation from the international body. Despite being a super power and being a leader in the world, their move in rejecting some of the requirements have caught the attention of the world.

Arguments in Favor of Reducing or Eliminating Accounting Regulations in Australia

Some of the reasons that they bring forward include the need to have an independent body of their own uncharacterized by the international forum. The United States accounting bodies feel they have come a long way to follow the guidelines like any other country hence the need to break forth and make their own guidelines as they feel there is some form of control of which they break forth (Burritt & Schaltegger, 2014). They adopt some of the ideas that the international body has although they do not fully embrace all the guidelines and requirements of the body on how they should prepare their statements in the organization. This has in turn made the organizations in the country adopt other forms of preparing their financial statements through the standards brought by the country’s accountants after the agreements.

Another factor that discourages the country from fully adopting the IFRS is that it considers the guidelines unfit for the SME which are more in number in the country. The cost of implementation at this economy may prove difficult for some organization as there are many requirements that the IFRS have to confirm that an organization follows their stated guidelines. The question brought forth further is the relevance and ability of the standards to fit all organizations in the country considering that the country has public companies, private companies, and non-governmental organizations of which there must be books of accounts prepared at the end of their financial years (Chalmers et al, 2011). The question for the standards is whether one set of standards fits all categories as there are many provisions in each type of organization making it easy or complicating the preparation and recognition of incomes and expenses in the organizations.

Other reasons that the country brings forwards is the existence of the free market which gives the organizations and major stakeholders in the economy the power to have their own standards as long as they reflect the true and fair view position of their organizations. Most organizations feel that most of the guidelines by the IFRS are theoretical which becomes further complicated in implementing through the actions. They argue that there are many errors that happen within an organization after the adoption of the standards of which most are useless and irrelevant in the type of organization adopting the standard (Carlin & Finch, 2010). The requirements of the IFRS are overrated which makes it superior to the other standards that the organization adopts in their books. They are not perfect and have their own shortcomings. Others find it more complicated to implement in their organizations as they have to expand their operations within the organization.

The existence of sets of standards guiding the whole world is long overdue and despite the existence of the economy as a global platform, there is need to have independence from other economies. Countries develop at different paces and the presence of the same provisions in preparations of statements makes it irrelevant (Haswell &Smith, 2008). A country like the United States does not operate within the same amount of resources like a third world country which means that the adoption of the standards in such a super power and the adoption of the guidelines in a third world country makes it irrelevant. There would be some form of imbalance as one deal with large issues than the other which would bring more complications in preparation of the books. This justifies the need to come up with independent guidelines free from adopting the required regulations by the IFRS in the country. 

Counter Arguments in Favor of Regulation

There are many benefits that come with a country that adopts the guidelines and the requirements as stipulated by the International Financial Reporting Standards. For starters, it allows an international investor understand their financial statements making it simple and fast for them to make investments in the country (Cairns et al, 2011).

The fact that an investor can correctly interpret the statements and perceive the performance of the organization enables international investors have particular interest especially in countries that adopt the IFRS. For instance, it means an investor in Korea can understand the financial statements of an organization in Australia hence invest more money than in one that does not embrace the standards as set out by the IFRS (Godfrey et al, 2010). Such countries attract investors as they have some form of confidence in the type of information represented in the financial statements as the right information with no misrepresentation of the financial information of the organizations.

Other benefits that such a country enjoys are that the IFRS gives guidelines and the task that such organizations have is in implementing such guidelines in their organizations which is not an hard task. They have to be updated with any financial information that the IFRS releases to its users to enable them function with the latest guidelines (Burritt & Schaltegger, 2014). This is an easy task compared to coming up with new guidelines from scratch. It also means that auditors from any part of the world could perform an audit on the organization and come up with a true and fair view of the organization.

Financial statements prepared using the set guidelines are presentable and there is a form of consistency from one period to another which allows easier decision making and comparison between one period and another (Fosbre et al, 2009). The consistency allows the management identifies any type of change that may happen within the organization as compared to an organization that does not follow a consistent method of preparing their financial statements from one period to another. The standards as stipulated by the IFRS allows an organization deal with different changes that happen and allows a quick and efficient decision making model as organizations follow the guidelines.

Such benefits to an organization ensure that they do not spend quality time on adoption of other standards that would prove confusing to the employees (Brüggen et al, 2009). The transition from the internationally recognized standards may also contradict the understanding of the employees as they have to embrace in new guidelines.

A country that adopts the IFRS enjoys greater benefits on the international scene through the new improved condition of the world which translates it in a global village. The complexity of the transactions and the interconnections that exist within the world economies allow the countries that have adopted the IFRS have an easy understanding of such. Such a country would have a smooth transition in investing in other countries (Brimble & Hodgson, 2007). Such global and internationally recognized standards are essential as they from the long term and short term basis through the decision making model. With the inception of new models through adoption of technological advancements, it becomes morally correct and provides a uniform base in the preparation of statements of accounts. 

Challenges in Adopting IFRS by the United States

The existence of a free market in the economy of any country allows the institutions make their own independent decisions based on what they experience as opposed to some rules that have no idea on what happens on the ground. Standardization in the accounting standards is a good initiative but does not justify the need to have other bodies and organizations come up with their guidelines on what they feel suits their books of accounts as well as their financial statements (Schroeder et al, 2013) (Scott, 2014). The free-market allows adjustments and room to come up with the regulations and guidelines that work for an organization across all industries.

It is common to find in the industries that since they are guided and bound by the regulations from the international reporting standards, there are some things they can do or not do as they write their books of accounts (Deegan, 2013). This acts as some form of control making it hard for the organizations to expand what they reflect in the books of accounts. In an indirect way, it has led to some form of stealing through bloating and over stating some items on the financial statements to fit what they want. This in turn does not reflect the true and fair value as they assume that they should.

It is common to find some statements of accounts wrongly prepared especially through an audit. Such actions reveal many underlying problems in the organization as there are no definite and consistency through the way they provide their books of account (Collin et al, 2009).  A free market on the other hand is an advantage to organizations as they capture all information that they would want represented in their books. Such does not limit what kind of information to include or exclude as such determines on the agreement of the organization. Such makes it possible to find some organizations in the same industry may include some things in the statements while other may not include. The freedom on such allows some form of flexibility to the organizations.

Eliminating the accounting regulations in Australia will provide a big relief to organizations both public and private as they have the freedom within which to report their finances (Nobes & Parker, 2008). Such will allow room for innovations and the industries develop an accepted mode of presenting their books of account. In the room for innovations, it means that the experts in accounting procedures will have to come up with standard ways that will capture the information of any organization. Such will allow the technological innovations in the industries as people and industries grow out of the stipulated regulations and techniques.

In essence, it unlocks the minds of the people through development of new and independent methods (Christensen et al, 2015). Despite the many innovations that countries like Australia may come up with due to the many innovations and room for technology, there is need to put some form of regulations to allow a standard method of reporting across all the industries. This means that at least each industry should have a common method that they have agreed upon that they will use in their reporting. 

Allowing all industries in a country like Australia which has billions of industry would bring to confusion in firms. This means that each industry would have their own method of reporting on their books of accounts and in their financial statements (Messner, 2010). This means that there would be different presentations of the same information across different firms making it hard to arrive at a consistent conclusion further engaging the accountants in the organization for further explanation of the information they have captured in the financial statements. Such freedom makes no sense in the information prepared as one industry may prefer one method while the other may prefer the other method hence no uniformity in the information provided. This may cause an uncontrolled from of regulation in the organizations as each organization chooses a method they prefer as opposed to a stipulated method.

Some organizations may abuse the freedom within which they have to prepare their financial statements hence prepare them in a way that they only understand (Love & Eickemeyer, 2009). External parties interested in the financial statements like the shareholders and stakeholders as well as the government when they need to collect their taxes may have a hard time as the information captured in the financial statements may not be the true values.

An organization on one hand may underestimate their value whereas in the real sense they may be going bankrupt unable to pay their creditors and should be out of business. Some organizations may not reveal the full amounts of their profits as they seek ways through which they can evade tax by giving false information (Massingham & Massingham, 2014). Such will have negative results on the government as they lose revenue in other organizations making it hard to track down organizations that give untrue information on their financial statements.

Another shortcoming for the freedom in regulation without an overseer in the preparation of the books of accounts may be the effect such will have on potential and interested investors who would want to invest in the industries. They may shy away after having a look at the book of accounts and since there is no understanding in the information presented therein, they may opt to venture in other areas where they feel they have a form of understanding (Jones & Higgins, 2006). Such small yet significant actions may have an effect on the economy of the country like Australia where investors pull away based on the presentation of the financial statements. Despite the freedom that exists, some controlled method may have an effect on the organizations as they present the information. 

Conclusion

The support for or against the adoption of the IFRS depends on an individual country and the type of support that they will gain from the adoption. Every accounting standard adopted by each country should satisfy the needs of the companies therein reflecting high-quality standards that will allow the highest level of comparability (Ball, 2006). This would make the investors on the local and international scene have an understanding of the financial statements. They should meet within the international standards while serving and satisfying the investors and other major public stakeholders who may have some form of interest in the country’s investments. This means that despite the guidelines adopted, they should reflect the true value of the organization in the financial statements prepared. On the other hand, an external accountant should be in a position to understand the financial statements provided.

The quality of information prepared should be of high quality despite the type of standard adopted by the organization. Investors should have a way through which they understand the financial statements prepared and the accounting research used depict a high value of disclosures. There should be no form of defects in the statements of accounts prepared as they should reveal the true information while at the same time reveal high quality information about the organization. The basis of recognition and the measurements, as well as the recognition of all items in the books should be understandable to the shareholders and other parties interested in the financial statements (Adibah et al, 2013). The standards adopted should enable the accountants of the organization provide timely, transparent, and independent information through all the modifications made in the statements. They should indeed be comparable within the international scene in a case that they were subjected to international investors. They should be in a position to understand the statements enabling them make their investments decisions. 

References

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Brimble, M., & Hodgson, A. (2007). On the intertemporal value relevance of conventional  financial accounting in Australia. Accounting & Finance, 47(4), 599-622.

Brüggen, A., Vergauwen, P., & Dao, M. (2009). Determinants of intellectual capital disclosure: evidence from Australia. Management Decision, 47(2), 233-245.

Burritt, R., & Schaltegger, S. (2014). Accounting towards sustainability in production and supply chains. The British Accounting Review, 46(4), 327-343.

Cairns, D., Massoudi, D., Taplin, R., & Tarca, A. (2011). IFRS fair value measurement and accounting policy choice in the United Kingdom and Australia. The British Accounting Review, 43(1), 1-21.