The Impact Of International Financial Reporting Standards On The Global Economy

Background

In the present time period, there are several companies and industries that are functional in the global economy. Every company undertake transactions and therefore record their transactions and other associated interactions in their financial statement. The advent of globalisation has increased the need for a common reporting standard that would be effective in the generation of effective financial reporting among the companies and a common financial statement that would be helpful in the development of the operational activity and the maintenance of a stable and healthy economy (Lang & Stice-Lawrence, 2015). This paper therefore has the intention of addressing the impact of international financial reporting in world especially in the European Union.       

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In the current economy, globalization has been making a dramatic effect on the global economy and therefore the borders are getting less and the less precise and the trade and the cooperation among the organizations located in various continents is now very common. It is seen that more and more organizations have become global in their operational activities and the international trade with the help of credits and shares is rising constantly. Appiah et al., (2016) explained that as the organizations and the need for capital have gone out of the countries, capital internationalization has become essential. The demand for an open financial market is slowly becoming stronger and therefore is becoming effective. Globalization makes the harmonization and the comparability of the financial and accounting documenting one of the priorities.

The aim of the various companies has been to generate a free market where goods, capital services and labour are able to move along independently. The development of common currencies in the European countries has led to the development of transparency of the European market and therefore the companies with the help of this transparency has been able to assess the opportunities that are available in relation to the business within the economy (Kaya & Koch, 2015). The incorporation of the International Financial Reporting Standards (IFRS) will even enhance the transparency of the information of the organizations and therefore would even be a key step in the commitment of the European Union for a general capital market in Europe. For the lenders and the investors, it is vital to maintain quality and comparable data and this can only be attained if the nations cooperate among themselves in creating a general process that would be like IFRS or IAS.

The Impact of Globalization on the Global Economy

The IASB in an active manner has been promoting the standard that they have incorporated all over the globe. Chen & Li, (2015) cited that in more than 100 countries globally, the utilisation of IFRS has permitted or is demanded. It is seen that many of them have incorporated the special programs for the converging and the transitioning their national standards in accordance to IFRS.

After the break up that took place with the Soviet Union in the year 1992, Russia had to transform their economic process from a planned economy towards a market economy. It is seen that in a command economy, the process of production are in the form of public ownership and in this case the states take the authority of the economy and the economic operations is looked upon to respond in accordance to the direction of the state. On the other hand, within a market economy the process of production are generally in the form of private ownership, the states generates a legal structure in which the economic operations are undertaken and the economic activities are regarded to respond to the market forces. These kinds of transitions generally have a significant consequence on the process accounting which stops to be an instrument of the state economic management and thereby becomes equipment at the disposal of the business society (Kim et al., 2014).

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There are new kind of organizations and firms that are desperate in need of new accounting standards. In a market economy, the aim of the financial reporting of the organizations is to provide effective information to the current and the potential investors, creditors and other parties who are interested in order to facilitate their process of undertaking decisions (Ali et al., 2016). It is seen that until now, the function and the perception of the accounting process have transformed in a dramatic manner and the key users of the financial statements is still the state and the government who are associated with the taxation purposes and the related departments (Abdullah et al., 2017). It is seen that the suggestions of the other parties like the creditors, managers and the other associated personnel have become significant in the current time period. It is due to this factor that the development of the financial standards and especially the international financial standards has been vital.

There has been a rise of the number of organizations that are operational within the European Union or even outside the Union in the current time period. The incorporation of the accounting standards is dependent on the external as well as the internal environment of the concerned companies. It is seen that globalisation has led to the companies being operational all over the globe (Schneider et al., 2017). Henceforth, the need of international financial reporting has become vital. Even though it is seen that certain countries may face issues in accordance to the incorporation of these standards as there may be issues and problems. The incorporation of these standards have positive and negative effects and therefore assessment of the same needs to be done in order to have an understanding of the changes that would be made with the help of which these standards can be enhanced.  

The Significance of International Financial Reporting Standards

The objectives of the research in accordance to this topic have been explained as follows:

  • Assess the impact of International Financial Reporting Standards on the financial statement of the companies
  • Assess how International Financial Reporting Standards help in mitigating the challenges faced by the individuals constructing the financial reports of an organization

The research question in accordance to this paper is:

Q1. How will International Financial Reporting Standards (IFRS) have an impact on the financial reports constructed by an organization?

Q2. How does International Financial Reporting Standards (IFRS) help in mitigating the challenges faced by the individuals constructing the financial reports of an organization?

The research gap relates to the limitations that is seen in association to this topic, which earlier researchers have been unable discover. In accordance to this topic, the literature that is based on accounting establishes a debate in relation to the success of the incorporation of International Financial Reporting, their relationship with the accounting standards and in this manner may create issues if it is seen that the accounting statement of the companies are not in compliance to the available standards (Christiaens et al., 2015). It is seen that there have been very limited researches based on this topic and therefore their impact and the positives and negatives in relation to this topic is not known in a proper manner. This has compelled in the construction of this paper with the help of which an idea can be attained and thereby international financial reporting and how it can be utilised by the economy as well as the companies would be known in an effective manner and thereby better incorporation of the same can be done at any future course of time.  

Chapter 2 of a thesis paper addresses several research paper and literatures that have been published by the other researchers and authors. There are numerous aspects that have been addressed by previous researchers and authors and explanations have been given in accordance to the several sorts of standards that are already available in the economy. These definitions and explanations provide an insight with the help of which the companies would be able to understand the significance of these standards and thereby would even be able to enhance the operational activities as well as construction of the financial statements (Mao & Wu, 2018). Hence, it is seen that the literature review has the idea of providing effective insight and information in accordance to what other researchers have suggested with the help of which new and improved idea on this topic can be attained.

Accounting standards are regarded to the rules, conventions and regulations that direct the construction of the financial documents and the financial statements. Accounting standards is looked upon to be the basis for the construction and the auditing of the annual report of the companies. The accounting standards are constructed on the basis of the conceptual model and in the scenario of IASB; it has been the due process. Conceptual model for the construction of the account has been explained as a constitution, which is the basis for the creation of the accounting standards. Conceptual model are constructed in order to direct the standard creators to make sure stable and sustainability is maintained in the issuance of the future standards and as a direction for the incorporation of the accounting issues in scenarios where there are absence of any sort of accounting standards (Haslam et al., 2016). This model addresses the elements in the financial reports, how they have been discovered, assessed and published which serve as a point of reference towards the management in scenarios where there is absence of the accounting standards. The model is not an accounting standard itself. In scenarios, where is a conflict among the specific standards and the model, the explanation of the standards of accounting surpasses the conceptual model (Balsmeier & Vanhaverbeke, 2018).

Challenges in the Implementation of International Financial Reporting Standards

The construction of the accounting standards goes through numerous stages prior to being published. The procedure within which a project goes through before it is finally sanctioned or it is rejected with the help of the due process is known to be the Due Process. This process permits the groups who are interested to take part in the process of setting standards with the help of the submission of the comments (Adeyemo et al., 2017). In spite of the democratic characteristic of the process of setting standards, previous documents related to the research has extensive amount of lobbying in the process of constructing the standards.

International Financial Reporting Standards (IFRS) are constructed and is issued by the IASB. The standards that are disclosed by the IASC are known as International Accounting Standards (IAS). IFRS has both broad and narrow meaning. In the narrow aspect, IFRS is known to be the set of the new standards that is issued by the IASB that is variable from the past standards (Ward & Lowe, 2017).

IFRS has attained acceptance as an individual set of the standards of financial reporting in countries all over the globe. Cho et al., (2015) explains that capital market globalization have created the demand to scrap the domestic standards in the favour of the international benchmarks and standards that have been attributed in the incorporation of IFRS as an individual set of the worldwide standards of accounting as the precise example from this end. Chen et al., (2018) has expressed that more than 100 nations have incorporated IFRS for the purpose of financial reporting but there are other countries to have agreed upon to implement or converge to IFRS.

European Union has mandated all the companies that are listed with them to disclose financial reports with the utilisation of IFRS. This is even applicable to the new countries as well who would be admitted to the membership of the European Union (Weaver & Woods, 2015). The development has made the EU to the biggest customer of the IASB as it is seen many nations have not taken the same kind of initiative. It is seen that even though IFRS is compulsory for all the listed organizations within EU, it is seen that the Union does not publish a blanket implementation of the standards that have been published by the IASB. The Accounting Regulatory Committee (ARC) that is within the European Commission needs to endorse these standards prior to becoming applicable within the European Union (Jin et al., 2015). This process of endorsement confers with the political power IASB over the European Union for the time being, this power would diminish of the biggest capital market of the globe gradually implements the IASB standards, which has initiated with the elimination of the requirement of reconciliation for the issuers who disclose the financial statements that is reliant on IFRS.

Advantages and Disadvantages of International Financial Reporting Standards

It is seen that United States is one of the countries that has taken huge step by combining the US GAAP with the International Accounting Standard Boards. The SEC of USA has eliminated the needs which ensure that the issuers who are foreign who document based on the IFRS need to reconcile their financial reports in accordance to USA. The SEC of USA has created seven milestones that need to be attained in order for the SEC to ascertain whether IFRS needs to be compulsory for the issuers from US in their documentation with the SEC.    

The procedure towards a uniform or single standards of accounting comes in the form of various shapes and forms. The most minimum and the less expensive types of all the procedures are known to be the informed deliberation and Poudel et al., (2014) explained that informed deliberation is associated to the undertaking of the efforts that are active in nature in order to assess the international standards and the standards that are associated to the other countries that have been constructed when creating the standards related to similar issues. This even looks to stay abreast of the international enhancements and is even inclusive of the materials in the international viewpoint and the enhancements in the explaining materials along with the materials for the associated issues that have been under the deliberation. It is seen that IASB has taken similar position when undertaking the decision regarding which item to insert within the agenda (Crawford et al., 2014). The IASB takes consultation from the other nation based accounting standards in order to attain the insight into the present development and the threats and the challenges that are faced by the national standard creator when creating similar kinds of standards. This will assist the IAB to attain the convergence of their standards with the other national standards, which has been the aim of the IASB and their ancestors.

Implementation is another process towards the individual usage of the standard of accounting for the purpose of documentation all over the globe. With the process of implementation, several countries specially the ones from the developing capital market makes use of IFRS that has been constructed by IASB and thereby improve them in order to enhance them in order to suit the needs of financial reporting (Ali et al., 2016).

The other process that is towards an individual set of accounting standards is known to be harmonization. In this aspect, harmonization of international accounting, which in some cases is sometimes confused with convergence and is the elimination of the various practices and their alternatives among the local standards and the international accounting standards in order to bring out the financial outcomes, which are compatible but is not similar to one another. The process of harmonization of the standards of accounting estimates that one standard is the suitable standards while the other accounting standard sets generally perceived to be very weak and thereby is brought into agreement with the suitable standards. Mantzari et al., (2017) explained that harmonization as a determination, which aims at combining together two different systems of accounting in order to attain a synergetic impact. The accounting standard harmonization assists the organizations to transfer to overall implementation of IFRS with minimum amount of cost and the issues due to the national standards that in some way is similar to IASB.

Research Objectives

The capital market of any country provides a channel with the help of which the long term and the funds that are medium term in nature are available to the companies, international firms, government and the government based agencies. Capital market can be segmented into debt and equity market. These two markets can be further segmented to primary and secondary markets. Equity capital markets permits any organization the benefit to increase their capital from the investors with the help of the issuance of the shares of the organization. The investors thereafter become portion owners of the organization and are even known to be the residual claimers at the time of liquidation (Tschopp & Huefner, 2015). The investors who undertake investment in the debt markets are not known to be the owners but are the external claimers on the asset of the companies and therefore are even entitled to attain frequent payment of interest from the companies where investments have been made.      

The advent of globalisation in the capital market has provided the firms with the opportunity to decide the area from which the capital can be raised in order to finance the investment projects. This kind of flexibility diminishes the cost of capital to the firms as they are able to take the benefit of the competitive extent of the equity and the issues of debts, which may not be possible when the organizations are limited to only one capital market (Crawford et al., 2018). The capital market creates an opportunity with the help of which the ownership and the wealth of a country can be distributed among the people of the country.

Capital markets even provide the channel with the help of which the secondary process of trading of the shares of the organization can have an impact. The investors who are in no longer in the need of their securities are provided with the platform with the help of the mechanism of the capital market to marshal them off the investors who are new (Leuz & Wysocki, 2016). It is seen that capital market are helpful in providing liquidity to the shares of the organizations. Capital market even serves to be the platform for the company valuation due to the fact that it replicates the organizational performance especially in the capital that discloses the features of semi-strong effectiveness.

The companies are established by the community and hence are responsible to the ones who are known to be the stakeholders. The stakeholders are considered to be the bankers, investors, employees, competitors, government and any other associated members. The stakeholders are in need of various kinds of financial data in order to aid various kinds of purposes.

Literature Review

Corporate data can be attained from several kinds of sources. These are inclusive of and are not restricted to the information like the annual reports, discussions of the management, assessment of the reports and other kind of information. Chao et al., (2015) explained that financial annual reports have a significant role to play in the process of disclosure of the organizations due to their extensive level of circulation.

Mullinova & Simonyants, (2016) cites that information that are given out by the annual report is utilised to legitimate the activities of the companies by their management. It is even seen that the developing capital markets, the annual report is the only source of the corporate data that is available to several kinds of stakeholders.

Financial data are utilised by the stakeholders for the purpose of decisions related to the investment, recommendation purpose and the combined bargaining contract of the employees, evaluating the liquidity as well as the solvency of the organizations. The provision in relation to the financial reports by the company management is by any means the most significant element in performing the function of stewardship to the stakeholders.

Financial data even has an essential role to play at the macro and the micro level within an economy. It has been recommended that financial data plays a significant role in making sure that the resources are assigned in an effective way in the capital market and assists the government to generate funds like the sovereign bonds in order to enhance the projects that are underdeveloped (Haslam, 2017).

It is seen that at the micro level, the corporate financial data assists in mitigating the uncertainties that are seen in the market and thereby restricts any kind of financial crisis. The publishing of the financial data eliminates the chances of any market crash and restricts segmentation of the capital markets (Hales, 2018). Furthermore, the process of financial reporting gives out precise information to the investors in order to ascertain the flow of the organizations. Corporate data as published in the annual reports assists the investors to evaluate the profitability of the investment undertaken in order to take the decision in regards to whether to sell, hold or purchase the shares. The valuation of the business is even possible with the help of the financial documenting information.

The globalisation of the emerging capital markets as an outcome of the foreign capital inflows has generated the demands for increased quality of financial reporting as it would act as the only source of data for the domestic and the international investors. Uwuigbe et al., (2017) cited that even due to the increased significance of the emerging capital markets in the international capital markets, most of the firms are medium or small and the quantity of trade and the difficulty of the transactions do not have an impact on the improved capital markets. It is due to this fact that a debate has been created whether IFRS, which is reliant in the negotiation amount the principles of accounting that is seen in USA and UK, which should be implied in the emerging capital markets.   

Conclusion

The standards of IASB is a standard that fits one at all, which explains that all the firms within the jurisdiction needs to comply to the standards in an equivalent manner. This has created an argument in accordance to the preciseness and the effectiveness of the IASB standards in the emerging capital markets. The aim of the IASB has been to generate improved quality of the individual accounting standards that is to be utilised for the purpose of documenting all over the globe. Beckman, (2016) advices that the applicability of IAS throughout the globe is reliant on the debate that the intrinsic features of the economic transactions are similar in both in regards to the developed and the developing capital markets, which needs that the disclosure and the assessment of the accounting transactions are not in need of various kinds of treatment. Conversely, Marin, (2017) opposes that the IASC has the desire to legitimise and justify the presence of the standards and therefore the situation that their standards are equivalently precise to the emerging capital markets and the matured and developed capital markets. The debate that has been taken into consideration is not appropriate as the IASB can still construct a standard that is ideal for a specific jurisdiction and thereby attain the level of legitimacy.   

The literature that has been constructed for this paper has tried to assess the researches and the journals that have been constructed by the other researchers in association to international financial reporting with the help of which an understanding can be developed with the help of which how the standards have improved with the advent of time and how it has been able to enhance the operational activities of the companies can be understood. The aspect related to the capital market and how the emergence of the capital market has been helpful in the increase in the funds can be helpful in increasing the fund and thereby better projects can be initiated by the companies.

The methodology in association to this paper will be constructed with the help of which the researcher would disclose the kind of data that would be collected for the purpose of analysing the data and thereby fruitful results can be attained with the help of which the conclusion of the paper can be completed. The researcher has looked to identify the process that would be used with the help of which the data gathering process can be undertaken. The approach, design and the philosophy that would be used in order to understand the guideline that would be used would be assessed with the help of which effective results can be attained.  

The researcher has to select the philosophy with the help of which the ideology in order to attain the data would be collected and thereby evaluation process would move forward in order to attain the research objectives. The philosophy determines the source and the nature of the data that would be gathered with the help of which outcome in relation to the topic can be attained. There are three kinds of philosophies that can be exploited by the researcher and each one of them are realism, positivism and interpretivism (Kastrati, 2017). However, the researcher in accordance to the topic that has been international financial reporting has chosen realism philosophy mainly due to the fact that the understanding of the topic and the associated aspects would be understood. Realism philosophy can be selected for the quantitative analysis and qualitative analysis and therefore would be ideal for this research.  

It is vital for the researcher to understand approach that would be selected for the purpose of the study so that effective and precise data collection can be undertaken. The approach determines the framework and the theories that would be applied with the help of which the researcher can move ahead with the collection of the data and thereby effective means of assessment process would be understood. There are two sorts of approaches that the researcher can make use of and they are deductive and inductive approaches. The current topic associates with understanding the impact of international financial reporting in the entire globe and as secondary data would be used for the purpose of analysis; the researcher has chosen deductive approach (Frias?Aceituno et al., 2014). This is essentially due to the fact that deductive approach associates with the use of frameworks and theories that have been utilised in the past by the other researchers. The current topic tries to assess the impact of international financial reporting and therefore has applied theories and modules that are already existent in order to gather the data and thereby fruitful and precise results can be achieved.      

The preciseness and the efficiency of the sort of research is reliant on the research design that is made use in this paper. The efficiency of the research supports in the evaluation and thereafter the interpretation of the information in a precise way. The researcher has discovered that there are three sorts of designs that are available to them and it is in their discretion to select the design in relation to the concerned topic. The three designs are exploratory, descriptive and explanatory research designs (Persons, 2014). In this paper, the researcher has chosen descriptive research design mainly due to the fact that in this paper extensive and descriptive assessment would be done with the help of which effective and fruitful results would be attained. The research would extensively define the various elements related to the standards of accounting and the processes that are used for the purpose of reporting the financial statements. In this manner, descriptive research design is ideal mainly due to the fact that the explanation provided in the thesis would be helpful in creating conclusive evidence about the efficiency and the validity of the outcome.

The methodology ascertains the sort of data that would be collected by the researcher in order to have an understanding of the effective outcome. The researcher in this paper has considered qualitative data as it is seen that data from several secondary sources would be determined with the help of which the effectiveness of the standards as well as the development of the financial reports with the help of these standards can be understood in a positive way. The qualitative data assists in the preparation of a thematic analysis with the help of which the researcher would be able to understand the impact of international financial reporting.

The topic that is selected for this thesis understands the impact of financial reporting. The data that would be selected for this topic is not available with the help of the primary data. It is seen that primary data tries to collect data from the selected respondents and therefore their opinions and feedback will not be ideal for the attainment of the data in accordance to this topic. It is due to this fact that secondary data is collected by the researcher and therefore data would be collected from numerous internet websites where information in relation to the international financial standards has been mentioned. Data in relation to this topic is even available in several books and accounting journals and therefore these resources have even been used in order to have a clear and valid understanding of the topic of the paper (Marzuki & Wahab, 2016). The researcher has even made use of electronic journals and the press releases that have been made by different countries and the global bodies based on the internally acclaimed financial standards in order to recognise the aspects and the mind-sets that are thought to be existent in relation to this topic. Secondary data is helpful in the preparation of the data assessment process and thereby the researcher would be able to achieve the conclusion of the paper.    

The mode with the help of which the researcher is able to obtain the data has to be mentioned as well. It is seen that in this thesis, the researcher has collected the data by assessing several sources of the data and thereafter discovering which have been the most effective sources that would be helpful in the determination of the desired outcome of the paper. The collection process and the efficiency level of the process is useful for the attainment of the results that would lead to understanding of the topic.

The analysis of the data would be done with the help of well-designed plan and thereafter assessment of the same would be done. The researcher would undertake thematic analysis so that all the elements and the aspects of the data would be evaluated and explicit explanation would be done in order to attain the results that are desired from the perspective of the researcher. The analysis of the data would be done and with the help of the thematic assessment effective and valid results can be attained.  

The researcher has the job of maintaining ethics during the time of the evaluation of the construction of the paper as the ethical bodies have addressed the fact that morale and ethics need to be maintained in order to publish precise data (Coetzee et al., 2016). The researcher therefore has maintained ethics in this paper and therefore has collected the data from true and valid sources so that the data that is utilised for the purpose of analysis will be authentic and thereby motivate the reader to make use of the data for future references.

This section of the paper would provide evaluation of the data with the help of which the researcher would be able to attain the impact of the international financial reports. The analysis is done with the help of which precise results can be attained and thereby the effectiveness of the financial standards can be understood in a precise manner.

The policy makers and the researcher have found several ways in order to rectify and resolve information asymmetry issues. For the adverse selection issues, optimal agreements among the investors and the owners, that would provide remuneration for the overall disclosure of the private data and thereby mitigating the mis-valuation of the issues. Conversely, it is seen that no agreement would be able to take care of all the probable transformations that takes place in the progress and as a matter of fact, optimal agreements which cannot entirely safeguard the outsiders in the current time period. The other probable solution to the data asymmetry issue is the regulation that needs the managers to entirely reveal their private data (Swait et al., 2018). It is due to the issue that there exists a demand for the data intermediaries, like the financial researchers and the rating companies who are associated in the private data production in order to reveal the superior data of the managers. For the purpose of the moral hazard issues, the optimal agreements among the investors (Li & Yang, 2015) and the entrepreneurs like the contracts and the compensation look to align with the interests of the owners with the ones that is of the external equities and the debt claimants. These agreements on a regular basis need the owners to publish the precise data that assists the investors to look into the compliance with the contractual contracts and to assess whether the owners have been able to manage the resources of the companies in accordance to the interests of the external entrepreneurs.

In order to assess these answers, initially from the process of the adversative selection of the information asymmetry that addresses that the other stakeholders and even the investors have inadequate data when constructing and creating agreements that are negotiating in nature with the managers (Eng et al., 2014). The second from the point of view of the moral hazard, it is seen that the stakeholders are in need of the data in accordance to the performance of the transactions in order to assess and supervise the manager’s performance and other agreement parties. Hence, the quality of the accounting becomes the foundation of undertaking decisions related to the investment and the construction of several agreements among the stakeholders and the firm.

There are generally two elements that are considered that is related to the quality of accounting. The first element is in respect to the reliability, which refers to effectively reveal the present operational performance and the second aspect is the relevance of the value, which is to assist the accounting data users in effectively estimating the future performance of the operations. IASB has precisely explained the relevance and the reliability to be most significant elements of the quality of accounting in their conceptual model. Phan et al., (2018) explained that in order to validate the effectiveness of the answers one of the essential condition has been that accounting numbers are of the quality in such a manner that the investors have discovered that the accounting numbers are effective when assessing the performance of an organization and the stakeholders and therefore construct agreements on this and assess the performance of the company on the aspect of the loyalty of the accounting numbers. It is seen that the accounting numbers that are useful in providing the measurement of the performance, when it is seen that the investors and the other associated parties have been monitoring. In addition, the accounting numbers acts as the base data when the stakeholders of a company construct and negotiate the agreements (Rand & Nassar, 2017).

Muniraju & Ganesh, (2016) explained that the market is effective enough and the effectiveness of the decision debates that the meaning of accounting data is to give out effectiveness in the process of undertaking decisions. This explains that the setters of the accounting data have to take the decision of the level of effectiveness they would look to reveal by looking into the rules of accounting.

The academic and the professional agents have assisted the concept of decision usefulness. IASB has explained that the vital aim so as to prepare in the interests of the public, an individual set of the increased quality, enforceable and understandable worldwide standards of accounting that are in need of highest quality, comparable and transparent data in the financial reports and the other financial documenting in order to assist the participants in the global capital markets and other users in order to undertake economic decisions (Yusrina et al., 2017).    

In relation to the aspect of usefulness, it is seen that the first question is to whom that the data is effective. Ugochukwu & Martin, (2015) addressed the fact that the accounting standards are accountable for the quality of the earnings and the quality of the other accounting data in regards to the fact that the investors think that the data are effective for the purpose of making decisions. Hence, the discussion of the decision usefulness is from the point of view of the investors inclusive of the debtors, shareholders and other investors.

The decision usefulness addresses the accounting policies to be like a black box, while the key judgment is given to the investors within the market. Conversely, it is seen that the theory of positive accounting assesses the quality of accounting in such a manner that would take more constituencies within the consideration that are inclusive of the creditors, regulators, managers etc. the enhancement of the theory of positive accounting is dependent on the idea of economic consequences. Barth, (2015) debated that the accounting numbers are not only the replication of the economic operations, they could have an impact on the actual value of the companies. Park & Scaria, (2017) explains that the company being a nexus of the agreements, where it is seen that accounting numbers act as a base for the agreement as all the parties within the agreements have the access to the accounting of the numbers. It is seen that there is asymmetry of the information among the agreeing parties and the parties who are opportunistic and are self-serving, the need of the authentic accounting information increases.

The theory of positive accounting has recognised the three key agreements that have an impact of the choices of the policies of accounting. The initial aspect has been the compensation of the management. Information asymmetry among the managers and the shareholders can increase the demand for the information by the owners as due to the fact that the managers can in a potential manner pursue their individual benefit by supervision of the accounting data (Yahaya et al., 2015). Hence, the investors need to assess the managers in order to make sure that the managers are performing in accordance to the interests of the investors. The second key kind of contract has been debt covenants. The factor has been that rise in the increased earnings would diminish the default probability. The borrowers need to satisfy certain financial needs like the leverage, interest coverage; working capital etc or else the creditors would levy penalties, which may put the company in extreme financial issues. The third kind has been the political expenses. The companies that have increased amount of profitability are generally followed by the researchers and the media, which addresses the probable additional supervision, additional regulation and more needs from the government like the fall in unemployment and new tax and hence the companies would look to defer the earnings that are attained at the present time to the tomorrow (Aryani & Suhardjanto, 2016).

In addition to the extensive kinds of agreements, the other contracting parties like the employee, debt holders and the regulators are even in need of the earnings which would act as an indicator of the performance of the companies in evaluating the risks and estimating the performance. Flower, (2015) explains agreements as relational agreements that come from the sustainable relationships among the stakeholders and the companies and acts as a representation of the estimated attitude of the previous dealings related to the business. This perception of agreement implies that formal agreement is only found to be one source of the demand of the dependable accounting data (Hsu, 2017).  On the other hand, the stakeholders need the accounting data to attain the harmony or negotiate the issues and the basis of the agreements that could be written formally or could be informally implicitly agreed upon by the parties that are involved.

The assessments that have been made in accordance to the accounting standards and the elements that are related have been able to express the fact that accounting standards have played a fundamental role in the effective level of construction of the financial statements.  This leads to better relationship among the management of the companies and the investors and the investors would have a clear view on the performance of the companies. The standards have addressed the regulations that have been maintained and therefore the precise and effective results would be achieved by the companies.   

Conclusion, Recommendation and Future Work

Conclusion 

The research that has been undertaken has been able to explain the fact that financial reporting has been developing with the improvements and the changes in the regulations that have been taking place in the accounting standards. The background of the paper has been able to explain the development of the accounting standards and how these aspects have been able to increase the level of financial statements for all the companies. The background even examined the how accounting standards have developed with the advent of time and thereby changes in the construction of the financial statements have improved as well. The problem statement has looked to explain the issues that are existent and the limitations and the issues that had an impact on the performance of the companies and the construction of their financial statements. This has been the aspect that would be effective in the construction of the paper with the help of which aspects can be discovered with the help of which these issues can be resolved at later point of time.

The literature that has been prepared in this paper has addressed the various suggestions and the aspects with the help of which the idea has been attained in accordance to the topic. The literature has tried to explain the various elements and the development of the standards with the advent of time. The paper has even analysed the impact these standards have on the preparation of the financial statements and thereby an understanding would be gathered regarding the effectiveness of the financial reports with the developments in the accounting standards.

The methodology identified that deductive approach would be selected and realism philosophy is ideal for this thesis paper. Descriptive research design is selected as the paper would assess the processes and the impact in an explicit manner. Secondary data has been used with the help of which information from numerous sources would be used in order to attain the desired results. The data analysis process has looked to assess the data with the help of thematic analysis and thereby this paper has been able to discover and achieve the objectives of the paper. The preciseness and the validity of the results can only be justified once the results are in line with the objectives and therefore each and every objective would be explained individually.

The first objective of the paper has been to assess the impact of International Financial Reporting in the financial statement of the companies. The results that is provided in this paper explains that International Financial Reporting has significant amount of impact on the construction of the financial statements as it is seen that enhanced financial statement is constructed with the use of the these reporting standards. It is seen that the usefulness and the clarity of the data is identified with the help of these standards and this leads to the development of better relationship among the stakeholder and the management. International Financial Reporting therefore has a positive and strong impact on the construction of the financial statements. Therefore, it can be said that the result is able to address the first objective of the paper.

The next objective has been to assess the challenges that are observed within the financial statements in relation to international financial reporting. It is seen that the results have been successful in explaining this objective as well due to the fact that all the challenges in relation to the construction of the financial statements have been addressed and the limitations that have been existent with the accounting standards. All these elements have been addressed and hence a proper idea over the accounting standards that are helpful for the purpose of reporting and the challenges that are seen within the financial statements have been understood. Therefore, both the objectives have been explained and hence the result attained is true and valid. The conclusion therefore comes to the fact that international financial reporting with the help of the accounting standards have significant amount of impact over the preparation of the financial statements of the companies that are operational in the economy.          

The recommendation provided in this paper is attained with the help of the gathered outcome of this paper. It is recommended that the accounting standards need to be amended with relation to the changes that are taking place in the economy and the new and improved strategies and policies that are incorporated by the national and international accounting bodies. It is even recommended that the feedback from the companies who are preparing their financial statements with the help of these standards needs to be taken into consideration so that their advices and recommendations can be considered in order to improve the standards and thereby enhance the level of the financial statements for the companies. The incorporation of recommended strategies would be helpful in the betterment of the overall reporting framework for the companies.

Future study on this topic is possible because of the fact that the accounting standards would be changing with the changes that are taking place with the help of several policies and regulations that are newly incorporated. Hence, it can be said that the future research can be undertaken as new and improved results in the future course of time can be attained and hence comparison of the same with the current research would be able to generate the changes that have taken place in the future research work.   

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