IFRS

Analysis of “The Case for Global Accounting Standards: Arguments and Evidence”



Analysis of “The Case for Global Accounting Standards: Arguments and Evidence”

Summary

The purpose of this paper is to analyze the argument made in aforementioned research article on IFRS. Based on our analysis, we have produced the research done in favor of implementation of IFRS in both developed and developing countries. The paper addresses the benefits of IFRS to capital market in terms of efficiency, regulation, and reporting of financial market.

Introduction

In the advanced and interlinked business world, it is highly desirable by many players in the economy to adopt a common financial reporting methodology across the borders throughout the world for sake of convenience and comprehension. The common set of accounting standards has the capability of providing assistance to both investors and businesses with the existence of highly regulated framework, autonomous set of standards, and competent control. However, it is also argued that this sort of accounting standards would create the risk of under estimating particular risks associated with specific country's cultures, markets, political activities, regulatory framework, and economy (Center of Audit Quality, 2009, n.d.).

The International Financial Reporting Standards were initially tested, developed and applied by International Accounting Standard Board i.e. IASB, which led to the growth of IFRS and covered more than 100 countries in 2001. Subsequently, European Union countries' publically listed corporations adopted it in 2005. Firstly 19 countries adapted it in 2003 and later this number increased to 70 countries. The countries, which have been using this standard of accounting includes some of the major developed nations like that of USA, Australia, Canada, China, Japan, Brazil etc. (Sletten, E., 2009, p. 1-30).

This system benefits markets to distribute resources adequately and more effectively so that companies may bear low cost of capital. In addition, it also conveys quality information for making informed and better decisions since it creates transparent channels of distribution and can be compared at all times (Brown, P., 2011, p. 269-285).

Discussion

The affect of IFRS Adaption on market efficiency

The most debatable issue that has proved to be a foundation of IFRS adaption by companies is its impact on the market efficiency in terms of transparency of information in market that facilitates investors to make informed decisions regarding business and investment. The studies over past have proved that implementation of IFRS by majority of firms has reduced issue of asymmetric information from the market and resulted in higher pellucidity and reliability of the process of financial reporting through out the various countries. There are significant benefits of IFRS, among which are easy and convenient measures of comparison in terms of financial performance and related aspects in the capital market. This benefit has greatly overcome the issue of difference in financial reporting and accounting methodology at international level, which is standardized by the implementation of IFRS for financial reporting purposes. This benefit has essentially reduced the cost of handling financial information for investors, which would ultimately positively affect the efficiency of stock market ...