The Adoption Of The IFRS In Accounting In European Union, Australia And The Rest Of The World

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The adoption of IFRS in both developed and developing countries in European Union, Australia and the rest of the world is deemed as the most significant regulatory change in the recent past. It is due to its common language which has encouraged more than 130 countries to adopt it as a standard for preparing and disclosing their financial and non-financial reports. However, due to its irrelevance in some countries as well as challenges which it faces, these sovereigns adopt it due to its network effect, to cope with effects of globalization, attraction of foreign investment and aids, and increased boarder listing. However, some countries tend to modify it to suit their accounting and reporting needs. For example, countries like China keeps its local accounting standards but makes effort to converge IFRS with its national standard over time. Therefore, the main aim of the report is to determine if the quality of corporate disclosure or reporting has been improved after the adoption of IFRS standards in European Union, Australia and other adopter countries, the challenges it faces and the reasons why it has not been adopted in US by FASB regulators. Besides, it covers my opinion on whether IASB will be successful in the harmonization of accounting standards throughout the world. The report will be very vital for the investors, companies and the policy makers since it will enable them to make a viable decision on the accounting or reporting framework to adopt to improve the quality of information disclosure over time.

Opinion on whether adoption of IFRS have improved the quality of reporting of the adopters. Even though quality reporting of a firm is pegged on other institutional factors such a nation’s legal and political systems, I tend to believe that the adoption of IFRS standards in European Union, Australia and other adopters have contributed to the reporting quality. The adoption of IFRS led to the change in GAAP with an aim of improving quality of the reporting in most of the European countries. For instance, the firms and business entities which has adopted this standard have experienced less earning management problems, more value relevance of earnings, and more timely loss recognition. These remains to be signs of high accounting and reporting quality among these entities. Besides, it removes the information asymmetry between the shareholders and the mangers hence elimination of agency conflicts. These can be evident since the standard enhances efficient earnings and assets management, and enable managers to properly and accurately forecast the entity’s future income.

Besides, due to its lower susceptibility to political pressures as compared to the national standards, the IFRS is not prone to manipulation hence encouraging transparency, quality and accountability of information disclosures. Through these, the firms’ rate of manipulating their financial statement by disclosing insignificant increase in the profit margin to avoid reporting losses have decreased immensely (Ogiedu & Odia, 2013).It thus means that the standard is important in ascertaining the firm’s going on concern. Therefore, it can be evident that the standard played a vital role in enhancing the quality of corporate reporting or disclosure of financial and non-financial information to the stakeholders for decision making.

Reasons for not adopting IFRS Standards by FASB in US

There are various reasons why the FASB failed to adopt the policies or standards provided by IFRS. They comprise of the following:

IFRS standard was expensive to adopt- The FASB authorities stated that the transition from GAAP to IFRS was very expensive for the country to adopt and implement. It is due to the fact that for it to be implemented, there was need to engage in workforce training, system changes and user training (Ali, 2017).These were considered to be un-avoided expenses, a process which seemed to be very costly.
It does not enhance efficient comparability of the financial statements- It is because America and other adopters come from different cultures, historical practices and backgrounds. These makes the comparison to be tedious and impossible.
Lack of superior standards- The US claimed that the financial statement prepared by GAAP was more superior to the ones prepared by IFRS standards. Due to the fact that IFRS was to be improved to match the standards of the GAAP, the US decided to keep the GAAP standards due to its superiority (Michael, 2017).
Lack of motivation to adopt new accounting standards- Even though GAAP was complex, it works for the US effectively and efficiently as compared to IFRS. Therefore, given that the existing system was good and meet the reporting standards, they lacked motivation to adopt the new IFRS standards.
It was rejected due to myriad of challenges which the IFRS was facing during its implementation over time.

The Current Challenges Faced by the IASB

There are various challenges which is faced by the IASB authorities in the lobbying and implementation of its standards. These are linked to the difference in the mental models, cultural issues, legal impediments, political influences and educational needs. The key implementation challenges which it faces comprise of lack of timely interpretation of the standards and harmonization with the national standards (Felski, 2017). These affects its adoption by different sovereigns. Besides, it faces a continuous amendments and review to the standards which leads to cost implications to the implementers of these standards. It is a situation which causes confusion among managers, regulators and authorities in different sovereigns across the world.

Besides, the accountants, users, auditors and regulators’ lack sufficient knowledge and expertise to prepare, process and interpret the financial statements can bring a lot of problems over time. These makes it difficult to enhance efficiency and accuracy of the financial reports. For example the accountants can face challenges due to inability to prepare competent financial reports, the auditors cannot be in a position to detect both inherent and control risks while the users to interpret the information for decision making process. These can propagate fraud either in the short or long run

Due to historical differences in the accounting thoughts, ethos, contexts and practices caused by difference in continental Europe, Africa, Asia, Anglo-Saxon, and Southern Americans makes the harmonization of the IASB standards to become very difficult. Besides, the business and political differences are also factors which affects its structure, formation and implementation process (Wong, 2004). Other factors comprise of inconsistent IASB funding, staffing and government structures, dominance of the board by the developed countries, intense and unhealthy political lobbying and inability to regulate various accounting frameworks in different jurisdiction affect the manner it can harmonize the accounting standards in different sovereigns with the IFRS. These leads to problems in implementation process.

Will IASB successfully harmonize the accounting standards throughout the world?

In my opinion, I think that IASB will be able to successfully harmonize the accounting standards throughout the world. It is due to an incline in globalization which requires people to trade and invest in different countries hence pushing different sovereigns to adopt the international standards. Across the world, there are three main accounting practices which are in place and held strongly with their nationals. They include UK GAAP, US GAAP and IAS (Li, 2017). The practices can give the IASB a challenge in the harmonization given their hard stands in protecting their national standards. However, the move by the European Union to adopt the IFRS standards in all the entities across these regions gives the efforts of the IASB a backup in the harmonization process. Besides, the increasing need of global accountants to use a common standard accounting framework or language also plays a role in boosting the harmonization process.

In addition, the push for sovereigns to gain from global economies calls for standardization of the accounting policies among nations. It is because it will facilitate international transactions, limits the exchange costs, and improves the efficiency of the financial market information and boost government accountability (Pramanik, Das & Shil, 2009). These will help in laying ground for efficiency, transparency and reliability of the financial information across the world. Therefore, despite the challenges which the IASB is facing currently in its implementation, there is a future prospects for its effective harmonization over time.

Conclusion

In conclusion, it can be evident that the adoption of the IFRS in Australia, European and other adopters have boost the quality of the corporate reporting. For instance, it have enabled the entities to experience less earning management problems, more value relevance of earnings, and more timely loss recognition. However, US failed to adopt IFRS standards due to its expensive in nature, does not enhance comparability, lacks superiority over US GAAP, there was lack of motivation to do so and due to the myriads of challenges which it faces during its implementations. Besides, the key challenges which the implementation of the IASB are linked to the difference in the mental models, cultural issues, legal impediments, political influences and educational needs. However, despite the challenges which it faces in its formation, implementation and governance, there is hope that in a near future, the IASB will achieve its goals to achieve its set objectives either in the short or long term basis.

References

Ali.S.H. (2017). Why is the United States/Canada not adopting IFRS and are continuing with GAAP whereas most of the other countries are moving to IFRS? https://www.quora.com/Why-is-the-United-States-Canada-not-adopting-IFRS-and-are-continuing-with-GAAP-whereas-most-of-the-other-countries-are-moving-to-IFRS
Felski, E. 2017. How does local adoption of IFRS for those countries that modiﬁed IFRS by design, impair comparability with countries that have not adapted IFRS? Journal of International Accounting Research, Vol. 16, No. 3, pp. 59-90. https://aaapubs.org/doi/abs/10.2308/jiar-51807?journalCode=jiar
Gupta V.K.,& Patro A.(2012). Adoption of International Financial Reporting Standards (IFRS) in Accounting Curriculum in India-An Empirical Study https://www.sciencedirect.com/science/article/pii/S2212567112000834
Li.X.(2017). Harmonising accounting standards across the globe: Ten years after the EU adopted the IFRS, researchers review the evidence of its effects on firms and markets. https://blogs.lse.ac.uk/businessreview/2017/04/05/harmonising-accounting-standards-across-the-globe/
Michael S.(2017). IFRS and GAAP Convergence: Why the US Resists International Reporting Standards
Ogiedu K.O.,& Odia J.O.(2013). IFRS Adoption : Issues, Challenges and Lessons for Nigeria and other Adopters https://www.researchgate.net/publication/274582510_IFRS_Adoption_Issues_Challenges_and_Lessons_for_Nigeria_and_other_Adopters
Pramanik A.K., Das B.,& Shil N.K.(2009). Harmonization of Accounting Standards through Internationalization. International Business Research. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.659.4546&rep=rep1&type=pdf
Wong.P.(2004). Challenges and Successes in Implementing International Standards: Achieving Convergence to IFRS And ISAS http://www.cimaglobal.com/Documents/ImportedDocuments/ifac_report_challengesuccess_111004.pdf
Zeff.S.A. (2011). The Evolution of the IASC into the IASB, and the Challenges it Faces. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1975479
Zeff.S.A.,& Camfferman.K.(2018). The Challenge of Setting Standards for a Worldwide Constituency: Research Implications from the IASB’s Early History. European Accounting Review. https://www.tandfonline.com/doi/pdf/10.1080/09638180.2017.1296780?needAccess=true

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The Adoption Of The IFRS In Accounting In European Union, Australia And The Rest Of The World

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