1. Does the adoption of IFRS by different countries necessarily mean that the accounting procedures and practices they adopt will be consistent and comparable internationally?
2. After considering the Hofstede-Gray model, briefly explain the hypothesised link between society values, accounting values and accounting practice.
3. It is often argued that the accounting standards of the FASB are rule-based, whereas the accounting standards issued by the IASB are principles-based. Rules-based standards by their nature can be quite complex, particularly if they seek to cover as many situations as possible. Do you think it would be easier to circumvent the requirements of rules-based or principles-based accounting standards?
1. The main purpose of adopting IFRS is to ensure that there is consistency in the treatment of financial reporting framework which is followed by businesses. Before, the introduction of IFRS system there was significant differences in accounting treatment which was followed by different countries (Horton, Serafeim & Serafeim, 2013). In order to bring about consistency and harmonization in the financial treatments and disclosure around the world, IFRS has been introduced. In addition to this, the adoption of IFRS in a country would not only allow consistency in the financial treatments of transactions but also can be used for the purpose of making comparison between the financial data of a business.
2. The main consideration which is stated in the Hofstede-Gray model connects the society values, accounting values and accounting practices. Society values effectively represent certain chain of values which can affect the behaviour of individuals. The accounting values are set of principles which can be considered to be a part of the subculture. As per Gray, the identification of the values at societal level are linked to the values of subcultural level. The accounting practices of a country should be formulated in such a way that the same can bring about consistency in the practices of the businesses.
3. The rule-based accounting standards are set to be more specific and the same also established certain treatments in accounting. In cases, such rules were not present, the accountants would not be able to effectively treat accounting transactions (Brochet, Jagolinzer & Riedl, 2013). In addition to this, the rule-based accounting standards are known to be more complex in nature. On the other hand, principle-based accounting standards allow better practical application and allowed simple treatment. The only problem which is associated with Principle-based accounting standards is that there are no set guidelines for the sane and therefore manipulation in the same is common. On the basis of the features of both types of accounting standards, it can be said that rule-based accounting standards are easier to circumvent than principle-based accounting standards.
The author of the journal states that the implementation of IFRS is not will be effective which may be due to influence of local and political influence on the financial reporting framework of a business. The author also stresses than an efficient mechanism would be required so as to effectively implement the IFRS standards in a business. The argument of the author is correct as proper authority is required for effective reporting and monitoring of the accounting standards.
Brochet, F., Jagolinzer, A. D., & Riedl, E. J. (2013). Mandatory IFRS adoption and financial statement comparability. Contemporary Accounting Research, 30(4), 1373-1400.
Horton, J., Serafeim, G., & Serafeim, I. (2013). Does mandatory IFRS adoption improve the information environment?. Contemporary accounting research, 30(1), 388-423.