ACCT4010 Essay: Advanced Financial Accounting I.

There are various standards and processes that are used in the current world and these processes are useful for proper maintenance and functioning of the organizations that existent. This research study tries to elaborate the significance of IFRS (International Financial Reporting Standard) and their pros and cons that are existent for an investor. IFRS has been in the forefront in the current agenda as the organizations that are listed are required to disclose their financial statements in accordance the standards of accounting put forth by IFRS (Doukakis et al., 2017). The International Financial Reporting Standard provides assisting standards for the developing countries that would be helpful in increasing the economic revenues by disclosing the fair and true position of the economy. This research paper comprises of the precise discussion of International Financial Reporting Standard and the pros and cons that are associated for the investors. The financial reports that are constructed by the companies are seen by the investors relying on IFRS but have not been able to experience the full scale of the adjustments for a yearly basis that might be triggered by the IFRS (Rhee et al., 2016).  It is essential to explain the pros and cons that is available to the investors so that the investors gain knowledge about the same and take extensive measures that would be beneficial for the investors with respect to their investments.

The initial section of the paper tries to explain the principles of International Financial Reporting Standard so that a brief idea about the standard can be attained. The next section of the paper tries to assess the pros and cons for the investors with respect to IFRS when it is implemented by various countries. The pros and cons are different and depend upon by the various external factors that are existent in various countries. The various councils that looks in to these standards, constructs the strategy for the compliance of these standards with the ones that existent to the regulations and laws and even assesses the standards when incorporated (Santana et al., 2014).

There are various importance and benefits of IFRS that is inclusive of comparative assessment of the true and fair statements, precise resource allocation, confidence of the investors etc. These are certain pros that can assist the investors in understanding their investments and in the same manner undertake investments in a precise manner (Barbu et al., 2014). The paper even tries to explain the obstacles and the cons that the investors can face and therefore specific assessments can be taken in order to understand the same about the topic.  

The answering of these issues is vital as it would be helpful in discovering the pros and cons that are existent in IFRS for the investors and thereby helping the companies and the investors to gain knowledge about the same and construct their strategies in an effective manner.

The research questions have been constructed in order to have an idea about the International Financial Reporting Standard and the companies that have been incorporating the same. The research question is helpful in constructing the course and the path that would be followed in order to complete the research in an effective manner. The research questions consist of the issue that is needed to be answered by the paper. The research questions are given as follows:

Q1. What are the various factors that can have an impact on IFRS and in that manner can have an impact on the investors?

Q2. What are the benefits and the hurdles that are associated with IFRS to the investors?

IFRS (International Financial Reporting Standards) is set of the standards that are created by IASB. Earlier the standards were known as the IAS (International Accounting Standards) and were in use between the years 1973 and 2001. However, later it came to known as IASB and in that way the new system created. On the basis of IFRS, the complete financial statement shall include the income statement, balance sheet and the cash flow statement of the company. It shall further include the changes in equity if the company (Ahmed, Chalmers & Khlif, 2013). Data related to these are crucial in the process of decision making of the investors as well as the management. Financial statement is key component for the potential investors for taking the decisions regarding whether the company is feasible to make investment or not. However, the policies of the entity also play crucial role in taking any decisions regarding the accounting statement.  

The accounting standard is shaped by the political and economic forces and it follows the worldwide integration of the politics and markets that is generally driven by the reduction in the costs associated with information processing and communications. It makes the integration of financial reporting practice and standards nearly inevitable (Barth et al., 2012). However, most of the political and market forces may remain local for foreseeable future, therefore, it is not clear that how much convergence with regard to the practice in the actual financial reporting will take place. Moreover, very little evidence or theory is there based on which the assessment of disadvantages and advantages of the rules associated with the uniform accounting within the country or internationally. Therefore the pros or cons of IFS for the investors are hypothetical in some context. Adoption of IFRS at international level, in the present years is frequently discussed and analyzed under the accounting field which in turn generates the interests among the scholars, professionals, investors and the other users of the financial information (Škoda & Bilka, 2012).

If the pros of adopting the IFRS are considered with regard to the investors, it can be said that the IFRS delivers the information with more details as compared to the GAAP. Further, it is easy and simple to use and it delivers the reporting with more detailed approach. IFRS is flexible and it allows choosing the course of conduct and also offers for giving the fair view with regard to the financial position of the company. Further, the IFRS allows any company to adapt the changes with regard to the business environment in better way as they do not have many guidelines. This approach influences usages of the professional judgements which in turn enable the financial statements to be more transparent with flexible interpreting; straightforward thinking and the standards of the reporting are produced as per the expectation. Based on the judgement of IFRS supporters, business decisions are generally relied on the professional judgements and not rely on the rules. Therefore, if any company fails on disclosing the professional judgements with regard to the financial statements, it can be misleading to the investors.

The single set of the accounting standards will definitely provide comparability and will enable the companies for different countries for applying same standards. It will improve the transparency and allow cross-border investment along with lower capital cost and greater liquidity. Further, it will cut down costs and time for preparing the financial statements as per various standards, regulations and will result into great savings with regard to long-term capital. Using the uniform standards of accounting and and adopting the IFRS will eliminate the expected different outcome of accounting from the application of various standards if US does not move toward or adopt IFRS. Further, maintenance of multiple standards for reporting purpose will increase the auditing and accounting costs and will deliver no value to any nation. More than 100 nations have already adopted or under the process for adopting the IFRS. Delays for adoption of IFRS by US will force the multi-national organizations to prepare their primary reports applying IFRS that will result into parallel reports in the US GAAP. It is estimated that there will requirement of huge investment for the transition to the IFRS, however, the expenses will be one time investment as the financial reports will be reduced from 3 to 1 which in turn will save money in the long term period (Christensen, 2012).

Recognition of the loss immediately is the crucial factor of the IFRS as it is beneficial to the investors as well as to the stakeholders and lenders of the company. Further, the improvements in transparency and the recognition of loss for IFRS, generally enhances the efficiency with regard to the contracts among the organizations and management which in turn also improves corporate governance (Cherry & Schwartz, 2013). With the improvements in the transparency, the lenders also become beneficial as it make the recognition of the loss immediately as compulsory. Further, the recognition of timelier loss in IFRS identifies the issues associated with the economic losses and that will be known to the shareholders and other potential investors. The recognition of timelier loss will also enable the company to review the book values of the equities, earnings, liabilities and assets.

Convergence to the IFRS will improve comparability of the financial statement for the companies all over the world. If all the organizations prepare and report their consolidated financial statements under the one standard for reporting, it will improve comparability for the investors as well as the shareholders who generally use the financial statements for making various decisions. Owing to strong national identity of the IFRS reports, the IFRS mainly have an impact on the how the companies identify, disclose and measure the items. Further, as most of the companies already adopted the IFRS, it will minimize the alterations from the earlier national standards which in turn will increase the ability of comparing the financial statements all over the industries in the same sector (Marulkar, 2013).

If the cons of adopting IFRS with regard to the investors are considered, it is recognized that the most crucial disadvantage of convergence to IFRS is the involvement of cost that is associated with the application of IFRS by the multinational entities that includes altering of internal systems for making it more compatible with new standards for reporting and the costs associated with training. Further the issues associated with regulation of IFRS in all the countries will not be possible owing to various reasons that is beyond the control of IASC or IASB as they are not able to enforce IFRS application for all the countries all over the world.

Irrespective of the size, all the businesses feel that it will greatly impact them if they adopt the IFRS. However, the small entities will not have enough resources for implementing the changes associated with IFRS and will require trained staff or consultants or accountants for assistance (Dvo?áková, 2013). Therefore, they will have to bear more burdens in financial terms as compared to the big companies.

As any business can use only that method they wish to, it will lead to revealing the desired results in the financial statements which in turn will lead to manipulation of profit. As the new set of the standards needs the changes with regard to the ways in which the rules are supposed to be applied to make it justifiable, chances are there that the businesses will come up with various reasons for adopting the changes (Jiao et al., 2012). That is to say those more strict rules will be implemented for assuring that all the companies will value the statements in similar manner.

As US has not yet adopted IFRS, various other countries in the same way is chosen to continue with the old standards. This means to say that the accounting system by foreign companies dealing in these countries that have not adopted IFRS will have to face difficulties as they have to prepare the financial statement using both the systems.

It is concluded from the above discussion that the application of IFRS helps the small or new investors through making the standards of reporting better and simpler as it puts the new and small investor in same position along with other professional investors in same position. However, it is disadvantageous to the investors as IFRS is still not accepted globally and the financial statements are prone to manipulation by the management.

Research methodology is determined by researcher and it is their decision to pick up instruments with the objective of collecting data and evaluating it on reasonable basis. The current paper is prepared to understand the impact of International financial reporting standards on selected companies of three countries that is Germany, United Kingdom and Switzerland. In the present study, researcher has tried to understand the advantages and disadvantages of implementation of IFRS on shareholders and investors of respective organizations. This has been done by examining the financial report of selected companies by the implementation of such standard.

Selection of data is considered as utmost important requirement for ensuring that research paper have been completed. This is so because data forming the part of sample would lead to possible proposition for attaining the targeted results. In this research paper, researcher is making use of secondary data that are collected from variety of secondary sources. Sampling is the procedures of collecting sub group or individual from large number of individuals in study. Researcher has made use of statistical techniques of probability sampling for selecting companies from United Kingdom, Germany and Switzerland. Collection of specific results would be influenced by this process and it is considered desirable by researcher. With respect to the topic concerning under this study, researcher has selected 150 respondents from a large pool of respondents of the selected countries. The financial reports of selected respondents from year 2006-2016 have been analysed and evaluated with regard to various aspects of implementing the international standard. Considering reports for considerable period of time would provide researcher with detailed examination of applicability of standard.

The sample comprise of financial reports of selected companies from three different countries for the period of ten years. Financial reports of selected respondents have been taken from year 2006 to year 2016. These financial reports are prepared by companies either on annual basis or quarterly basis. Researcher has evaluated data with the help of investigative method that helps in generation of knowledge about the various impacts of IFRS implementation.

Model selection is about the approach used by research while doing study and it is regarded as vital factor in meeting up objectives of research for completing research in accordance with problem statement. In order to develop accurate results, researcher is compelled by employing approach or model to look for each progression so that demanded operations are undertaken. There are two models used in conducting research that involves deductive research and inductive research (Hellman et al., 2015). It has been viewed that deductive approach is about reviewing of models and discovering ideas from using various sources. This would help in analysing the impact of research work by analysing collected data. Using this approach, researcher develops a set of hypothesis at the beginning of research and during process of research, such developed hypothesis are subjected to research.

Since the present research is concentrating on analysing the impacts of IFRS by different countries on their respective investors, employment of deductive approach by researcher has been considered suitable for completing and managing then investigation. Selection of approach has been due to the fact that quantitative method of evaluation is used by researcher for completing research objective. Attempting of quantitative method has been done by researcher by dissection of responses that are received from respondents for collecting section of data analysis (Barth, 2015).

Selection of variable is employed in section of research design that provides researcher with planning so that they are able to achieve particular set of research objectives. Researcher is influenced by selected of variable by relying on highlighted outcomes so that functioning of paper would be done in accordance with established goals of research work. There are three ways of selecting variables explanatory research design, exploratory research design and descriptive research design (Biddle et al., 2016). Under the present study, researcher has employed descriptive research deign for identification of variables. The overall research has been directed by relating to descriptive research design. Since, research has selected large number of samples under present study and conducting quantitative experimentation, it is useful to employ descriptive research design. Some of the variables that has been selecting for determining the impact of implementation of IFRS include earning management, capital structure, growth, profitability and taxation. When a number of variables are employed and analysis has to be done using multiple variables, descriptive research is unique approach (Leuz&Wysocki, 2016). Furthermore, it also helps in analysing comparison between several identified variables. In this regard, researcher can compare data of various identified variables as derived from financial reports of several companies of different countries.

The study examines and puts forward the results concerning the rising or the comparative effect of the IFRS on the earnings of the investors in respect of the several countries reporting milieu. The analysis makes it probable to globally contrast on whether the IFRS helps in lowering the returns of the investors or improving the earnings of the investors in explaining the role of the nation specific institutional influences in providing the explanation of the superiority of the reporting along with the principles of reporting.

Correspondingly Brüggemann et al., (2013) set out a preference and overall conviction that IFRS reducing the earnings. Without specifying the results for individual jurisdiction it has been found that IFRS has resulted in the reduction in the degree of return management across 21 nations and hence improved the quality of the earnings. However, a contradictory result is reported by the researchers that have assessed the inspected the effect of the IFRS application on the returns of the investors by using the sample of 150 financial reports for German, Swiss and UK companies.

The results have suggested that earnings of the investors have increased with the application of the IFRS (Li et al., 2017). The analysis associated with the incentive of the investors impacting on the earnings and with increased subjectivity. The results derived from the data suggest that IFRS is considered to be flexible and enable sustainable use of administration discretion which is more likely to increase the operation of accounting.

By using the example of the listed businesses from the three nations arises with three different results of the earnings for the investors following the adoption of the IFRS in German, Swiss and UK companies (Horton et al., 2013). The results derived affirmed from the findings states that lower, higher and moderate level of earnings for the investors following the adoption of IFRS. The differences obtained in the official environment and implementation machinery might lead in changing degree of incomes in the listed companies across the companies.

Equally, on investigating the impact of adopting IFRS on the quality of accounting for the selected three countries around the world protection of the investors forms the vital elements (DeFond et al., 2014). The result derived stated that adoption of the IFRS does not result in increased earnings quality for the investors through reduced return administration however it is dependent on the other aspects such as protection of the investors. The results obtained states the fact that the quality of the earnings improves on adopting the IFRS countries with stronger protection for investors.

Of late the analysis is concerned with the examination of the IFRS on the earnings of the investors both pre and post adoption of the IFRS by using the financial report of the sample EU countries. The result derived from the financial report suggested a mixed conclusion where nations demonstrated reduced earnings for the investors while others have represented increased earnings for the investors (Christensen et al., 2015). The result is conflicting to the IASB anticipation that IFRS enhances the superiority of the reporting however it heaves an example based on the role of the dysfunctional lawful and institutional quality of reporting environment.

In another empirical study, it has been examined that the earnings of the investors in public listed companies inside the Switzerland. The results derived suggested that companies that have opted for the IFRS administered returns to lower the degree that the companies opting for domestic accounting standards (Chen et al., 2014). To be more precisely the study discloses that lower return for the investors in companies that have adopted IFRS in comparison to the companies applying local GAAP.

Nevertheless, global comparative study performed on the IFRS has represented the impact on the earnings of the investors by noticing that the earnings of the investors have declined recently following the acceptance of the IFRS in countries such as Switzerland. The reading accounts that nations with strong implementations have comparatively less return administration. This introduces the emphasis on the quality and efficiency of the IFRS enforcement in the mechanism plays an vital role in enhancing the quality of the reporting.

The study from the empirical evidences has suggested from the international studies presented in this section stated a varied assumption. Countries such as UK and Germany have reported that IFRS have improved earnings quality for the investors through reduced earnings management than the local reporting GAAP (Doukakis, 2014). Fascinatingly mixed results are obtained from the analysis using the same method in the diverse countries throughout the same period. The results obtained provided that some nations have reported a reduced earnings for the investors while some nations have reported a higher earnings for nations that have adopted IFRS while few found no impact on post adoption of the IFRS.

The results can be related with the fact that reporting regime is not considered as the only determinant of the excellence of reporting evidence. It additionally appraises the part of the other elements that helps in determining the superiority of the reporting namely operative and robust official reporting implementation equipment and protection of shareholders (Beneish et al., 2015). The analysis validates the differences between the legal and the institutional implementation mechanism the results in divergence and inconsistent implementation of the IFRS along with the uneven implementation mechanism in security market. As a matter of fact IFRS cannot be considered as the prima facia factor and could not alone sufficiently provide an explanation of the quality of the accounting information for the investors.

IFRS has been observed to be one of the most accepted standards of the world that produces fair and true financial statements that consists of the principles that are adequate for maintaining the financial statements updated and proportional for the assessment in various companies and nations. The paper has looked to highlight the pros and cons for the investors with respect to IFRS and the assessment of the data that has been collected from various resources explains that incorporation of IFRS has mostly been beneficial for the investors. IFRS has been found to be assisting the investors for the development of comparative attribute, allocation of the resources, development of investments, enhanced financial statements, classified portfolios and cost effective processes as it provides policies and regulations with respect to the status of the entities.

The paper has even highlighted that there are distinct hurdles as this standard in certain cases contradicts with the existing regulations, variation in the process of recording the financial transactions, difference in the distribution of the dividend policies and the issues associated with the mutual funds. There have been additional hurdles that are existent while implementing the same in SME and hence the investors have been able to understand the issues and undertake their investments in an effective manner. There have been various countries that have incorporated this standard and they have been able to understand the issues related to the investors and constructed policies that can safeguard the desires of the investors. Various countries like UK, Germany and Switzerland has been making use of this standard and USA has recently incorporated this standard and therefore has been facing issues that has been having an impact on the investors. This paper has even discovered that IFRS is not the only factor that affects the investment strategies of the shareholders but there are various external and internal factors that the investors has to look into in order to safeguard their investments. It can be concluded that IFRS has a mixed effect on the investors as IFRS in certain countries does not have any effect on the investors and hence IFRS can be implemented in various countries as the benefits are more precise than the cons.

It is therefore recommended that extensive researches are undertaken on a frequent basis in order to understand the changes that are taking place in the IFRS standards and hence the investors can construct their strategies accordingly. The investors should even understand the various factors that have an impact on the IFRS standard within various countries so that the investors can process their investment in an effective manner.

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