Individual Coursework Assignment Sample
Introduction
When it comes to whether or whether the adoption of International Financial Reporting Standards (IFRS) is a positive step forward for the financial reporting sector, there is some controversy. By making accounting information more available, proponents of the International Financial Reporting Standards (IFRS) claim that the standard improves both the comparability of financial statements and the accessibility of accounting information. Because of the International Financial Reporting Rules (IFRS), which are a set of accounting standards that have been in place since 2022, it has been required for all publicly listed corporations in the European Union (EU) to comply with them since 2022. (IFRS).
Part 1
FIRST ADOPTION OF IFRS
International Financial reporting standard (IFRS) Was issued on June 19 2003 with an effective date of January 1 2004. IFRS 1 First- time Adoption of international financial reporting standard sets out the procedures an entity needs to follow if it adopts IFRSs For the first time as the basis for preparing its financial statements.
DIFFERENCES BETWEEN THE LOCAL ACCOUNTING REQUIREMENTS I.E. GAAP AND IFRS
GAAP (US Generally Accepted Accounting Principles) are used for accounting as accounting standards in the US. GAAP is a more rules based system of accounting where as IFRS is more principle based.
Following are the difference between GAAP and IFRSAccounting framework:
- Stands for
GAAP: Generally Accepted Accounting Principles
IFRS: International Financial Reporting Standards
- Meaning
GAAP: This are the standard guidelines and structures provided for financial accounting
IFRS: it is a universal financial reporting method which enable International businesses to understand the working of one another and helps to work together
- Countries in which used
GAAP: this accounting standard is used in United States
IFRS: these standards are are used by over 110 countries including the European Union
- Performance between the two
GAAP:It includes revenue or expenses, asset or liabilities, gains losses and comprehensive income
IFRS: it includes revenue or expenses, Assets or liabilities
- Documents that are required for financial statement
GAAP: documents that are required are Balance sheet, income statement, statement of comprehensive income, changes in equity, cash flow statement, footnotes
IFRS: Documents that are required for ifrs are balance sheet, income statement, changes in equity, e cash flow statement, footnotes
- Process of inventory estimates
GAAP:Last-in, first out; first in, first out; or weighted average cost
IFRS: first in first out or weighted average cost
- Purpose of the framework
GAAP: Company management is not expressly required to considered a mark in the absence of a standard or Interpretation for an issue
IFRS: Here company management is expressly required to consider the framework let down in case of absence of standard or Interpretation for an issue
There are a number of countries that have implemented laws making it a compulsory for citizens under certain conditions. These countries include Australia, Canada, Brazil, and Korea, among others. However, according to the Tokyo Stock Exchange, the Shanghai Stock Exchange may choose to use accounting standards that are based on the International Financial Reporting Standards (IFRS) as a foundation for their financial reporting, whereas the Tokyo Stock Exchange may choose to use accounting standards that are not (IFRS). The adoption of the International Financial Reporting Standards (IFRS) may become mandatory in Japan and India starting in the first quarter of next year, with implementation likely to commence in the second quarter. It has been many years since the United States’ Securities and Exchange Commission (SEC) has been an outspoken advocate for the adoption of worldwide norms in the financial industry, notably in the United Kingdom.
Part 2
While there is general acceptance for the concept on a global scale, there is strong opposition to the present attempt to standardise accounting practises over the whole globe. According to the American Accounting Association (AAA), for example, the Financial Accounting Standards Committee supports the notion of standards competition and believes that having a single global set of financial reporting standards would be detrimental to the accounting profession.
THE MAJOR GOAL OF THE INQUIRY IS TO FULFIL THE FOLLOWING OBJECTIVES:
Furthermore, the International Financial Reporting Standards (IFRS) continue to be the subject of heated debate among governments, academia, and end users regarding the economic repercussions of adopting them in the first place (IFRS). Several benefits of using financial statements have been revealed in recent research, including improved comparability and greater understanding by financial statement users, reduced dependence on private information, and cheaper capital expenditures. Another advantage of this method is that it results in increased cash flow and decreased capital expenditures. Standardizing accounting principles would increase comparability and information quality in many contexts, but it would not necessarily do so in all situations .The immediate repercussions of implementing International Financial Reporting Standards (IFRS) have therefore been less than crystal evident in the short run. Regulations and investors in countries where the International Financial Reporting Standards (IFRS) are being adopted or are about to be implemented are starting to have reservations about the standards’ universal adoption when it comes to the International Financial Reporting Standards (IFRS).
STATEMENT OF FINANCIAL POSITION AND INCOME STATEMENT
According to my research, the implementation of International Financial Reporting Standards (IFRS) would have a favourable influence on all organisations or will be too much for some of them. A significant debate point during the 2022 AFG (French Asset Management Association) and FFSA (French Federation of Insurance Companies) conferences in Paris focused on the issue of financial statement comparability. There is a significant disconnect, according to the findings of the interviews, between what proponents of the International Financial Reporting Standards (IFRS) advocate for in terms of comparability, and the extent to which financial statements prepared in accordance with the International Financial Reporting Standards (IFRS) are truly comparable to one another. 4
There has been a great deal of debate among US issuers regarding whether the adoption of International Financial Reporting Standards (IFRS) would be useful to businesses who only operate in their own country’s market. Jay Clayton, the Chairman of the Securities and Exchange Commission (SEC), has indicated that the SEC wants to implement the International Financial Reporting Standards (IFRS). A main rationale for implementing International Financial Reporting Standards (IFRS) throughout Europe was to make it easier to build a unified financial market, which was one of the primary reasons for doing so when the standards were first adopted. MiddleNext president Pascal Imbert believes that the International Financial Reporting Standards (IFRS) provide no benefits to medium-sized and small businesses (speaking 12 October 2011).
Currently, there is a market in which publicly listed companies think that the International Financial Reporting Standards (IFRS) are beneficial to their operations, as well as a market in which they believe the exact reverse is true. Also noteworthy is that it reveals that the European Union’s decision to continue with full implementation of the Single Market and Single Market Act may have had a negative impact on some publicly listed enterprises in the EU, which is relevant from a policy standpoint. A clear strategy for differentiating between which EU firms have gained from the new regulations and which corporations say they have not benefited from them does not seem to exist, and there is no evident way to discern between the two groups. On the other hand, there is a practical solution to this problem that can be implemented. In the case of countries where unlisted companies are permitted to use the International Financial Reporting Standards (IFRS), the analysis of voluntary adopters in those countries may, as proposed by this hypothesis, provide insight into a regulatory difficulty that authorities may face in the near future.
The fact that some voluntary adopters choose to voluntarily apply International Financial Reporting Standards (IFRS) while others do not suggests that “managers of voluntary adopters view IFRS as their preferred reporting strategy, whereas managers of others do not view it as such” (Drake et al. 2010), and adoption effects of IFRS may differ between voluntary and mandatory adopters (see Drake et al. 2010). (Drake et al. 2010). In 2021, Christensen and colleagues published a paper, and Paananen and Lin followed suit in 2021.
TRANSLATE THE STATEMENT OF FINANCIAL POSITION AND THE INCOME STATEMENT
Adoption and family exchange expenses are projected to grow excessively expensive in the future, making them unaffordable for people who want to adopt or swap families with other persons (Soderstrom and Sun 2022). Adoption or migration from one set of financial reporting standards to another is a decision made by organisations based on the costs and benefits of adopting or migrating from one set of standards to another. A convincing purpose and incentives for investing the money required to adopt or switch financial reporting standards are required for voluntary adoption to be effective. The features of organisations that have selected the International Financial Reporting Standards as their accounting and reporting framework are the only way to acquire a more comprehensive picture of the industry as a whole (IFRS).
When it comes to figuring out what factors influence whether or not businesses choose to comply with international accounting standards, the Swiss government undertook the first study of its type. It was published in the Journal of Accounting and Finance in the United Kingdom that these findings were made public (IFRS or IAS). A number of firms in Switzerland adopted the International Financial Reporting Standards (IFRS) in the 2020s as a consequence of voluntary adoption. Switzerland was one of many nations that at the time had a large number of corporations adopting the standards in question (IAS).
Part 3
Accounting Standards (IAS) in 2020, which was published in 2020. Research into the characteristics that impact a person’s proclivity to expose personal information to other parties resulted in the development of these standards of conduct. The results of the investigation into the factors that impact a person’s proclivity to reveal personal information to third parties led in the formulation of the following criteria . Raffournier’s findings prompted Dumontierto conduct their own investigation into whether or not the following factors influenced the willingness of Swiss listed companies to disclose their financial information: size, leverage, profitability, ownership structure, internationality, the size of the audit firm, the percentage of fixed assets, and the type of industry in which the company was engaged. Dumontier and Raffournier found that the following factors influenced the willingness of Swiss listed companies to disclose their financial information: size, leverage, profitability, As the author’s research has shown, the size and internationality of a corporation have a significant influence on the disclosure method used by that company. Smaller, more regionally oriented businesses, on the other hand, do not disclose as much information as large, internationally diversified businesses (Raffournier 2021). According to Dumontier and Raffournier in 2020, organisations that adhere to International Accounting Standards (IAS) are larger, more globally diversified, need less capital, and are more widely held than organisations that do not adhere to International Accounting Standards. According to the study, companies that adhere to International Accounting Standards are larger and more globally diverse than their counterparts, need less capital, and are more widely held. According to the findings of Raffournier (2021), political costs and external market considerations have a significant impact on the decision to adopt international accounting standards, as evidenced by the findings of this study. International accounting standards are a significant factor in the decision to adopt international accounting standards. During their research into the features of a firm in 2021, Murphy and his colleagues discovered that Dumontier and Raffourn (2020) as well as Raffourn (2021) had already conducted similar research (2020). On the other hand, people who work for companies that employ IAS have discovered that there is no statistically significant difference between those who use it and those who do not. As a result of her investigation, she concludes that the only difference between individuals who utilised the IAS and those who did not was the proportion of sales made to foreign custodians by each set of people.
IMPACT OF THE FIRST ADOPTION OF IFRS ON THE ENTITY’S FINANCIAL POSITION
Organizations with their headquarters in other countries are included in the research on the voluntary adoption of international standards by businesses in other countries, which means that organisations with their headquarters in other countries are also included in the research on the voluntary adoption of international standards by businesses elsewhere. El-Gazzar and colleagues investigated whether multinational firms were complying with International Accounting Standards between 2021 and 2020 in a research done between the years 2021 and 2020. (IAS). The researchers also observed, among other things, that geographic location and trade bloc participation (for example, EU membership) were both significantly associated with voluntary adoption of IAS. Other factors that were found to be associated with voluntary adoption of IAS included listing status, internationality, and leverage. A recent study discovered that businesses who want to increase their international exposure, improve consumer recognition, obtain foreign financing, or reduce the political risks associated with doing business in foreign countries should consider voluntary adoption of International Financial Reporting Standards (IAS) (El-Gazzar et al. 2020). It was proclaimed triumph by El-Gazzar and colleagues (2020) after discovering a statistically significant positive association between the degree to which a corporation complies to International Accounting Standards and its location in a European Union member country. In 2020, when Street and Gray established a statistically significant negative association between the two variables, they proclaimed triumph (2020). However, despite the fact that Street and Gray (2020) do not investigate the reasons for or the characteristics of organisations that choose to adhere to International Accounting Standards (IAS), they do examine the degree of compliance with IAS and the factors associated with it for companies that have already adopted International Accounting Standards.
The authors employ previously conducted research in order to examine 11 firm characteristics (including the company’s status as a publicly traded company, the size of its revenue, the profitability of its business, the size of its industry, the manner in which it refers to International Accounting Standards in the footnote of its financial reporting policies, the background of its auditor, the size of its home stock market, and the size of its home stock market) in order to determine whether or not the company should be classified as a publically traded company. According to the conclusions of the research, the listing status, the Big 5 + 2 audit, the kind of reference to IAS, and the country of domicile all have a significant impact on the degree of noncompliance with IAS disclosures, especially when it comes to the listing status. Other findings include: If you want to be assured that your financial statements are in accordance with globally recognised accounting standards, you can only have them audited by one of the Big 5 + 2 accounting companies. Compliance with international accounting standards is made more difficult by national impediments that can be found throughout the European Union, primarily in France and Germany, but also in other countries, such as the United States, which make it difficult to comply with international accounting standards. Companies with headquarters in Switzerland and China tend to have greater levels of compliance when compared to organisations with headquarters in the United States. I am intrigued by the possibility that this is due to the huge difference in requirements between worldwide accounting standards and the low-required local standards in certain nations.
Many research have been undertaken to investigate why non-US companies choose to publish their financial results using non-local GAAP (such as International Accounting Standards or U.S. GAAP) rather than local GAAP when reporting their financial performance when reporting their financial performance. The choice between US GAAP and International Accounting Standards, according to Tarca (2021), is influenced by the location of the company’s headquarters.
Based on data from a sample of publicly traded companies in the United Kingdom in 2020 and 2000, she came to the conclusion that companies with a larger global presence, more revenue from international operations, and/or listings on multiple international stock exchanges are more likely than smaller companies to comply with international standards. Also of note is that the implementation of US GAAP and International Accounting Standards (IAS) may differ from one organisation to the next, depending on how the organisation in question is structured. General accepted accounting principles (GAAP) were the most widely used accounting system until many German and Japanese corporations adopted the International Accounting Standards (IAS), which became the most widely used accounting system after the adoption of the International Accounting Standards (IAS) (IAS). Although publicly traded firms, such as those listed on the New York Stock Exchange and the Nasdaq, choose to utilise US GAAP as their accounting standards, companies that trade on the over-the-counter market (OTC) prefer to use Global Accounting Standards (GAAS) (IAS). According to the poll’s findings, the degree to which corporate characteristics are valued in each nation, as well as the criteria used to evaluate them, vary substantially from one another. study to the same degree that Tarca (2022) did research. According to the findings of the study, while the adoption of non-local GAAP by publicly traded EU firms was relatively low in 2020, this means that only a small percentage of publicly traded EU corporations anticipate that they will benefit from the adoption of non-local GAAP in the foreseeable future, based on the findings of the study The findings of the researchers show that voluntary adopters outperform non-voluntary adopters in several ways, including having a higher market capitalization, being listed on the New York Stock Exchange or the European Alternative Stock Exchange (EASDAQ), having a broader geographic spread, and being headquartered in countries with lower quality financial reporting and where International Accounting Standards (IAS) are explicitly permitted as an alternative to local GAAP. As a result of their research, they observed that the use of non-local GAAP did not seem to be associated with any component of a company’s corporate governance, including the quality of the financial reporting that was produced.
A further point of interest is the topic of whether organisations that adhere to International Accounting Standards (IAS) or United States GAAP benefit from reduced information asymmetry. According to the data, analysts and investors appear to have a greater understanding of firms that use International Accounting Standards (IAS) or United States GAAP when compared to firms that use International Accounting Standards (IAS) or United States GAAP (prediction accuracy and stock return volatility). The new financial reporting requirements are expected to be adopted gradually by analysts and investors, but management’s motivation to disclose will have a substantial influence on the quality of financial reporting information in the future, even if it takes some time to become acclimated to them (Ball et al. 2021). Using the requirements for performance assessment, Wu and Zhang (2021) investigate how non-US enterprises can benefit from the adoption of International Financial Reporting Standards (IFRS)/United States GAAP by examining factors such as the need to review tightly held shares and labour productivity, among other things. Between 1988 and 2021, researchers conducted a study on a large sample of European firms, and they discovered a statistically significant positive relationship between the adoption of International Financial Reporting Standards/United States GAAP and the number of tightly held shares in the companies, as well as the level of labour productivity in the companies.
REQUIREMENTS OF IFRS 1
The factors that influence whether or not a company decides to adopt or transition to International Accounting Standards Board worldwide financial reporting standards, depending on the company’s location or whether or not it is listed on a specific stock market, have been the subject of several studies conducted in recent years. The Journal of Accounting Research has published the most current results of this research. Based on a research done between 2020 and 2021 by Gassen and Sellhorn (2021), German firms who voluntarily embraced the International Financial Reporting Standards (IFRS) were found to be more efficient and effective than their peers. It has been shown that German companies in the United States that are younger, larger, and publicly traded are more likely to adopt International Financial Reporting Standards (IFRS) (IFRS). These businesses are also more likely to have a more widely spread ownership structure, as well as to generate a greater proportion of their revenue from sources outside of the country, than other types of businesses. A company’s profitability may be measured by looking at the quality of profits gained by voluntary adopters, as well as the degree to which information asymmetry exists between voluntary adopters and nonvoluntary nonadopters. They discovered that, when compared to other forms of earnings, profits earned by IFRS firms are of higher quality, with more consistent and predictable results over time, as opposed to other types of earnings.
A firm’s ownership structure, according to Guenther and colleagues (2021a), may have an influence on the company’s decision to voluntarily adopt International Financial Reporting Standards (IFRS). The highly concentrated ownership structures in Germany may lead controlling shareholders to conclude that the advantages of adopting the International Financial Reporting Standards (IFRS) exceed the expenses involved with implementation and transitioning to the new accounting standards. Given the vast number of German enterprises that depend on debt or internal financing, it is possible that a creditor-oriented accounting system and increased consumer access to corporate information are in the best interests of German banks (either through loan contracts or via their position as insiders). Aside from that, foreign investors are expected to favour International Financial Reporting Standards (IFRS) due to the fact that adoption of an international accounting standard may lower information processing costs, thereby decreasing the home bias that occurs in certain countries, according to the predictions. When 543 German companies were investigated between 2020 and 2021, it was determined that ownership concentration and bank ownership had a detrimental effect on the country’s voluntary adoption of International Financial Reporting Standards (IFRS) (IFRS). Consider this: it has been established that foreign ownership is a significant contributor to the delays experienced by companies implementing International Financial Reporting Standards (IFRS) (IFRS). This most certainly has something to do with foreign investors having a great interest in German firms and hence want to establish a confidential relationship with them. ..
Francis et al. (2021) discovered that there were incentives to minimise information asymmetry at both the business and national levels after completing an investigation of small and medium-sized private enterprises. This finding was statistically significant, according to the authors.
Institutional components at the national and international levels, in addition to the reporting environment, have an influence on the adoption of International Accounting Standards. The acceptability of International Accounting Standards is influenced by institutional components at both the national and international levels.
The adoption of international accounting standards is frequently influenced more by developed countries than by developing countries, despite the fact that economic incentives continue to play an important role in determining the extent to which international accounting standards are recognised in developing countries.
When it comes to financial reporting, private companies in Germany rely on the International Financial Reporting Requirements (IFRS) rather than local standards. What is the reason behind this? Bassemir presents a solution to this question across his body of work (2011). According to the author, when it comes to corporate ownership structure, the kind of controlling shareholders is more essential than the degree of ownership concentration. He feels that this is required in order to make informed decisions about a company’s future. When there is a misalignment of information between management and private equity sponsors, the establishment of international financial reporting standards by private equity organisations becomes critical.. On the basis of the fact that English-speaking investors prefer international financial reporting standards (IFRS)-based accounting figures over local GAAP-based accounting figures, he predicts that incentives will be created in the near future in order to promote the adoption of IFRS-based accounting figures (p. 14).
Conclusion
His results raise the possibility that the legal form of a private organisation will have an important influence on the choice of whether or not a business would adopt International Financial Reporting Standards (“IFRS”) as a consequence of his findings (International Financial Reporting Standards). Based on an empirical study of 3150 German private organisations conducted between 2020 and 2021, the author concludes that private companies that use the International Financial Reporting Standards (IFRS) are more likely than other private companies to be characterised by private equity participation than other private companies. To address the issue of capitalization, the author points out that privately held German businesses have historically resorted to bank loans and other forms of debt finance to get by.
References
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