Question

Discuss the relevance of the EURO to international accounting for Australia.

Answer 1

The fact that this process of global convergence in accounting standards has involved IFRS rather than US GAAP has taken many observers by surprise. Given America’s dominance of financial markets during the 1990s, it was commonly believed that international accounting around the world would converge to US standards. For example, in the second half of the 1990s, Canada decided to harmonize its financial reporting standards with those of the United States. Two phenomena worked together to weaken the case of the international convergence in accounting standards towards US GAAP. There are currently close to 100 countries that have adopted or are officially committed to adopting the IASB’s international financial reporting standards (IFRS) for the preparation and reporting of financial statements This list   includes Australia among others

The Rationale for Harmonizing Accounting Standards Globally We now live in an era where financial capital is globalized. Investors face few barriers to putting their money where they prefer in order to diversify risks and maximize returns. For their part, firms can tap this capital pretty much anywhere in the world. This translates into an ever increasing number of cross-border mergers and acquisitions. It also means that many foreign firms decide to list their shares on Nasdaq or the New York Stock Exchange (NYSE) in order to raise money from US investors. Alternatively, US firms sell euro-denominated corporate bonds to Europeans in London. The upshot of this globalization of financial capital for large and, increasingly, for medium-sized firms is that their investor base is becoming ever more international.

The victory of the Europe Union in its efforts to set the pace of global convergence on international financial reporting standards was only partial. The EU succeeded in ensuring that convergence would focus on international standards.

With a more specific view on Australia and trade with europe (EURO), the quality and comparability of Australian financial reporting has improved in the decade since local adoption of international reporting standards (IFRS), While the benefits associated with the ability of firms to evaluate foreign company financial statements, and the perceived quality of financial statements and uncertainty and confusion amongst foreign financial statement users were some of the most significant benefits of IFRS adoption, there actually has been no overwhelming support in favour of the relative of these benefits.

IFRS adoption had involved considerable cost for their firms and very few identifying any significant benefits, not surprisingly, the large majority of respondents felt that IFRS adoption would not be cost-beneficial for their firms.