Question

the current status of IFRS worldwide and in the United States. discuss challenges as well as opportunities of IFRS adoption in the United States, from the perspectives of: (1) preparers of financial statements, (2) the accounting profession and (3) the academia.

Answer 1

International Financial Reporting Standards (IFRS)
Standards, Interpretations and the Framework for the Preparation and Presentation of Financial Statements set and adopted by the International Accounting Standards Board. IFRS has replaced the older term international accounting standard. Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IFRS are considered ‘principles based’ set of standards in that they establish broad rules as well as dictating specific treatments.

Objectives of IFRS
Harmonization is the necessity of modern globalized era because various factors like cross border investments, interdependence on trade, increase of business complexities, global financial crisis, global slowdown and mobility of capital and people across the globe, are significantly influencing the world economy. Therefore, the main objective of IFRS development is harmonization in financial statements reporting. Some additional objectives are:

• To create the global financial reporting infrastructure.
• To generate sound business sense among the beneficiaries.
• To generate the dimensions of fair presentation of financial statement.To maintain higher transparency
• The financial statement and mobility of capital.

IFRS significantly improves the comparability of entities and provide more consistent financial information.

• IFRS are accepted as a financial reporting framework for companies seeking admission to almost all of the world’s stock exchanges (including US).
• The enhanced comparability of the companies’ financial information and the improved quality of communication to their stockholders, decrease investor uncertainty, reduce risk, increases market efficiency and eventually minimizes the cost of capital.
• IFRS eliminates barriers to cross border trading in securities, by ensuring that financial statements are more transparent.
• Management reporting for internal purposes under IFRS, can improve the quality and consistency of information that management needs in order to make effective, efficient and timely decisions for the business.
• IFRS adoption may be used as a chance to make some strategic improvements to the finance systems and processes as well as to reduce costs in the longer term.
• IFRS financial statements that are universally understood and comparable can both improve and initiate new relationships with customers and suppliers across national borders.Because of the positive effect IFRS financial information has on credit ratings, a company’s position strengthens in negotiations with credit institutions and cost of borrowings are reduced.
• IFRS can also result in more accurate risk evaluations by lenders and to a lower risk premium. It also helps companies to take advantage of alternative forms of finance.In the case of groups it removes the need for individual companies to prepare two set of financial statements, if all individual companies in the group apply IFRS.
• ADVANTAGE:- It would create a single set of accounting standards around the world.
• Instead of using multiple accounting standards based on the preference of each country where an organization does business, adopting the International Financial Reporting Standards would enable agencies from different segments of the globe to apply the same standards in every transaction.
• DISADVANTAGE:-It would offer more flexibility in the accounting practices.
• International Financial Reporting Standards use a principles-based system instead of one that is based on a philosophy which follows specific rules. That means the goal of each standard in IFRS is to reach a reasonable valuation, and there can be several ways to reach that outcome.

2)THE ACCOUNTING PROFESSION
As per European Commission the requirement of compliance of IFRS by all listed companies in their CFS from 2005 (IAS Regulation) onwards will help eliminate barriers to cross boarder trading in securities by ensuring that company accounts throughout the European Union (EU) are more reliable and transparent. If the Indian companies prepare their accounts in accordance with IFRS, they can be more easily compared with their accounts with EU companies and other IFRS user countries.

• IAS 17, Leases, distinguishes finance lease from operating lease based on principle of ‘substance over form’, whereas corresponding US GAAP lay down rules for making such distinction.
• IAS 27, Consolidated and Separate Financial Statements, lays down criteria of power to govern financial and operating policies for identification of subsidiaries. The corresponding US GAAP lay down requirement for majority ownership of shares only. In India, the Companies Act definition is based on either majority ownership or board control.
• ADVANTAGE:-It would increase the amount of work placed on accountants.
  The implementation of a new system of global accounting standards would require a complete revision of the domestic accounting processes and strategies. Although the CFO of each organization would be responsible for this task under most circumstances, the implementation of the new rules would come from the accounting team

The academia

• There are numerous business that would feel the financial impacts of adopting IFRS immediately, even though the SEC estimates that about 100 firms are already using this as their primary standard since a majority of their revenue comes from overseas.
• We must also adjust the curriculum offered at many business schools because the International Financial Reporting Standards are not taught regularly in the United States.
• Even though it would make cross-border investments much more accessible, it would require a grassroots movement to shift the educational perspective in accounting to achieve many of the benefits listed above.