Financial Standard Setting – savvyessaywriters.net | Savvy Essay Writers

Financial Standard Setting – savvyessaywriters.net | Savvy Essay Writers

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Financial Standard SettingIntroductionInternational Financial Reporting Standards (IFRS) are guidelines and rules that are designed by the International Accounting Standards Board (IASB) that are used to provide a uniform language and platform for reporting different financial statements. The IFRS has been adopted in many countries in Europe, Asia, South America, and Australia. The most notable absentee is the United States who uses the Generally Accepted Accounting Standards (GAAP). IFRS is meant to create transparency in financial reporting so that it can assist the end-users in informative decision making. https://coolassignment.com/2021/06/01/discuss-the-importance-of-an-organization-determining-its-operational-alignment/ The IFRS improves efficiency and accountability in reporting in the global markets. The IFRS is considered as a principle based standard compared to the U.S. GAAP which is rule-based standard. Since its adoption, Australia has benefited from IFRS in various ways, such as low cost of capital and uniformity in financial reporting. This paper will focus on some of the principles of IFRS, its benefits and how it compares to the U.S. GAAP.The International Financial Reporting Standards has been able to promote transparency in that it has encouraged firms with subsidiaries to synchronize operations of the company like auditing reporting and training standards. It will be easy to monitor the processes of the firm and its subsidiaries if there are set standards that are universal to the whole company. The format used in the business entity should be similar in all the offices so that there is consistency in accounting and reporting the company records (Devereux, 2011).The International Financial Reporting Standards pursues to level the playing field in preparation and presentation of financial statement of a person or a business entity. It is easy to compare the performance of both the domestic and foreign business entities. The use of a common accounting dialect by the multinational corporations and the subsidiaries to use IFRS in consolidation of the financial statements helps everyone in the system to understand. The use of a similar accounting and reporting standard helps to eradicate the differences brought about by the use of different accounting modes in financial statements (Kieso, Weygandt & Warfield, 2012). https://bestofassignment.com/criminology/write-a-personal-philosophy-of-leadership-through-your-construction-of-a-persona/The use of a similar accounting standard will eliminate unnecessary cost and time in the preparation of reporting the financial statements. The use of different regulations and the standards in a firm may prove to be costly than use of the same standards. To embed IFRS uniform accounting standards in the firm and the subsidiaries reduces the cost of preparation of financial statement. This system will provide accurate and on time statements that are critical in the decision making of the company investments, it also improves the efficiency and the performance of the market. The use of different accounting standards impacts the company’s finances because the cost of preparation of the report is high also the auditing fees will be high. Accounting errors are prone to different accounting reports models and are not easily detected, and this leads to poor accounting reports (Baginski, Hassell & Baginski, 2003). Synchronizing the reports is tiresome and timely to perform, and it incurs high transaction costs.IFRS ensures efficiency by providing standards that can be used universally and understood in different countries. International financial reporting standards of a firm and the subsidiaries accounting reports should be easily comparable, and there should be ease in integration of the data (Greuning, 2006). There is increased transparency in the universal standards that allows investment in other countries, and there is an increase in liquidity. The IRS provides standards that are universally acceptable and they can be used between companies and their subsidiaries to harmonize and report their financial records uniformly. The use of different accounting modes will pose challenges in the analysis and understanding of the financial statement.By adopting the universal accounting and reporting standards, the local firms are able to compare their progress with other companies in the international market. This enables the local companies to adopt new strategies borrowed from other companies that are doing well and improve their performance. This ability of similar companies being able to compare their financial statements and reporting creates prospects for mergers and acquisitions (Rezaee, 2001). Evaluation of a company that uses different reporting standards is costly, and this discourages investment in mergers and acquisitions. The uniformity provided by IFRS in financial account reporting makes it easy for different companies that are willing to merge to compare and value their income statements.The main objective of the Financial Reporting Council (FRC) was to introduce the International Financial Reporting Standards to be implemented in Australia in 2005. The European Union initiative had formed IFRS and was to be implemented in the EU member states by January 1st 2005. All the member states of the EU lie under the IFRS jurisdiction and mandate, which was issued in 2003. The application IFRS in the Australian system created a stable platform. The following are some of the gains of the system:This system has helped Australia to attract capital at the low cost of capital which has brought in more investors in the country. The companies are receiving overwhelming capital from investors because it has brought relief to the cross-border investment companies and investors.Lowers costs are incurred during preparation of the accounting and financial statement reports, auditing and the users of the multinational entities find it easy to interpret the reports (Chalmers, Clinch & Godfrey, 2011). There is no need to interpret the report to hand it over to the cross-border investors. The investors are able to compare the accounting of their local firms with the firms in Australia and implement attributes that can help the companies.The implementation of IFRS has filled the void of AGAAP (Australia General Acceptable Accounting Principles). Now any international accounting firm among the EU member states is able to interpret the accounting records without difficulty and finish in time. This has enabled easy and timely decision making by international investors depending on the progress of the company.The introduction of IFRS in Australia as much as it brought positive attributes it came with some negative attributes. There was the loss of AGAAP guidance, this is on the issues of employee benefits accounting. The transition from the AGAAP to IFRS had a lot of impact on the accounting employees in the country; they had to learn the new system, which took time to employ it in the accounting system of companies.The introduction of the optional accounting treatment which is not similar to AGAAP was hard for the Australian accounting community to cope. The cost impact of implementing the new system was high. The accounting team had to learn the new accounting models. The Australian companies had to change in some of the stationaries used in accounting. There was high expectation to meet the international accounting team, this made sure that the company had to acquire competent personnel to meet the international criteria.The system used in the United States, U.S. GAAP is a rule base initiative which gives substantial preference to managers to determine the assumptions behind the accounting statements on basic items like depreciation due to time, methods of inventory costs and decisions that influence the income of the firm. The IFRS system is classified as principle-based which is hard to manipulate. If the system is introduce, it will demand an increase in accounting experts, which will mean that more capital investment will be required. As companies seek guidance on specific situation, the standard setters may feel the need to exploit the rulebook to suit their needs.There will be a decline in the profits if the IFRS system is adopted because U.S.GAAP allows LIFO (last in first out) assumption whereby the expense of the recently purchased item in the inventory as the cost of the goods sold expense first, this method is used in inventory cost (Tokar, 2008). As the prices of products tend to raise the cost of the goods sold expense is high. Most of the companies in the United States use LIFO because of its tax advantages; it also uses harsh methods of financial accountability. In the IFRS system, LIFO is not allowed. With the exception of the security exchange commission seeks for exclusion for U.S companies which the FASB has advised against. This system will be of disadvantage to the stakeholders who will pay more corporate taxes. https://homeworkhelpersblog.com/please-see-the-attached-document-living-arrangements-and-well-being-for-the-de-2/IFRS provides more accurate, timely and comprehensive financial relevant to the international standards. Financial information does not require to be interpreted to the investors; it is easily understandable and doesn’t require any external source. IFRS helps small and new investors make standard reports simpler and better quality as it puts them in the same platform with the professional investors. This system discourages large firms to undermine small and startup investors since they understand the nature of financial statements. The harmonization of standard reporting under IFRS doesn’t require paying for processing and adjustment of financial statements to understand them. This shows that IFRS system is cost effective to the investors. The IFRS system reduces the cross-border difficulties that are experienced in accounting and report writing (Shamrock, 2012). This system removes buyouts and acquisition by investors.The loss of recognition of a company is easily identified by the stakeholders of the company. It allows the investors and the lenders of the company know where they stand. The transparency created increases the efficiency of the company and the management; it also helps the company recognize losses made by the company immediately. The integration of IFRS has enhanced the comparison of financial statement of EU member states (Pöschke, 2012). This has been made possible by synchronization of financial statement of IFRS member states. There has been standardized accountability and financial reporting. This will enable U.S. to adopt a standardized financial statement that will improve comparability of financial standards.The IFRS has improved consistency and transparency of financial reports. It improves the macroeconomics aspects and financial reporting which improves the relationship between investors and members among member countries (Christian & Ludenbach, 2013). There is also improved contact of foreign capital market and investments.Standard setting is better explained by regulatory capture theory since shifting dynamics in the market, changing global policies, economic shifts, and changing patterns in the market always influences the regulatory frameworks to be adopted by a country. The market dynamics and business environment always influence a government’s decision to adopt a certain policy in order to provide a more streamlined, transparent and efficient regulatory frameworks, policies, and guidelines which chart the way forward in conducting of business operations and in the governing and execution of tax returns. The regulatory theory protects the welfare of all the parties involved in any business transaction; it protects employees from being exploited by the company. Small business can operate without being discriminated by large companies. In a nutshell, there are no run away cost incurred in regulated market platforms. Transparency in business operations is encouraged by the regulatory theory; this always gives a layout of the progress of the company. Stakeholders like investors and lenders of the company are always knowledgeable of the happenings of the company which encourages easy decision making.The Australian Accounting Standard Board (AASB) and International Accounting Standards Board (IASB) are both bodies that govern the standards of business accounting and reporting. There is transparency, accountability, and efficiency of all business operations in a company. The potential of such a company can be identified, and investors can bring in capital investment to the company. Payment of processing and adjustment financial statement by potential investors to look into the welfare of the company is not necessary. This form of standard promotes global consistency of application and interpretation of accounting standards. There is significant influence for development of international financial reporting standards. Investors in these structures are the number one priority of the company. Their well-being is safeguarded by the policies set in place.ConclusionThe IFRS has helped promote transparency, accountability and in the global capital markets by providing a level platform in which companies can report their financial statements. Similar standards increase transparency, comparability, reduces costs, and increase the ease of integration. Introduction of IFRS helped reduce the cost of capital in Australia that consequently led to an increase in investors. The IFRS also bridged the gap in financial reporting between Australia and other countries subscribed to IFRS. The adaption of IFRS was challenging especially the shifting from AGAAP to IFRS. The U.S. is reluctant in adapting the IFRS because it might lose profits associated with LIFO, which is not allowed in the IFRS. Standard setting is better explained by regulatory capture theory because the economic shifts always affect the regulatory frameworks to be adopted by a country.

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