While this new set of standards requires changes to how the rules should be applied to be justifiable, it is often possible for businesses to come up with reasons for making such changes. And the companies have adopted an approach which minimized the changes from previous national standards which reduced the ability to compare the financial statements across an industry. Based on information mentioned above, it can be assumed that because higher information quality reduces both the risk to investors from buying and owning shares and the risk to less informed investors due to wrong selection due to lack of understanding, it should lead to reduction in firms cost of equity capital. The balance sheet, the statement of cash flows and the retained earnings statement also follow similar formats. This increase in comparability has helped investors better determine where their investment dollars should go.
Arguments of uniform accounting standards Many market participants including firms, investors, auditors, regulators, and standard setters believe that it will be convenient to compare the results of financial reporting across different countries if they use the uniform standards. The new set of standards that will be adapted will need to provide transparency and similar to the U. The International Financial Reporting Standards were drafted in part to create a single governing standard that companies around the world can follow in their accounting. So it may lack of comparable. The economy of the U.
Global standards for global markets Modern economies rely on cross-border transactions and the free flow of international capital. This has given rise to the continuous integration of the world economy and capital markets which has in turn given rise to increase in the interdependence of international financial markets. Luzi, Christian, and Peter have explained the key differences in their 2009 working paper as follows: a. A principles-based philosophy means that the goal of each standard is to arrive at a reasonable valuation and that there are many ways to get there. Garuba Department of Accounting and Finance, Western Delta University, Oghara, and Pat Donwa Department of Accounting, University of Benin, Benin City E-mail: anthonygaruba yahoo.
A single set of international standards will enhance comparability of financial information and should make the allocation of capital across borders more efficient. This means that the cost will be reduced since all the reports are going to be done in a uniform manner in all the different branches of the company. In the fourth section, I compare the accounting differences between U. But , in an effort to best serve their investors' needs, should contribute to the convergence process by replacing old standards with the new jointly developed ones. They allow some to stretch the limits of what is permissible under the law, even though it may not be ethically or morally acceptable. As all companies, preparing their consolidated financial statements, have been reporting underone reporting standard have improved the comparability not only for investors, but also all stakeholders who use the financial statements.
For example, changing the method of inventory valuation can bring more income into the current year's profit and loss statement, making the company appear more profitable than it really is. Understandability End users also enjoy the advantage of understanding the financial data communicated whether it comes from one country or a different one. As already discussed Accounting is the language of business ,it would be wise and helpful if there is a common language for the whole world to understand the financial statements in an unambiguous and friendly manner. The main issues with convergence lie with the difference in the approach of the U. It helps the companies enhance the confidence of global stakeholders.
Alison F, Gwen H, Christine H and Monica V, 2013. At the same time, the process will provide for more credible information and will be simplified without the need for conversion to the standards of the country. As explained in our workbook, using standard costs enable managers to identify in advance material, labor and. Reduces the cost of conversion of financial statements for local companies which makes investments , raising capital , listing abroad. And the interviewers think that this principle will bring increased volatility as the assets are reported. There is really no one size fits all standards.
Many countries already have their own generally accepted that achieve this, but on a limited, jurisdiction-specific basis. These principles apply without additional details or specific provisions for particular industries. For example, the chairman of the Malaysian Accounting Standards Board has a positive outlook on the benefits of comparability. It is not globally accepted. There is least scope of manipulation. The results will be available for the Client and he will be able to evaluate the skills of the staff.
The uniform single accounting standard can stifle innovation, ingenuity, competition, creativity and capitalism entrepreneurship. Consultancy fees and compliance audits can also be cut back. However, before companies can start enjoying the cost savings, they have to spend considerable amount of money as a transitional costs. The Securities and Exchange Commission's goals and efforts both domestically and internationally have been to consistently pursue the achievement of fair, and efficient , thus providing investors with information that is accurate, timely, comparable and reliable. This is because tighter standards can lead to more transaction structuring or real earnings management. Classification of equity and liability Certain financial instruments that are classified as equity under U. Based on the timeline contained in the proposed road map, if large public companies make their filings for 2014, they would be required to include balance sheets for December 31, 2013, and December 31, 2014, and income statements, cash flow statements, and statements of changes in stockholders' equity for the years ended on December 31, 2012, 2013, and 2014.
Greater Comparability Companies that use the same standards to prepare their financial statements can be compared to each other more accurately. Further, the new standards will increase the international flow of capital. The appeal of convergence is based is on the following beliefs: a the convergence of accounting standards can best be achieved over time through the development of high quality, common standards and b eliminating standards on either side is counterproductive, and, instead, new common standards that improve the financial information reported to stakeholders should be developed. This unitary set of standards has solved many problems while creating others. Conversion experiences in Europe, as well as Asia and Australia, show that conversion projects often take more time and resources than originally planned. And the interviewers think that this principle will bring increased volatility as the assets are reported. So there must be have lot of merits and drawbacks to apply it.
Global Comparability End users reap the benefits of comparing the financial statements from a company in one country to a company in another country. One of the main drawbacks is that it is quite expensive to implement these standards. Conclusion The End Study on Fraud Rules-based systems encourage creativity and not the good kind in financial reporting. The training course includes two parts: the first based on an intensive studying theory and approaching subject tasks, the second on approaching examination tasks and practicing the technique of taking an exam. Easy performance appraisal By increasing competitive markets, International Financial Reporting Standards allows companies to stand out among their peers in the ever competitive capital markets, and gives investors an opportunity to evaluate their performance in order to stay at par with competitors worldwide.