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MAA717 Introduction to Accounting : Generally Accepted Accounting Stan

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Describe the institutional environment of financial reporting, including with respect to the conceptual framework for financial reporting, regulation, and conventional accounting practice.
Prepare transactions and resultant reports reflecting methods used by reporting entities to treat critical financial events.



International Financial Reporting Standards are set of Accounting Standards developed and issued by International Accounting Standard Board. These standards are the guidelines for the preparation and presentation of Financial Statements by companies. They were written in 1973 for the first time and were discontinued by IASB thereafter. It began its operation again back in 2001 and since then are been accepted by many international companies for reporting of Financial Statements.

According to(Smith 2008), profound changes in accounting and financial reporting are occurring in US and other countries. Before 2008, Companies listed in US stock market were required to follow US generallyaccepted Accounting Standard (GAAP) to prepare its financial statement or it should be reconciled in accordance with US GAAP. Until 2000, Securities commission in most of the countries has the same outlook for IFRS as of US.

Starting in mid of 2000, it was noticed a comprehensive change in the acceptance of IFRS worldwide. IFRS are being accepted as a single set of high quality standards for accounting. This report will focus on the increasing acceptance of IFRS for attaining identical standard and accounting practices.

Mission of IASB and IFRS foundation

Mission of IASB is developing IFRS which brings efficiency and lucidity in financial markets of the world. IFRS has been issued with the intention to improve the accountability by bridging the information gap between market and people. It will also help investors to identify opportunities and risk around the world thereby increasing the efficiency of economy.

Theoretical support for acceptance of IFRS globally

IFRS needs relatively higher disclosures requirements as compared to countries domestic accountant standards requirements. Using IFRS can improve the price of companies stock as shown by (John, Makhija & Ferris 2014)in their study; IFRS provides greater protection to investors which decrease impounding of wealth by managers of the company, thereby increasing the stock price.

Many countries which do not have good financial disclosure requirements, requires disclosure of additional financial information while issuing equity (stock) by the foreign investors. Due to this, government of these countries has to revise or create new laws for better disclosure of financial statements which are acceptable in general. It is a difficult and time consuming process. Therefore, adoption of IFRS is much effective and easy.

On the other hand countries with strong financial disclosure requirements can participate in maintaining uniform reporting standards across countries and take the benefit of decreased cost associated with reconciliation of financial statement and promote development in economy.

Different Methods used to implement IFRS by different countries

International Accounting Standard Board in 2010 said that more than 140 countries are now either requiring or permitting the use IFRS or coincide with them. IASB has collected evidence validated by each countries authority. Out of 149 jurisdictions 139 have made a public assurance for supporting single set of quality accounting standards which can be accepted globally, (IASB 2010). Big economies are still missing (Hoogervorst 2014); however Countries in which has been accepted covers more than fifty percent of worlds GDP.(Nobes 2011), has defined different methods which are been used to adopt IFRS by different countries which has been stated below:

Adopting IFRS process

This is the most unadulterated form of IFRS, where jurisdiction asks companies to use IFRS as issued by IASB. Israel is the only country to accept this.

This is the traditional way how countries implement their domestic Accounting Standards which have been used to implement IFRS by different countries. Canada, South Africa and some other countries have accepted this way to implement IFRS in their respective countries.However, as compared to the first method implementing this needs longer time because translation from English to national language of the country is needed.

This methods has been used by Australia, Australian Accounting Standard Board amends IFRS in various ways like making changes in text, banning adoption at early stage or deleting some options and giving them Australian numbers.

Accepting IFRS at initial stage but not adopting all the subsequent changes to it. China, Venezuela and some other countries are implementing IFRS using this approach.

Countries can allow using IFRS to companies instead of using domestic accounting standards.

Considering the major Question, whether International financial reporting System can be accepted globally. It can be summarized by examining ‘For and against’of adoption of IFRS.

There consist major differences between countries in terms of cultural differences, Legal system, tax system, financial system and languages. Therefore there will be differences in the financial reporting of different countries also. IFRS helps the companies to overcome these differences. Israel has accepted IFRS as a whole. Convergence to IFRS has improved the comparability in Europe.

IFRS can be considered as an important tool to bridge the differences in the reporting of financial statement and making it easy. Hence it can be said that acceptance of IFRS can increase in the coming time.

The biggest challenge faced while accepting IFRS is appropriate skills required to interpret IFRS.  Regulatory and legal requirements of law of different countries are also a challenge to be faced while accepting of IFRS for financial reporting. However these challenges can be overcome with time and by taking appropriate measures.

Does adoption of IFRS have made the market more efficient?

According to (Daske et al. 2008)Liquidity of the market has increased after introduction of IFRS. The study also evaluated about the decrease in cost of capita of the firm and increased value of equity. Stock Market of Saudi Arab has largest market capitalization after the adoption of IFRS as the listed entities have an opportunity to value their assets fairly

Adopting IFRS has reduced the cost of capital reflecting enhanced disclosure; however this reduction can be claimed only in the countries having strong legal enforcement(Li 2010).

IFRS and economic development

Development of capital market is directly relates to countries legal and financial system.

Knowing the importance of market development, use of high quality accounting standards is required for the growth of capital market and therefore World Bank and IMF are encouraging the use of IFRS to sustain development of capital market. US being considered as a developed economy is also accepting IFRS which shows positive effect of IFRS acceptance.

Various studies have recognizedthat adoption of IFRS is difficult due to its complicated process; many countries are not able to adopt IFRS for the complications faced by them in terms of difference in financial, legal or tax systems.

Financial Regulation has become known as a major policy issue other than economic crisis.

The adoption of IFRS (IAS 39) by European banks has improved the quality of earnings(Leventis, Dimitropoulos & Anandarajan 2011). IAS 39 restricts recognition of incurred losses only, these results in delayed recognition of future expected loss.

Implementation of IFRS differs in different countries and the extent to which bodies publicize its activities also vary and thus creating an area for improvement in the future.

Finance ministers and Central Bank Governors of G20 countries have always supported for acceptance of single set of high quality Accounting Standards. Financial Stability Boards (FSB) confirms the continuing relevance of the acceptance of high quality international accounting standards. International Organization of Securities Commissions (IOSCO) also supports for the development and use of internationally accepted financial standards and therefore IOSCO strongly shore up IFRS developed by International Accounting Standard Board(Anand 2016).


After analyzing jurisdiction of IFRS it clearly shows that investors of capital market and lenders receive IFRS financial statements which represent 58 percent of worlds GDP. The study shows the potential of IFRSfor improving the capital market functioning and making economic progress possible. IFRS is important for those companies who raise money on international basis. IFRS is now becoming the de facto global standard for financial reporting.


Anand, A 2016, Systemic Risk, Institutional Design, and the Regulation of Financial Markets, Oxford University Press, New York.

Daske, H, Hail, L, Leuz, C & Verdi, R 2008, 'Mandatory IFRS reporting around the world: Early evidence on the economic consequences,', Journal of Accounting Research, vol 46, no. 5, pp. 1085-1142.

Hoogervorst, H 2014, Charting progress towards global accounting standards, IFRS Conference, Singapore.

IASB 2010, The move towards global standards, International Accounting Standard Board.

John, K, Makhija, A & Ferris, S 2014, Corporate Governance in the US and Global Settings, 17th edn, Emerald Group Publishing, Bingley.

Leventis, S, Dimitropoulos, P & Anandarajan, A 2011, 'Loan loss provisions, earnings management and capital management under IFRS: The case of EU commercial banks.', Journal of Financial Services Research, vol 40, no. 1, pp. 103-122.

Li, S 2010, 'Does mandatory adoption of International Financial Reporting Standards in the European Union reduce the cost of equity capital?', The Accounting Review, vol 85, no. 2, pp. 607-636.

Nobes, C 2011, International Variations in IFRS Adoption and Practices, The Association of Chartered Certified Accountants, London.

Smith, M 2008, 'Are international financial reporting standards (IFRS) an unstoppable juggernaut for US and global financial reporting?', The Business Review, vol 10, pp. 25-31.

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