IFRS



IFRS

Introduction

The world has globalized so as the business and the constant interlinking behavior of business activities throughout the globe has raised the significance of common financial reporting methodologies, which could result into convenience and comprehension. The common financial accounting reporting methods have the potential to provide help to both investors and businesses due to the availability of extremely regulated framework, common set of accounting standards, and robust control. It is worth mentioning that there are certain arguments against the risks emerged that are usually under estimated and are specifically applicable to countries, markets, and political activities, economic conditions and regulatory framework (Center of Audit Quality, 2009, n.d.).

The International Financial Reporting Standards were initially tested, developed and applied by International Accounting Standard Board i.e. IASB, which led to the growth of IFRS and covered more than 100 countries in 2001. Subsequently, European Union countries' publically listed corporations adopted it in 2005. Firstly 19 countries adapted it in 2003 and later this number increased to 70 countries. The countries, which have been using this standard of accounting includes some of the major developed nations like that of USA, Australia, Canada, China, Japan, Brazil etc. (Sletten, E., 2009, p. 1-30).

The accounting standards if IFRS are beneficial for financial markets for distribution of resources in an appropriate manner and in an effective way in order to lower the cost of capital for organizations. In addition, it also conveys quality information for making informed and better decisions since it creates transparent channels of distribution and can be compared at all times (Brown, P., 2011, p. 269-285).

Discussion

The issue of implementation of IFRS in companies is subject to debate regarding its impact on market efficiency and transparency of information in financial markets that is aimed at facilitating investors for making well informed decisions pertaining to conduct business and making investments. Majority of historical studies showed that the adaption of IFRS by organizations in the business world experienced decline in problem of asymmetric information from the financial markets and gained benefits of higher reliable results in the preparation of financial reporting. There are numerous advantages of implementing IFRS out of which the most significant one is the ease and convenience in comparing the results of financial performance across the countries and other associated aspects of the capital market. This particular advantage of IFRS has helped in overcoming the problem resulted from difference in financial reporting and accounting methods at local and international level. This benefit has helped in reducing the cost of preparing and managing financial information for investors. It would be helpful in bringing a positive effect on the efficiency of stock market (www.afaanz.org, 2012, p. 1-25).

It is already understood that better quality of information truly decreases the various uncertainties to investors who own shares particularly less knowledgeable shareholders. This fact decreases the probability of adverse selection by investors, which further more cause in reduction of cost of equity to organizations. It has clearly assertive impact on firm's cost of debt and information unevenness is proved to ...