International Financial Reporting Standards Essay Example for Free

world(prenominal)ist Financial Reporting Standards Essay1. IntroductionWith the announced sufferance of International Financial Reporting Standards (IFRS) for publicly accountable counterbalance 2011 by the Canadians history Standards jury (AcSB), issues about the impression on the utileness of m unitytary statement need serious attention starting on knowing the similarities and differences between Canadian GAAP and IFRS. Some critics have argued that IFRS will give up too much reliability in order to achieve relevance, while others have argued that the increased relevance and comparability will promote usefulness of the monetary statements. This paper attempts to address some of these issues as is seeks to snap the potential effects of Canada Adoption of IFRS by making an opinion as to whether the miscellany will declaration in to a greater extent or less purpose useful training, thus making securities marts either more than or less efficient.2. Analysis and Discussion2.1 What is IFRS and its payoffs if adopt?IFRS is being promoted by its supporters as a maven set of globally accepted, high quality bill types (KMPG Canada, 2007), that is adopted by everywhere a coke countries, including five of the G8 countries (KMPG Canada, 2007). It appears to have gained the support of a number of countries and with announced espousal in Canada, starting 2011 by AcSB, there is good ground to believed about the upbeats of the said set of global business relationship standards in Canada comp ard staying on with the present Canada GAAP. To cite names of countries, it could be take a firm stand that as early as 2005, publicly listed companies in European Union member countries , Australia, Hong Kong, and South Africa and have used IFRS (KMPG Canada, 2007). In the absence of these countries plan or indication of returning to where they came from, with more reason and interest it is to know about the improvement from IFRS adoption in the finan cial statements of Canadian companies.Given therefore the similarities of the two standards under Canadian GAAP and IFRS, there is earth to state that Canada has had considerable input and influence in the development of IFRS over the years (KMPG Canada, 2007). Therefore, Canadas stopping point to join the many countries in adopting IFRS carries with it the intention to benefit enterprises in Canada. That it would allow better access to international nifty, funding and investment opportunities should not come as a big surprise. The realities of samurai bonds or Eurobonds (Hill, 2009) could be asserted to have strong support from the presence of IAS or IFRS in the countries where bonds argon floated as companies seek cheaper sources of capital as finding the same outside all(prenominal) homo country helps in minimization of appeal of capital as an bearing (Brigham and Houston, 2002). The improved information in terms of comparability of financial reports across countries coul d just be easy to accept as many companies pursue international business.Another advantage of using the IFRS is the belief that it should also more cost effective for the accounting information compared with maintaining a go and isolated set of Canadian accounting standards (KMPG Canada, 2007). This could be the same reason for the move by the US to eventually adopt harmonization of its accounting standards with the IFRS since non-US companies, which want to list their stocks in the US stock exchanges, are required still to make translation of IFRS based financial statements into US GAAP based. From the practical sense impression of view, it would be easy to see the added cost for companies making still translations in the same way that non-Canadian companies whitethorn be required to make the translation when they go to Canadian stock exchanges.Another advantage of adoption is to make financial results more transparent and consistent for user globally, which will mean using more judgment and providing more disclosure in the short term (KMPG Canada, 2007). For this reason, persons involved in the public federation financial reporting of Canada will have to expect to pass under a steep teaching curve (KMPG Canada, 2007). IFRS and Canadian GAAP compare in just few important lines but since IFRS standards are comprehensive and principles-based, it is expected that its application would require greater use of professional judgment than Canadian GAAP. The accessibility of more accounting policy choices under IFRS would take companies longer time now to evaluate these choices for each organization and is expected to result in valuable outcomes in the long-term (KMPG Canada, 2007).2.2 The impact of the IFRS adoptionIt is believed that the first and most obvious impact of IFRS adoption would be in the effect on the exhibit of the financial position of an entity as set out in its financial statements (Romano and Grewal, 2009). Since IFRS represents a statement of principles that must be applied based on judgment and assumptions given the facts at hand, it is expected that many principles will change including possibly modifying the many rigid prohibitions or rules that have become part of Canadian GAAP over time via either practice or prescription (Romano and Grewal, 2009). To illustrate since IFRS allows for more unclouded note abide by accounting policy choices, this would open to a greater degree of interpretation and professional judgment. The new principles underlying the presentation of financial measures will change both the way in which things are measured and what is included in the measurement as wells timing of measurement and needed disclosure (Romano and Grewal, 2009).The impact of the adoption of the IFRS would be in the allowing greater freedom to exercise professional judgment on which will make the financial statements to have greater relevance that will enhance the usefulness of the accounting information. It whitethorn be recalled that the soft characteristics of accounting include both reliability and relevance of the accounting information for decision-making (Meigs and Meigs, 1995). A financial information whitethorn therefore be too reliable as to approximate a high a degree of objectivity but may no longer be of significance to decision makers since the decision is already done.To illustrate, a person buying a car or any typical harvest may be interested to know what is the estimated cost of action for a car that he or she wants to buy for the buyer for comparing it with the actual price of the product. On the other hand, another buyer may not really know what is the actual cost but he or she has information that the occupation possess so much value that is it relevant and unique about the product being exchange and could be used for commercial production. The second buyer may not have the actual objective cost of production for the product but he or she has a good and businesslike per spicacity of the situation because of familiarity of relevant information which can generates value and could make a reasonable estimate of the determine of possible input cost of the product. He is therefore more strategically positioned than the first buyer is. Thus, relevance at this point may be more advantageous than having greater reliability of information. Adoption of IFRS is up to now not expected to amount of total loss of reliability of information.The adoption of IFRS is criticized by the fact that it would provide too much management flexibility or the freedom of interpretation that may be adopted with the concurrence of the independent auditors, thus it would reduce the quality of financial reporting. There is however, no strong present to believe that feared consequence of the adoption on these ground. In fact, this feared consequence remains to be seen (Romano and Grewal, 2009). On the hand, one great inducement of adoption is for greater international comparabili ty due from a perspective of globalized-investment trade place. There is now movement towards the implementation of the adoption and there are now plans to effect a successful transition (Romano and Grewal, 2009).2.3 Sample Partial Application of IAS or IFRS to Business about Fair value historyOne sample interesting effect of adoption of IFRS is the eventual effect International explanation Standard (IAS) 39. It is asserted that IAS 39 is partial application of decorous value accounting since the said standard gives institutions the possibility of irrevocably applying amusement park value valuations to any financial instrument starting from the concept of fair value option (Enria, et al, 2004).It is argued that one fundamental building block of developed by the International Accounting Standards Board (IASB), the present makers of standards under the IFRS based in UK, is to bring the financial statements up to day with market developments hence, a working group on the issue has proposed the use of Full Fair Value Accounting (FFVA) for all financial instruments. (Enria, et al, 2004). While adoption of the IFRS by Canada would not immediately result to adoption of fair value accounting, it will open the great possibility because as stated earlier, the use of international accounting standard would give more flexibility to companys management and accounting professionals and fair value accounting is part of the IFRS.If it feared that FFVA could produce effects on financial stability of banks, the same arguments could be make applicable to the Canadian companies, which are just to co-exist with other international and global companies in the use of IFRS. The summary of authors found confirmation about concerns on the potential wider application of fair value in unduly increasing the volatility of banks balance sheets, which could reduce possibly ability of companies to react to adverse shocks. The adoption of fair value could also result to the pro-cyclicali ty of the bank lending especially if the application of fair value happens simultaneously with other developments under a new accord. Thus, one of possible consequence is for encouraging banks to react if set change by use of FFVA through panic selling and tightening lending standard (Enria, et al, 2004). The effect could be far reaching as it could bring a possible financial crisis at the finish off case possibly.From deeper tests, however, the researchers have found no significant impact on volatility by the entree of FFVA standards for companies studied in the 1980s and 1990w. However, they cautioned about the need to be interpret the result with caution for some(prenominal) reasons and call for further research citing as one reason the lack of clear-cut choice of the cut-off dates on which banks change from one accounting standard to the other (Enria, et al, 2004).3. ConclusionTo conclude, this researcher believes that the adoption by the Canadian Accounting Standard Board o f IFRS for companies concerned starting in 2011 will result to more useful information that would make securities markets either more or less efficient than not adopting the said international accounting standard. The adoption, while could result to possibly losing some reliability, is expected bring greater relevance of the financial statements and increased comparability which would then it more useful for Canadian companies and the users of these information. The possibility of losing some reliability may possibly be counter checked by user still requiring from these companies from which they would like to deal with the production of financial statements prepared under the present Canadian GAAP but they could run the risk of losing the benefit of a decision that would be based on relevant grounds. The mere fact that CASB has announced the adoption should signal there the advantages could outweigh the disadvantages of IFRS adoption.