Advantages Of Uniform Accounting Standards Produce Uniform Financial Reporting
Discuss and evaluate the above statement in the context of International Financial Reporting Standards (IFRS).
Issued by the International Accounting Standards Board (IASB) and its predecessor the International Accounting Standards Committee (IASC), the International Financial Reporting Standards (IFRS) are accounting rules that apply equally to financial reporting by public companies worldwide (Deegan, 2009). The system has developed a comprehensive set of ‘high quality’ standards, which have been implemented in about one hundred different countries (Ball, 2006). The ultimate aim of the IFRS is to produce uniform financial reporting, in order to make financial reporting accurate, …show more content…
We will continue by discussing some of the IFRSs disadvantages and how they won’t always be able to produce uniform financial reporting and the arguments for why some of the advantages given above can be contradicted.
Firstly, an important reason as to why the accounting standards applied in each different country won’t be equal despite adopting IFRS, is because of the difference in taxation systems between different countries. (Deegan, 2009)
Secondly, uniform accounting standards can’t always be relied on in order to produce uniform financial reporting, because it ignores deeply rooted political and economic factors that influence the incentives of the ones preparing the financial statements (Ball, 2006). Which brings us to the impact of human judgments and decisions made throughout the accounting process, about for example future cash flows, which are involved in accounting accruals. These factors cause for much leeway in implementing accounting rules, which leads to an environment where powerful economic and political forces will determine how managers, courts etc. will influence the implementation of rules. Although, it can be said that this would also be the case in a society that doesn’t apply IFRS. Achieving uniformity in actual reporting behaviour is more …show more content…
A clear argument as to why accounting cannot be seen as a precise and accurate science is because this would imply for an asset, claim, revenue or expense to have a precise value, which is, in most cases, not true. Another example is depreciation, which again would not fit under the category of accurate. Judgments about the future concerning the expected useful life and residual value of an asset, will be what depreciation expense is based upon. Therefore a uniquely correct figure for depreciation for a period cannot be achieved (Atrill and McLaney, 2013).
Lastly, no two businesses will ever be identical, which means that their accounting policies will vary and not be comparable (Atrill and McLaney, 2013).
This essay has explored and discussed both sides to the statement whether uniform accounting standards will produce uniform accounting reporting, and concludes that even though applying IFRS is almost crucial, mainly with the aim of comparing different financial statements, the use of uniform accounting rules can be unfavorable. As seen in this essay, this is primarily the result of subjectivity and differences in taxation or functions of a