The Notion That Uniform Standards Alone Will Produce Uniform Financial Reporting Seems Naïve
Ali Raza
Roll No. MB2M-16-05
Institute of Management Sciences, Multan • Introduction
In this assignment, I have studied the reasons which encourage the countries to maintain national differences in IFRS. Then identified the ways by which national differences are inculcated in the IFRS. National differences in the IFRS eventually creates the un-uniform IFRS financial reporting quality. But, there are ways to improve the quality of financial reporting and IASB is working on them.
International Accounting Standard Board (IASB) issues accounting standards known as IFRS. Previously, International Accounting Standard Committee (IASC) was producing the …show more content…
For example, it is visible that enforcement of accounting rule in Pakistan is weaker than UK. Thus, the quality of IFRS financial statements also varies.
b) Overt options:
IASB make decisions from the voting of Board Members. The board mainly comprised of members of other bodies and employees of audit firms. Members come from different background and influenced by political pressure (e.g. see Zeff, 2002). Thus, options are inserted to pass the standard. Due to overt option in IAS 1, Pakistan groups make financial position format of the balance sheet (companies ordinance, 1984), whereas German groups continue to use the report format (found in HGB).
Examples of Overt Options in IFRS:
• IAS 2: Inventory cost can be determined by FIFO or weighted average method (para. 25).
• IAS 7: Cash flow statement is allowed to make on net basis (para. 21).
• IAS 16: Property, plant and equipment can be marked at cost or fair value (para. 29).
• IAS 31: Joint Venture can be shown at available for sale investment or at cost (para. …show more content…
For example, German accountants interpret the word ‘probable’ (which occurs in many places in IFRS) more conservatively than US accountants (Doupnik and Richter, 2004).
Examples:
• IAS 1: Holding or expected date of settlement determines the Current liability (para. 60).
• IAS 27: Subsidiary identification on the basis of holding power. (para. 4)
• IAS 28: Associate identification on the basis of “significant influence” (para. 2).
• IAS 36: Impairment identification on a mixture of criteria (paras. 12-14).
• IAS 38: Intangible assets amortization only for assets with finite useful life (para. 88).
* Paragraph numbers as at 30 April 2006.
g) Transitional or first-time adoption issues:
A new standard allows a period during which its requirements are merely encouraged which lead to long run effects on IFRS financial statements. For example, in the past Pakistan groups were required to measure land and building at historical cost. While UK groups’ measure land and building at current value.
• Ways to Better Quality Financial
Ali Raza
Roll No. MB2M-16-05
Institute of Management Sciences, Multan • Introduction
In this assignment, I have studied the reasons which encourage the countries to maintain national differences in IFRS. Then identified the ways by which national differences are inculcated in the IFRS. National differences in the IFRS eventually creates the un-uniform IFRS financial reporting quality. But, there are ways to improve the quality of financial reporting and IASB is working on them.
International Accounting Standard Board (IASB) issues accounting standards known as IFRS. Previously, International Accounting Standard Committee (IASC) was producing the …show more content…
For example, it is visible that enforcement of accounting rule in Pakistan is weaker than UK. Thus, the quality of IFRS financial statements also varies.
b) Overt options:
IASB make decisions from the voting of Board Members. The board mainly comprised of members of other bodies and employees of audit firms. Members come from different background and influenced by political pressure (e.g. see Zeff, 2002). Thus, options are inserted to pass the standard. Due to overt option in IAS 1, Pakistan groups make financial position format of the balance sheet (companies ordinance, 1984), whereas German groups continue to use the report format (found in HGB).
Examples of Overt Options in IFRS:
• IAS 2: Inventory cost can be determined by FIFO or weighted average method (para. 25).
• IAS 7: Cash flow statement is allowed to make on net basis (para. 21).
• IAS 16: Property, plant and equipment can be marked at cost or fair value (para. 29).
• IAS 31: Joint Venture can be shown at available for sale investment or at cost (para. …show more content…
For example, German accountants interpret the word ‘probable’ (which occurs in many places in IFRS) more conservatively than US accountants (Doupnik and Richter, 2004).
Examples:
• IAS 1: Holding or expected date of settlement determines the Current liability (para. 60).
• IAS 27: Subsidiary identification on the basis of holding power. (para. 4)
• IAS 28: Associate identification on the basis of “significant influence” (para. 2).
• IAS 36: Impairment identification on a mixture of criteria (paras. 12-14).
• IAS 38: Intangible assets amortization only for assets with finite useful life (para. 88).
* Paragraph numbers as at 30 April 2006.
g) Transitional or first-time adoption issues:
A new standard allows a period during which its requirements are merely encouraged which lead to long run effects on IFRS financial statements. For example, in the past Pakistan groups were required to measure land and building at historical cost. While UK groups’ measure land and building at current value.
• Ways to Better Quality Financial