Essay Example on Global Financial Reporting Standards: Consistency and Comparability

International Financial Reporting Standards (IFRS) set mutual rules so that money related explanations can be steady, straightforward, and comparable around the world. IFRS indicate how companies must keep up and report their accounts, characterizing sorts of exchanges, and other occasions with monetary effect (Akpomi & Nnadi, 2017). The detailing measures are issued by the International Accounting Standards Board (IASB) (Cassatt, Li, & Pollard, 2018). IFRS was set up to make a standard bookkeeping dialect so that businesses and their money related articulations can be reliable and robust from company to company and nation to nation. Both companies, investors, and financial specialists' advantage from IFRS since individuals are surer contributing to a company if its trade practices are straightforward and reliable (Harper, Leatherbury, Machuca, & Phillips, 2012). The IFRS set autonomous accounting bodies like IASC, IASB, and GAAP, which give overhauls, experiences, and direction on the standards.

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The request for straightforward, comparable, reliable monetary data within the smarkets is caused by the high-profile corporate outrage within the world budgetary showcase (Ahmadi, & Bouri, 2018). Consequently, the requirements for harmonization of bookkeeping announcing measures and other measures to relieve such events. The certainty of globalization occasioned the unavoidable expanded integration and appropriation of IFRS (Daske, Hail, Leuz, & Verdi, 2013). IFRS permits an increment within the chance of exaggerating salary in a company's money related explanations. IFRS also allows more adaptability to extend pay to universal businesses. It is imperative to note that payment is continuously an assess, based on administration judgments such as the valuable life of long-term resources, the anticipated misfortunes from awful obligations, the anticipated costs of guarantees, and the lessening of enormous resources such as the esteem of gear and the appreciation of bookkeeping goodwill (Li, 2010). Hence, IFRS will lead to numerous companies announcing higher wage numbers, indeed, whereas holding cash flows consistently.

Multinationals contributing in developing markets may benefit from motivating forces given by the developing advertise government to pull in their venture. Remote investors fundamentally confront the same challenges as the household investors and other extra issues that uncovered them to a distinctive cost of capital. Embracing IFRS is anticipated to decrease data asymmetry and diminish office clashes utilizing progressed outside observing. Appropriation of IFRS can moreover reduce the fetched of capital by expanding straightforwardness and comparability (Clarkson, Hanna, Richardson, & Thompson, 2011).

Business investors and other partners have their desires from the companies. Inside the positive setting of the partner hypothesis, speculators anticipate bookkeeping data that will help them to form investment choices. The government expects companies to have shared esteem as a implies of contributing to the improvement of the economy. Temporary workers and advance proprietors request subjective bookkeeping data (Chen, Krishnan, Sami, & Zhou, 2013). It can, too, be induced that this point of view can be expanded to an idea that all partners to have a right to be given with data around how the company is affecting them. Bookkeeping information contents provide a system to make esteem for partners, which deciphers to fulfilling the intrigued of a different gather of partners and settling office related issues.

The IFRS tool will allow you a list of measures that you'll need to apply for the primary time in your other money related explanations, and those that are accessible for early appropriation (Maali & Al-Attar, 2017). The IASB has incorporated other short-term and medium-term ventures (Barth, 2018). They were fundamentally made to address the concerns around 'disclosure overload' and unimportant data being uncovered and to supply more company-specific, pertinent data (Jibril & Abubakar, 2016). Critical corrections incorporate putting accentuation on materiality when discovering data, expelling the endorsed arrange of notes to the money related explanations, clarifying conglomeration and disaggregation, and including extra necessities for showing subtotals, counting compromise.

More imperatively, the change that is proposed by IFRS may lead to a significant impact both for business and investors. The positive result would be to enable easy access to capital both for local firms in the United States and the foreign firms, reduces the cost for oversea firms, as well as counting for companies globally (Ahmadi, & Bouri, 2018). Most of the critics of the standard have revealed a significant weakness in the IFRS, for instance, the critics believe that the standard does not give the more detailed guidelines to the companies, exaggerated cost that may confuse companies and that the standard may provide a loophole to the managers to be able to manipulate their wages.

More importantly, the GAAP report provides the guidelines about what should be indicated in the published financial statement, methods of calculating all the figures shown in the financial statements, as well as any other additional information that should be included in the financial statement (Akpomi, & Nnadi, 2017). Despite the notion that the move is to replace one set of accounting principles, it is important to note that any GAAP is a continuously growing set of accounting principles. For instant, GAAP has been completely rewritten in the mergers and acquisition accounting, as well as the derivatives and hedges accounting, including gradual change in several other areas. More significantly, SEC has shown aggressiveness in its pursuit of a convergence agenda. For instant, as of 2007, the SEC has provided opportunities to many firms to report under the IFRS without the need for United States GAAP adjustment (Ahmadi, & Bouri, 2018). The concept has saved several firms an approximate of 2.5 billion Euros since it was initiated (Chen et al., 2013). Notably, changing the reporting techniques for US firms would be very difficult.

To the investors, the IFRS will trigger an adjustment on the way the investors are interpreting their incomes. To the government, the standard will require relinquishing of some policies and rules to the international body (Akpomi, & Nnadi, 2017). The benefits would include enhanced access to international finance, which may not even benefit the small firms which are not interested in the international capital, leading to difficulty in quantifying the benefit.

The IFRS would also see businesses conducting a one-off reworking accounting record and increase payment for the corporate tax in ensuring that the rule of "last-in last-out is followed." Most of the international companies will enjoy a significant benefit through saving from the continuing costs of yearly converting the foreign reports into the United States GAAP (Ahmadi, & Bouri, 2018). Still, unfortunately, the local companies may not experience such countervailing gains that accrue from the shift. Changes are projected to be more drastic due to the availability of many participants who are not only committed but also have more interest in the change. But the process is expected to delay due to the political processes in the United States.

Regarding principles and rules, IFRS is more principle-based compared to the United States GAAP, which is perceived to be more rule-based, even though GAAP defined as a set of principles (Maali, & Al-Attar, 2017). More imperatively, the GAAP provides discretion to the company managers to examine the assumptions which are based on their financial statements, including inventory costing techniques and depreciation timescale, which prompted a decision that may affect yearly income by for the large companies. Additionally, the growth indicated by GAAP and the increasing interest of the accounting professionals for guidance and clarification of the IFRS is accountable for the rule-based features of GAAP (Akpomi, & Nnadi, 2017). Notably, if the IFRS is implemented in the United States, the demand for guidance may possibly increase. As many companies demand guidance on particular conditions, the policymakers and the standard-setters may focus on the expansion of the rulebook used by the IFRS, which may diminish the nature of its principles, as well as creating more of the demand for the accounting professionals and experts.

Based on the comparison, there are a lot of discretions between GAAP and IFRS. The existence of numerous market distinctions may prompt different actions on companies in the United States, as well as establishing new methods for firms in the United States (Maali, & Al-Attar, 2017). The most significant area that has attracted more attention in the credit crisis is the market to market of the financial assets, in which both the GAAP and the IFRS are working the same, and both standards can be reinterpreted.

Another different between GAAP and the IFRS is how the inventory costing is treated. For GAAP, the last in last out assumption is utilized in the inventory costing. Precisely, as the prices of good increases, the LIFO assumption may lead to the increased cost of goods, hence reducing the company's profit. Understandably, most of the companies in the United States use the assumption of LIFO because it has more advantages over tax, and the conformity rule requires any company that is using the assumption of LIFO also to execute the aggressive techniques used in the financial accounting (Daske et al., 2013). Based on the principles stipulated by IFRS, the use of the LIFO assumption is prohibited.

More imperatively, the financial accounting standards have also prohibited US companies from using the LIFO assumption (Daske et al., 2013). Even though the process will lead to increased income for the companies, it will eventually be a problem for the stakeholders because of such companies with pay more tax to the government. The tax will cost millions of dollars to the companies that might deter the adoption of the IFRS by the large companies.

Concerning asset valuation, IFRS provides the management with more discretion, which is projected to increase the net income for the company. For the research and development cost of the assets, including the valuation of the local intangible assets, the IFRS requirements are more generous compared to the GAAP standards (Barth, 2018). The IFRS gives an opportunity for the development cost to be part of the company's assets, hence not forming part of the expense for the company. But the GAAP requires all the development and research cost from part of the expense.

Additionally, the GAAP uses a one-way process in writing down the assets as a result of impairment, which causes a decrease in value, and any improvement does not allow writing back up of the assets. On the other hand, IFRS has provided an opportunity for written up of the assets, which leads to increased income for the company. Again assets on GAAP cannot increase the value even if there is market appreciation (Ahmadi, & Bouri, 2018). For IFRS, the assets may be written up depending on the market values, and the revaluation conforms to the constant frequency, and the book value does not increase the net income for the company.

Conclusion

Regarding the effect of the standard on the income, IFRS is compared to be less conservative compared to the GAAP; the concept means that the standard increases the risks of overplaying the financial statement for the company. Similarly, IFRS is also more flexible compared to GA...