Single set of Accounting Standards 1

Title

Name
Single set of Accounting Standards 2

Contents
Introduction......................................................................................................................3
Part 1 Investigative Report on Importance of International Accounting Standards.............................3
Importance vs. need.........................................................................................................3
International financial reporting standards.............................................................................4
Different sets of laws and governance in different countries....................................................4
Unwillingness of people to change...................................................................................4
Advantages of single set of accounting standards ..................................................................4
Better comparability -...................................................................................................5
Increased Flexibility.....................................................................................................5
Cost effective..............................................................................................................5
Manipulation..............................................................................................................5
Efforts of International Accounting Standards Board (IASB)......................................................5
Part 2 Discussion Report on Challenges Faced on Standardization of Accounting Standards................6
List of challenges............................................................................................................6
Scenarios and positions.....................................................................................................7
Lack of infrastructure and technical capabilities...................................................................7
Accounting and Auditing Regulations...............................................................................7
Accounting education...................................................................................................7
Complex Economic Systems & Increased Reporting Requirements..........................................8
Resource Challenge.........................................................................................................8
Conclusion........................................................................................................................8
Single set of Accounting Standards 3

Introduction

There are two aspects of this report. First part of this report deals with the importance of
having a single set of standards on accounting for the use in entire world which essentially
means that entire world would be using the single guidance on the issues of accounting and
the financial statements and its related articles be prepared in the same format across the
globe. The importance of the same and the validity of this move cannot ignored. The second
part of the report discusses the challenges faced by the accounting community in harmonizing
the accounting literature of the entire world. The challenges are many manifold. The reason
lie in the sheer fact of the magnitude changes that the world is seeing and will see in this
process. There are hundreds of countries with millions of people from different backgrounds
who have made different laws for their own countries. Accounting and law making always go
side by side.

Part 1 Investigative Report on Importance of International Accounting Standards

Importance of having a single set of accounting standards for the entire world is discussed in
the fourth mentioned report.

Importance vs. need

The importance of the single set of accounting standards can be understood from the single
fact that the companies across the globe will be able to compare the financial results and
other important data using a single set of guidance on accounting standards. This will not
only lead to better analysis and time savings but would also lead to better analytical results
coming out of such comparison. Not only would the companies be able to compare results
from such guidance on accounting standards but also the companies which are operating in
cross borders shall be able to merge their accounts in the most smooth and error free manner.
As of today, for example if the company is head quartered in United States of America and
does business in Australia as well, the company at the time of consolidating the results of
financial statements, it would face several practical difficulties. However, the consolidation is
must when it comes to presenting the financial statements in USA. Had the accounting
standards been same, the company would have been able to merge the two different sets of
financial statements on line by line basis barring a few adjustment entries which is quite
acceptable. However, as of today, the scenario is that the company would have to prepare the
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financial statements on the basis of Australian Accounting Standards and then pass
adjustments for the purpose of US GAAP and then merge both the sets.

Figure IFRS adoption by different countries worldwide.

International financial reporting standards

The international accounting bodies have already started the process of producing single
guidance on accounting standards by the means of international financial reporting standards
but the effect of the same is yet to be seen. The application and the implication of the same
has yet not been very effective the reason for which lies in two parts

Different sets of laws and governance in different countries

Unwillingness of people to change

(Note the same are discussed in detail in the next part of the report)

The importance of single financial statements is derived from the need of such single
guidance bulletin. The same is time saving, efficient and cost effective.
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Advantages of single set of accounting standards

The advantages of single set of accounting standards could be understood from the following
points (Mohr, (n.d.) -

Better comparability -
The financial statements sets coming from single accounting standards ought to have better
comparability. This becomes very important for the companies which are doing their business
in different countries which have different laws and local accounting guidance structure.
Better comparability is of best use of the current as well as the prospective investors in the
company. They can figure out whether the company is able to perform at the set levels of
expectations and the future viability of their investments is not in question (Ball, 2006).

Global Non Acceptance

There are certain countries specifically USA which is still hanging onto the US Generally
Accepted Accounting Principles. They have completely ignored the International Financial
Reporting Standards and the demands of the international financial community. This has
particularly made difficult for the other countries to adopt the International Financial
Reporting Standards.

Increased Flexibility
The adoption of single set of financial statements has made the companies more flexible from
the point of view of especially valuation. The international financial reporting standards have
particular section devoted to the valuation of the different accounts and have mentioned the
ways in which the companies can adopt them.

Cost effective
Needless to say that the cost incurred by the companies in preparing their financial statements
in more than one way burdens them further. The cost of maintaining the softwares for
accounting purpose goes high as well as the professionals employed by the companies are
increased which increases the cost further.

Manipulation
The chances of manipulation of the different sets of financial statements goes down sharply.
The companies now would not be able to take the advantage of the local laws and regulations
and manipulate the results to deceive the investors.

Efforts of International Accounting Standards Board (IASB)

The Board was formed in 2001 under the supervision of IFRS foundation. The role of
International Accounting Standards Board has been of great importance in dealing with issue
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of spreading awareness about the importance and benefits of international financial reporting
standards (Deloitte, (n.d.)). The board has taken the full responsibility of enacting the
technical interpretations of the law involved, dealing with complex accounting matters faced
by the different companies in adopting to international reporting. The role of IASB includes
but not limited to-

Involves preparation of International Financial Reporting Standards incorporating the

requirements of local and international law alike.
Making and finalizing interpretations on the accounting standards for general public
use.
IASB also issues IFRS for Small and Medium Sector Enterprises.
The focus of IASB includes electronic reporting which would not only ease the
process of international and transparent reporting but also lead to less cumbersome
reporting process leading to efficient working style for companies and accounting
professionals alike.
The Board has also set up various committees and panels to study the impact of IFRS
and form education panel to educate and update the people across the globe for such
changes.
The board has also sought the adoption techniques which would make the
convergence process easy and less bulky.

Referring to the website of IASB, one can understand the diversity of the role IASB has and
will play in the harmonization of the accounting standards and make the process of
transformation transparent by involving and inviting the contribution of the various
recognized National Accounting Bodies (IFRS, 2017).

Part 2 Discussion Report on Challenges Faced on Standardization of Accounting Standards

As the standardization of the reporting standards is to be done and in fact is being on the
world level, the difficulties are imminent (Brown and Tarca , 2005). The scale of difficulties
is huge and the solution not very easy. The main difficulty being faced by the accounting
community is the different sets of laws govern the accounting principles of different countries
and finding a common accounting treatment for all the countries is very difficult not only in
the theoretical side but also on the practical side.
Single set of Accounting Standards 7

List of challenges
List is presented below

a. Business impact
b. Analysis and disclosure
c. Credit rating
d. Financial reporting
e. Recognition and measurement
f. Systems and processes
g. Other challenges peculiar to institutions
h. Knowledge gap
i. Reconciliations
j. EIR and amortized cost
k. Accounting policies
l. Valuations
m. Cash flow projections
n. Data availability
o. Impairment

Scenarios and positions

Lack of infrastructure and technical capabilities (Jermakowicz, 2004)

The developing economies face shortage on every count. Not only do the companies not have
the necessary infrastructure to deal with such enormous transition, but also the technical
competence is also limited at least in number of professionals which is a very big constraint.
This could not be alone dealt by the International Accounting Standard Board. The problem
can only be dealt if the countries and the local accounting bodies take up the extra effort and
apply the same. There are several countries which have converged the international financial
reporting standards with that of local accounting standards and made new standards. It is
specifically guided by the board to not consider the converged IFRS as the compliance of
IFRS.
Accounting and Auditing Regulations
The accounting and auditing regulation of different countries is based on the local and
national government which in turn make laws based out of local and national geographical
factors, local and national business and the most important of them all, the type of economy
run in the country. The different sets of auditing and accounting regulations make it all the
more difficult for the IASB to formulate a common sets of accounting standards harmonized
and accepted by all.
Single set of Accounting Standards 8

Accounting education
The big factor which the board has to face is the level of education in accounts of the
professionals of under developed or developing economies. The countries especially in Africa
and interior Asian regions have very less professional population who is equipped to
understand the complex accounting treatments offered by the IASB for the implementation of
IFRS. There are lack pf PhD programs worldwide that results in improper imparting of
accounting education especially in under developed economies.
The change in accounting education and the method of imparting education cannot be
altered in an overnight. For the enthusiastic conversion, the professionals must first be
satisfied that the economy and the companies are going to be benefitted from the adoption
and the impacts are tangibly visible.
Complex Economic Systems & Increased Reporting Requirements (Hoogendoorn, 2006) -
The economic systems of all the countries is not same and the large economies for example-
Australia, China, Russia, India etc. have very complex and large set of and hundreds of
diverse companies operating under it. The adoption not only wishes to change the reporting
structure but by default the accounting process, softwares, the process of recording the
accounting entries, the auditing regulations both national and international needs to be
considered. For example a company working in Australia is also listed in NASDAQ, Now,
for the companies listed in USA stock exchange have a mandatory regulatory compliance of
SOX Audit. After the convergence of IFRS, the company will have to comply with the
following sets of regulatory procedures -
a. Comply with the local auditing and accounting standards and the requirements of
auditors.
b. Comply with the international financial reporting standards
c. Comply with United States- Generally Accepted Accounting Principles
d. Comply with SOX Audit
e. Comply with SEC (Securities Exchange Commission) /PCAOB (Public Company
accounting oversight Board) requirements if the company is also operating in USA.
These 5 points may look very simple on the piece of paper but when the company goes on to
the floor to perform these tasks, it is mammoth to achieve these objectives.

Resource Challenge
From the availability of the resources, this could further be broken down into following -
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a. People There is always resistance to change among the employees which makes an
already complex task further difficult. The training of the employees, the changes into
softwares and misconception about the IFRS make it further challenging.
b. Systems and Processes it is learnt that the core Banking Applications are not IFRS
compliant which is very difficult as the banking operations are very complex and
sensitive information is also stored. The high quality of information technology skills
is also a pre requisite for the successful software implementation of IFRS.
c. Business it becomes very important to make the investors inform of the decision of
implementing IFRS. The customers of the company are also unaware of the IFRS
implications on the business which is again a very difficult task to deal with.
There are always ways to manage the challenges the best of which would be follow the
guidance of IASB in reference to successful conversion, implementation and continuation of
IFRS. The companies have to take the challenge in their hands as in the long run, the
companies are going to be benefitted from the implementation of the International Financial
Reporting Standards. The long term benefits of the same are already discussed in the part a of
the same report.

Conclusion
No doubt the challenges faced by the international accounting community is huge. The sheer
size of the convergence is such that the difficulties are bound to come. However, as
mentioned above, the challenges are lessor than the benefits which the companies especially
the Multi National Corporates are going to achieve post implementation of International
Financial Reporting Standards. The technical expertise will be required but once the initial
difficulties are over, the smooth transition shall benefit the companies in terms of cost,
resource, time, people and compliance. The International Accounting Standards Board as
mentioned above has a key role to play in the successful implementation and continuation of
International Financial Reporting Standards. The guidelines and the methods of adoption are
well laid on the website of IASB which prove very useful when the companies adopt the
standards.

References
Mohr, A., (n.d.) International Financial Reporting Standards - Advantages & Disadvantages
[Online] Available at http://smallbusiness.chron.com/international-financial-reporting-
standards---advantages-disadvantages-2167.html Access Date 15th January, 2017

Ball, R., 2006. International Financial Reporting Standards (IFRS): pros and cons for
investors. Accounting and business research, 36(sup1), pp.5-27.
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Deloitte, (n.d.), International Accounting Standards Board (IASB) [Online] Available at

https://www.iasplus.com/en/resources/ifrsf/iasb-ifrs-ic/iasb Access Date 15th January,
2017.

IFRS, 2017. IFRS Global Standards for World Economy [Online] Available at
http://www.ifrs.org/About-us/IASB/Pages/Glossary.aspx Access Date 15th January,
2017.

Brown, P. and Tarca, A., 2005. A commentary on issues relating to the enforcement of
International Financial Reporting Standards in the EU. European Accounting Review,
14(1), pp.181-212.

Jermakowicz, E.K., 2004. Effects of adoption of International Financial Reporting Standards

in Belgium: the evidence from BEL-20 companies. Accounting in Europe, 1(1),
pp.51-70.

Hoogendoorn, M., 2006. International accounting regulation and IFRS implementation in

Europe and beyondexperiences with first-time adoption in Europe. Accounting in
Europe, 3(1), pp.23-26.