Accounting – International Harmonisation

Paper Info
Page count 8
Word count 2220
Read time 8 min
Topic Business
Type Coursework
Language 🇬🇧 UK


In the current era of globalization, a significant number of international corporations continue to establish investments in emerging economies. As a result, the global market is increasingly being accessed to meet the capital needs of multi-national companies. Such approaches taken by these multinational corporations have included listing their securities on the stock exchange within and outside their own nations (Shobana 2011). In such an economic environment, uniform reporting standards in accounting have been deemed inevitable for global business.

A conceptual idea of the IFRS

The International Financial Reporting Standards (IFRS) “are international accounting standards adopted by the International Accounting Standards Board (IASB)” (Guide to the International Financial Reporting Standards 2011, pg. 1). In this regard, the IFRS reflects an approach that is principle-based to develop its accounting standards rather than the rules-based approach that is predominant and commonly noted in the Generally Accepted Accounting Principles (GAAP) of various nations. The accounting standards in the IFRS emphasize the establishment of general principles derived from the conceptual framework of the International Accounting Standards Board (IASB) which reflect measurement, reporting, and recognition for those kinds of transactions covered by the standards (Ball 2008). As a result, this encourages the management of business organizations to use professional judgment in the application of the general principles, especially for transactions that are typical and specific of an industry or entity (Capkun et al. 2008).

A shift to IFRS

To enhance uniform financial reporting, the IFRS was initiated to enhance a global financial reporting approach for financial statements. Therefore, a switch from the GAAP in various nations to the IFRS has been developed where companies and business organizations have no option but to modify their accounting systems and processes in line with the requirements of the IFRS (Lantto 2007). In addition, under the IFRS, local companies, multinational companies, and other business organizations will have to provide financial information which is comparative between their previous GAAP and IFRS financial compliant reports. Therefore, the International Financial Reporting Standards (IFRSs) have been regarded as principal-based financial requirements which are continuously being adopted by various countries in the world. This is amidst the recent trends in globalization which has necessitated the requirement for uniform financial reporting (Shobana 2011).

Importance of adoption of the IFRS and Barriers to overcome

According to the Guide to the International Financial Reporting Standards, the increasing adoption of the IFRS by different nations in the world has offered a number of purported benefits which have driven more countries to adopt these standards (Ball 2008; Shobana 2011). Some of the benefits which have been reported include 1) the presence of a financial reporting approach that is comparable and consistent for those nations which have already adopted the IFRS, 2) efficient global operations as a result of the ease of access to capital, 3) savings in terms of cost and time 4) presence of financial reporting systems which depict commonality, 5) quality and singe accounting principles as compared to the multiple local versions of the GAAP that may be unreliable and faulty (Guide to the International Financial Reporting Standards 2011, pg. 2).

According to Lantto (2007), a financial reporting approach that depicts global uniformity, consistency and reliability have been regarded as an essential and core component of good practices of corporate governance globally. This is because, in the face of globalization, such approaches (like the adoption of the IFRS) enhance the credibility of investments in the ever-increasing scrutiny of investors in their attempt to pursue informed decisions regarding investment (Shobana 2011). For instance, Ball (2008) carried out studies that explored whether investors benefited as a result of the implementation of the IFRS or whether the implementation of the IFRS made investors feel far from reality. In these studies, it was depicted that the IFRS increased the spectrum for comparability thus reducing informational costs and informational risks to the investors (direct benefit). The studies by Ball (2008) also pointed out that the adoption and continued implementation of IFRS benefited indirectly through effects such as the decrease in costs of equity capital of business organizations (Ball 2008).

Empirical studies which examined the effects of the IFRS on key financial aspects arising from the financial statement of companies have elicited numerous effects. For instance, Capkun et al. (2008) explored the importance of the IFRS within the framework of harmonization of global accounting standards and also sought to know the kinds of institutional factors which affect national decisions towards voluntary adoption of IFRS. In the above study, it was depicted that a negative association between investor protection and the adoption of the IFRS existed. In addition, Lantto (2007) explored the effects of the IFRS and whether it improved the value of financial and accounting information in a code law state with high-quality domestic accounting standards and a strong system of legal enforcement. Citing the case scenario of Finland, Lantto (2007) pointed out that the IFRS has the effect of improving the relevance of accounting information. However, in the studies, significant concerns were raised about the reliability of those financial statements whose preparation and subsequent components were shaped by personal or institutional judgment.

In other studies conducted by Capkun et al. (2008), the effects of mandatory change in financial reporting standards in the European Union were explored. This study pointed out that the transition from the local Generally Accepted Accounting Principles (GAAP) to the IFRS had a small but significant statistical impact on the total assets, total liabilities, and equity of an organization. However, the most significant effect was on the tangible/solid assets and property plant and equipment (Capkun et al. 2008).

According to the Guide to the International Financial Reporting Standards, there is a need for investors and regulatory agencies in different countries to adopt the IFRS approach to financial reporting. This is due to the increased globalization trends where the global capital market and capital flows have been globalized. Due to these globalization trends which are further characterized by cross-border investments, the adoption of the IFRS enhances assessment of financial health and state of business organizations under the dependable and understandable IFRS approach (Guide to the International Financial Reporting Standards 2011, pg. 1).

As the IFRS is continually being adopted by nations throughout the globe, drawbacks have been mentioned to coexist with the IFRS adoption process. One significant drawback includes lack of comparability where business organizations in the same cluster apply varying judgments to facts on circumstances that depict similarity. This also adds to the possibility of devastating effects on those business organizations which have adopted certain reporting or accounting methods, such as those which require disclosure in the secondary segment, those with significant fixed assets which require component depreciation, and those for which “last in-first out (LIFO) inventory costing or the shortcut methods for derivatives may no longer be available” (Shobana 2011, pg. 1) Other drawbacks include the possibility of companies facing setbacks in terms of logistics and reporting as a result of the enormity of changes required for the IFRS to be adopted. In addition, the adoption of the IFRS has been reported to depict volatility in increased earnings. This is because of adjustments of a ‘mark to market’ nature to the financial apparatus and “adjustment in the pension liability recognized in the income statement” (Shobana 2011, pg. 1).

Surveys carried out in different countries have pointed out that several drawbacks exist in the adoption of the IFRS. These drawbacks emanate from the conversion process which is lengthy and time-consuming. This is because the adoption of the IFRS requires a collaborative approach where the management is involved at all levels. As a result of the huge effort required, the focus of the organization on its primary goals and objectives may be distracted (Ball 2008).

The extent of harmonization and flexibility of management accounting reports within the framework of the IFRS

Research studies carried out around the globe have revealed that in the recent past, more than 110 countries have appreciated the international accounting standards. As such, they either require or permit the adoption of the IFRS in the preparation of financial statements. This trend is taking shape all over the globe, for instance in Australia and the European Union. For the period beginning in 2011, several other countries in the world were set to adopt or permit the adoption of the IFRS. These countries include India, Canada, South Korea, Japan, and Russia (Lantto 2007)

For the case of India, an adoption of IFRS and a shift from the local GAAP was initiated for the period which began on 1st April 2011. During this period, the companies listed on the national stock exchange within and outside India were required to carry out a convergence of the Indian Accounting Standards with the IFRS. This also applied to those companies or corporations that were not listed on the Indian stock exchange but had their net worth exceeding Rs 1000 crores. Therefore, in its pursuance of the G 20 commitment, India has initiated the process of convergence of the Indian Accounting Standards with the IFRS under the Ministry of Corporate Affairs. This has been targeted through the adoption of a wide range of consultative forums with various stakeholders. In this approach, thirty-five Indian Accounting Standards have been found to converge with the international reporting standards within the framework of the IFRS (Shobana 2011).

In January 2012, the Securities and Exchange Commission in the United States (SEC) gave approval on the timeline which envisioned 2015 to be the earliest possible period for adoption of the IFRS by pubic companies. In this context, the SEC advocated for an inquiry into the IFRS and further support to enhance its adoption. In recent studies, it was pointed out that the adoption of the IFRS has progressively taken an aggressive turn, with expectations of significant changes in financial reporting in the United States and other nations in the world (Shobana 2011).

For the period which began in 2011, Canadian Public Accountable Enterprises were required to initiate IFRS in financial reporting. In addition, they were required to provide comparative financial reports for the prior financial period in line with the IFRS approach. In the recent past, there have been new accounting standards introduced in Canada which have converged the Canadian GAAP with requirements of the IFRS. Therefore, the conversion to IFRS is already underway and is almost taking an aggressive turn in Canada (Shobana 2011).

Flexibility: The case of the United States and Japan

While it is absolutely necessary for large listed companies in different countries to prepare financial statements using uniform accounting standards, such as International Financial Reporting Standards (IFRSs), the preparations of management accounting reports remain optional. Because of the fact that organizations have not globally adopted the IFRS approach, a lot of flexibility has been evident in reporting financial information and preparing management accounting reports. As a result, several nations have maintained parallel accounting systems in financial reporting. This is because the adoption of IFRS cannot be done once. As such, organizations have continued to maintain the local GAAP (current systems) in parallel to IFRS (new system) in attempts to validate the accuracy of data and results in IFRS (Guide to the International Financial Reporting Standards 2011, pg. 1-10).

Similarly, those countries or business organizations which have appreciated new accounting systems in IFRS and are willing to convert to IFRS as a primary approach has depicted a dual/ parallel reporting. Such countries are still in the process of conversion and are yet to file their first IFRS financial statements hence they submit the required reports under the local GAAP. This enables such countries to revert to the local GAAP as desired by the management e.g. in cases where the contractual requirements need reporting in local GAAP, as IFRS is continually adopted. In the case of the U.S.A, it is not mandatory for Japanese companies to use IFRS during the preparation of annual security reports. However, those registered with SEC, are allowed to submit consolidated financial reports in line with the GAAP of the United States only if they meet certain criteria. In addition, the U.S has allowed other Japanese companies to submit reports in line with IFRS requirements. For the case of security reports in Japan, the foreign business organizations which are listed on the Tokyo stock exchange are allowed to use their own GAAP or the GAAP of other nations if certain criteria are met. However, most companies from the European Union have adopted the IFRS when filing security reports and preparing financial statements (Guide to the International Financial Reporting Standards 2011, pg. 1-10).


The IFRS has been regarded as cost-effective and efficient in the long term. This is because of its capacity to facilitate the global movement of capital and to provide a financial reporting mechanism that depicts more clarity and consistency, especially regarding financial reporting in the global marketplace. Recent studies have shown that the IFRS is globally accepted and its set of standards that are principle-based have been thought to provide a conducive environment for companies to better reflect on the economic substance of the transactions they initiate. In addition, the IFRS also provides for adequate disclosure of financial information in the footnotes which allows financial analysts to level set business organizations into benchmark groups for enhanced comparability and high-quality information (Ball 2008; Capkun et al. 2008; Lantto 2007; Shobana 2011).

List of References

Ball R 2008, What is the actual economic role of financial reporting?, Web.

Capkun, V, Jeny, A, Jeanjean, T, & Weiss L. 2008, Earnings management and value relevance during the mandatory transition from local GAAP to IFRS in Europe, Web.

Guide to the International Financial Reporting Standards 2011, Frequently asked questions, Web.

Lantto A 2007, Does IFRS improve the usefulness of accounting information on a code law country?, Web.

Shobana S 2011, “Financial statement effects on convergence to IFRS: A case study in India”, International Journal of Multidisciplinary Research, vol. 1, no.7, pg. 317-336.

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EssaysInCollege. (2022, August 10). Accounting - International Harmonisation. Retrieved from


EssaysInCollege. (2022, August 10). Accounting - International Harmonisation.

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"Accounting - International Harmonisation." EssaysInCollege, 10 Aug. 2022,


EssaysInCollege. (2022) 'Accounting - International Harmonisation'. 10 August.


EssaysInCollege. 2022. "Accounting - International Harmonisation." August 10, 2022.

1. EssaysInCollege. "Accounting - International Harmonisation." August 10, 2022.


EssaysInCollege. "Accounting - International Harmonisation." August 10, 2022.


EssaysInCollege. 2022. "Accounting - International Harmonisation." August 10, 2022.

1. EssaysInCollege. "Accounting - International Harmonisation." August 10, 2022.


EssaysInCollege. "Accounting - International Harmonisation." August 10, 2022.