International Financial Reporting Standards Essay

1. IntroductionWith the announced espousal of International Financial Reporting Standards (IFRS) for publicly accountable starting line 2011 by the Canadians Accounting Standards Board (AcSB), issues intimately the effect on the wontfulness of pecuniary statement need serious attention starting on knowing the similarities and differences between Canadian generally accepted be principles and IFRS. Some critics encounter argued that IFRS allow for give up too much dependableness in order to achieve relevance, while opposites beget argued that the increased relevance and equation leave behind promote effectiveness of the pecuniary statements. This paper attempts to address somewhat of these issues as is seeks to analyze the potential effects of Canada Adoption of IFRS by reservation an opinion as to whether the change will upshot in much or less ratiocination useful information, thus devising securities markets all more(prenominal) or less efficient.2. Analysis and Discussion2.1 What is IFRS and its prefers if adopted?IFRS is be promoted by its supporters as a single raise of globally accepted, soaring quality be standards (KMPG Canada, 2007), that is adopted by over a nose candy countries, including five of the G8 countries (KMPG Canada, 2007). It appears to hit gained the support of a number of countries and with announced acceptation in Canada, starting 2011 by AcSB, in that respect is good ground to believed about the benefits of the said set of international news report standards in Canada equationd staying on with the donation Canada generally accepted accounting principles. To cite names of countries, it could be asserted that as early as 2005, publicly listed companies in European Union member countries , Australia, Hong Kong, and South Africa and develop used IFRS (KMPG Canada, 2007). In the absence of these countries plan or indication of travel to where they came from, with more land and interest it is to know ab out the improvement from IFRS bankers acceptance in the financial statements of Canadian companies.Given therefore the similarities of the two standards infra Canadian GAAP and IFRS, there is basis to state that Canada has had considerable enter and influence in the development of IFRS over the years (KMPG Canada, 2007). Therefore, Canadas decision to join the some countries in adopting IFRS carries with it the intention to benefit enterprises in Canada. That it would go forth better access to international capital, funding and investment opportunities should not decrease as a big surprise. The realities of samurai bonds or Eurobonds (Hill, 2009) could be asserted to have strong support from the presence of IAS or IFRS in the countries where bonds are floated as companies seek cheaper sources of capital as finding the equal outside apiece homo country helps in minimization of cost of capital as an objective (Brigham and Houston, 2002). The improved information in terms of co mpar top executive of financial reports across countries could just be easy to accept as many companies pursue international business.Another advantage of using the IFRS is the belief that it should to a fault more cost effective for the account information compared with maintaining a crystalise and isolated set of Canadian score standards (KMPG Canada, 2007). This could be the same understanding for the move by the US to ultimately adopt harmonization of its accounting standards with the IFRS since non-US companies, which want to list their stocks in the US stock exchanges, are ask still to make translation of IFRS based financial statements into US GAAP based. From the practical sense of view, it would be easy to see the added cost for companies making still translations in the same way that non-Canadian companies may be compulsory to make the translation when they go to Canadian stock exchanges.Another advantage of bridal is to make financial results more transparent an d consistent for drug user globally, which will mean using more judgment and providing more revelation in the short term (KMPG Canada, 2007). For this reason, persons involved in the public confederation financial reporting of Canada will have to expect to pass down the stairs a steep learning curve (KMPG Canada, 2007). IFRS and Canadian GAAP compare in just few important lines but since IFRS standards are ecumenical and principles-based, it is evaluate that its application would require greater use of professional judgment than Canadian GAAP. The availability of more accounting policy choices under IFRS would shell out companies longer era now to evaluate these choices for each organization and is pass judgment to result in valuable outcomes in the long-term (KMPG Canada, 2007).2.2 The impact of the IFRS betrothalIt is believed that the first and most obvious impact of IFRS sufferance would be in the effect on the leaveation of the financial position of an entity as se t out in its financial statements (Romano and Grewal, 2009). Since IFRS represents a statement of principles that must be applied based on judgment and assumptions given the facts at hand, it is expected that many principles will change including possibly modifying the many rigid prohibitions or rules that have become part of Canadian GAAP over time via either practice or prescription (Romano and Grewal, 2009). To illustrate since IFRS allows for more lovely nourish accounting policy choices, this would open to a greater spot of interpretation and professional judgment. The new principles underlying the presentation of financial measures will change both the way in which things are measured and what is include in the measurement as wells timing of measurement and inevitable disclosure (Romano and Grewal, 2009).The impact of the adoption of the IFRS would be in the allowing greater license to exercise professional judgment on which will make the financial statements to have grea ter relevance that will enhance the usefulness of the accounting information. It may be recalled that the qualitative characteristics of accounting include both reliability and relevance of the accounting information for decision-making (Meigs and Meigs, 1995). A financial information may therefore be too reliable as to approximate a high a degree of objectivity but may no longer be of significance to decision makers since the decision is already done.To illustrate, a person buying a car or any exemplary product may be interested to know what is the pretendd cost of merchandise for a car that he or she wants to buy for the buyer for analyse it with the actual price of the product. On the other hand, another buyer may not really know what is the actual cost but he or she has information that the production possess so much judge that is it applicable and unique about the product being sold and could be used for commercial production. The second buyer may not have the actual obje ctive cost of production for the product but he or she has a good and businesslike assessment of the situation because of familiarity of relevant information which can generates value and could make a reasonable estimate of the values of possible input cost of the product. He is therefore more strategically positioned than the first buyer is. Thus, relevance at this point may be more advantageous than having greater reliability of information. Adoption of IFRS is nonetheless not expected to amount of total loss of reliability of information.The adoption of IFRS is criticized by the fact that it would provide too much management flexibleness or the freedom of interpretation that may be adopted with the agreement of the independent auditors, thus it would reduce the quality of financial reporting. There is however, no strong evidence to believe that feared moment of the adoption on these ground. In fact, this feared consequence remains to be seen (Romano and Grewal, 2009). On the h and, one great bonus of adoption is for greater international comparability due from a placement of globalized-investment market place. There is now movement towards the implementation of the adoption and there are now plans to effect a successful transition (Romano and Grewal, 2009).2.3 try Partial Application of IAS or IFRS to Business about Fair value AccountingOne sample interesting effect of adoption of IFRS is the eventual effect International Accounting Standard (IAS) 39. It is asserted that IAS 39 is partial derivative application of unobjectionable value accounting since the said standard gives institutions the happening of irrevocably applying fair value valuations to any financial instrument starting from the concept of fair value option (Enria, et al, 2004).It is argued that one fundamental mental synthesis block of developed by the International Accounting Standards Board (IASB), the present makers of standards under the IFRS based in UK, is to bring the financial statements up to day with market developments hence, a working group on the issue has proposed the use of Full Fair Value Accounting (FFVA) for all financial instruments. (Enria, et al, 2004). magic spell adoption of the IFRS by Canada would not immediately result to adoption of fair value accounting, it will open the great possibility because as state earlier, the use of international accounting standard would give more flexibleness to companys management and accounting professionals and fair value accounting is part of the IFRS.If it feared that FFVA could produce effects on financial stability of banks, the same arguments could be made applicable to the Canadian companies, which are just to co-exist with other international and global companies in the use of IFRS. The analysis of authors found baulk about concerns on the potential wider application of fair value in unduly increasing the volatility of banks balance sheets, which could reduce possibly ability of companies to re act to adverse shocks. The adoption of fair value could also result to the pro-cyclicality of the bank lending especially if the application of fair value happens at the same time with other developments under a new accord. Thus, one of possible consequence is for encouraging banks to react if values change by use of FFVA by dint of panic selling and tightening lending standard (Enria, et al, 2004). The effect could be far reaching as it could bring a possible financial crisis at the worst case possibly.From deeper tests, however, the researchers have found no momentous impact on volatility by the introduction of FFVA standards for companies studied in the 1980s and 1990w. However, they reproveed about the need to be interpret the result with caution for several reasons and call for further research citing as one reason the lack of clear-cut choice of the cut-off dates on which banks change from one accounting standard to the other (Enria, et al, 2004).3. ConclusionTo conclude, this researcher believes that the adoption by the Canadian Accounting Standard Board of IFRS for companies concerned starting in 2011 will result to more useful information that would make securities markets either more or less efficient than not adopting the said international accounting standard. The adoption, while could result to possibly losing some reliability, is expected bring greater relevance of the financial statements and increased comparability which would then it more useful for Canadian companies and the users of these information. The possibility of losing some reliability may possibly be counter checked by user still requiring from these companies from which they would like to jazz with the production of financial statements prepared under the present Canadian GAAP but they could run the risk of losing the benefit of a decision that would be based on relevant grounds. The mere fact that CASB has announced the adoption should signal there the advantages could outwei gh the disadvantages of IFRS adoption.