What are the advantages of having one set of accounting standards worldwide?
International Financial Reporting Standards (IFRS) are the common accounting rules which define how a transaction should be reported. It also includes rules about the information to include or disclose on financial statements. It is a unitary set of standards that has helped to solve many problems in the accounting world for organizations, but this system has also been responsible for creating problematic outcomes as well. Show
There are several countries who have not yet adopted IFRS, including the United States. Because this system does not receive global acceptance, the accounting by foreign-based companies that conduct business in a nation which doesn’t use the International Financial Reporting Standards becomes more of a challenge. These firms must create a statement using one system, and then make another report using the Generally Accepted Accounting Principles that others use. As with any other method of accounting, there are some specific advantages and disadvantages of adopting IFRS to consider. This system can offer more flexibility, but that benefit can also lead to the manipulation of standards to make an organization seem more financially secure than what it is in reality. That’s why each key point must receive careful review and consideration. List of the Advantages of Adopting IFRS1. It would create a single set of accounting standards around the world. 2. It would reduce the time, effort, and expense of preparing multiple reports. 3. It would not be a costly transition in the United States. 4. It would make it easier to monitor and control subsidiaries from foreign countries. The U.S. has long been the world leader for taking a strong moral stand on financial ethics, with most nations following the same standard as the United States for generations. Now over half of the world is moving in the direction of IFRS, which means it should be strongly considered for implementation for American firms as well. 5. It would follow the same process that many American agencies already follow. 6. It would offer more flexibility in the accounting practices. 7. It would make it easier for all companies to do business in foreign countries. Having a single set of accounting standards for every agency around the world would allow for more expansion opportunities because there would be fewer regulations in the way. You would get to streamline operations internally because you would have the confidence in knowing that every other agency was behaving in the same way. 8. It would help to streamline the system by creating one centralized authoritative body. 9. It would create a higher return on equity. 10. It would improve the rates of foreign direct investment around the world. When we adopt IFRS, then there will no longer be a home-bias in place for shareholders to prefer domestic firms over international ones. There will be a familiarity and certainty in the financial information that will enhance their decision-making process. 11. It would be helpful to newer investors and smaller investments. List of the Disadvantages of Adopting IFRS1. It would increase the cost of implementation for small businesses. The SEC estimates that it would cost 12% of global revenues to implement IFRS standards in the United States, so the $8 billion estimate could be way off. Since the primary benefit with this effort would be to achieve additional comparability, the system may not be worth the expense. Kara Stein, who serves as an SEC member, describes the situation in this way. “I am not convinced of a need to abandon U.S. GAAP in favor of IFRS,” she said. “That is not to say that the GAAP system is perfect. Nor is IFRS perfect… neither may serve investors well in today’s post-financial crisis, technologically disrupted, and data-driven world. 2. It would lead to concerns with standards manipulation. 3. It would require global consistency in auditing and enforcement. 4. It would increase the amount of work placed on accountants. When you add in the additional training that many accountants would require to stay in compliance with the new rules, determining how continuing education programs would work is an issue that has little clarity at the moment. 5. It would create an adjustment period filled with tumult. 6. It would require changes at the educational level as well. 7. It would not reduce the home-court advantage for the modern firm. 8. It would still require global acceptance to be useful. Conclusion of the IFRS Advantages and DisadvantagesAlthough a number of countries have made the move to adopt IFRS, the United States is not one of them. Mary Jo White, the Chairman of the SEC, recently said that promoting a standard set of global accounting rules should become of the top priorities of her agency. How that would look from an American perspective could be very different than what the rest of the world is already using. IFRS has been in place since 2006, and it offers an increased comparability across agencies who operate between countries. The reality of this system is that the debate could be in reverse as well. Other countries could evaluate the pros and cons of joining the U.S. GAAP accounting practices instead to make it easier to do business in North America. The advantages and disadvantages of IFRS work to eliminate the reconciliation of the books that must happen under the current system so that there is a unified picture available before making future decisions. Creditors would no longer face this issue when comparing or evaluating the creditworthiness of agencies operating abroad. We are all seeking ways to reduce barriers to global expansion, which is why switching to these standards is one idea that receives robust consideration. What is the benefit to have a single accounting standard in countries across the world?Globally comparable accounting standards promote transparency, accountability, and efficiency in financial markets around the world. This enables investors and other market participants to make informed economic decisions about investment opportunities and risks and improves capital allocation.
What are the advantages of accounting standards?Benefits of Accounting Standards. Attains Uniformity in Accounting. ... . Improves Reliability of Financial Statements. ... . Prevents Frauds and Accounting Manipulations. ... . Assists Auditors. ... . Comparability. ... . Determining Managerial Accountability.. What are the advantages of having a set of rules or standards in accounting ?( Ex cost principle etc?Having a set of rules can increase accuracy and reduce the ambiguity that can trigger aggressive reporting decisions by management. Compliance to GAAP helps to ensure transparency in the financial reporting process by standardizing the various methods, terminology, definitions, and financial ratios.
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