International Financial Reporting Standards Professional Accountancy

Question: Discuss about the International Financial Reporting Standards for Professional Accountancy. Answer: Introduction: Investigate and Write a Brief History of the IFRS The professional accountancy bodies from the UK, the US and Canada made the firsts move in the area of convergence of accounting standard in 1966 and proposed the creation of the Accountant international study group (AISG). The rationale behind this move is to design comparative analysis in the three nations with respect to the accounting and auditing practices. The AISG released 20 comparative analysis reports till 1977 when it was disbanded (Barth et al., 2006). At the 40th World congress of Accountants held in 1972 in Sydney Sir Henry Benson proposed the formation of IASC (International accounting standard committee). One of the three AISG countries discussed and signed the approval and supported by the members of the specialized bodies of accountancy in Germany, France, Mexico, Australia, the Netherlands and Japan the International accounting standard committee (IASC) was founded in 1973 (Barth et al., 2006).The first chairman elected was Sir Henry Benson and Sir Paul Rosenfield was appointed as the primary secretary in the new organization. In only one of the nine original International accounting standard committee (IASC) countries only Germany, a relatively few of the registered business applied IASs in presenting statement to domestic investors. The chief objective of the International accounting standard committee (IASC) establishment aims to design a common set of premium standards for global accounting to substitute the accounting norms nationally (Irvine, and Lucas, 2006). The International accounting standard committee (IASC) issued 41 standards between 1973 and 2001 before it was reinstated by the international accounting standard board .It was consented by the EC to implement IASs or IFRS (international financial reporting standards) for all registered business in Germany, the UK France, and Netherlands along with remaining twenty one member countries by 2005 (Irvine, and Lucas, 2006). The government of Australia and standard setter had undertaken the adoption policy related with IAS by the year 2005.The roadmap for adoption policy set by The US is 2014 to 2016. The convergence with IFRS (international financial reporting standards) is also considered by Japan and Canada. In 2002 a memorandum of understanding (MOU) was signed by FASB (financial accounting standard board) of US and the international accounting standard board (IASB) with regard to US GAAP and international financial reporting standards (IFRS).In the agreement of Norwalk pledge was undertaken by both financial accounting standard board (FASB) and international accounting standard board (IASB) to jointly work for the development of accounting standards that provides high quality and compatible both in the domestic accounting and cross border reporting of financial aspect. There is an argument that the changes implemented in the US GAAP can have an implication on the international business accounting environment. Gannon and Ashwal (20004), make an argument that the endeavour of the financial accounting standard board (FASB) and IASB (international accounting standard board) have changed accounting process in respect to the US GAAP and more changes are projected as the difference between th e international financial reporting standards (IFRS) and US GAAP continues to narrow. In the recent past many countries both developed and developing implemented the international financial reporting standards (IFRS) with respect to the accounting and financial reporting. The lead taken by European Union (EU) since 2005 made it mandatory for all listed companies who are members of EU to implement and start adapting to IFRS in reporting. Almost 120 counties have implemented or converged with IFRS across the globe (Ball, 2001). International financial reporting standards (IFRS) are global accounting practice that is gaining acceptance across the globe rapidly. IFRSs are more oriented by the principle and objectives. They are based on the concept that the rules followed by then would have universal application and can be used by public companies worldwide to conduct their financial reporting. The implementation of IFRSs as formulated by IASB (international accounting standards board) is anticipated to lead to the appliance of universal set of standards related with finan cial reporting involving member of European countries and other member countries that have adapted to IFRSs. Nevertheless comparability is not likely to happen from the adoption of IFRSs (Ball, 2001). Thus it can be stated that internationalization and globalization will result in the reduction of much of the differences in the rules and application of accounting across countries, it will result in elimination of it and it is not expected to do that. Ball (2006) states the view that implementation of IFRSs will unlikely to be same and it may impact the perception and reporting of IFRS quality on the part of accounting professionals. According to Sunder (2010) there are six element of decision process for countries willing to implement the international financial reporting standards (IFRS). They are making contribution to wealth and prosperity of the community, relevant information included from all component of economy, long term steadiness, adjusting to alteration in the fiscal atmosphere, vigorousness against manipulation and confrontation to capture by tapered interest group (Bhattacharjee, 2009). The argument and debate of implementing IFRS is not limited ot the cost and benefit but it also is related with the implication of global financial reporting in case of the modification of IFRS as a outcome of the process of adoption. There is also concern in context to the varied version of IRFS and the difference in the implementation process apart from the IFRS present in label merely. The implementation and adoption of the IFRS in the European union and other 120 nation is confronted with a range of constraints for the implementing nation which are considering the implementation or confronted with the issues of deciding on when, how and why to go for the implementation of the IFRS system (Bhattacharjee, 2009). In this regard the benefit of IFRS can help them and it include greater comprehension and transparency of the financial report, reducing the cost of capital for the business and increasing the price of the shares based on the higher investor confidence and information transparency, reduction of standard setting cost nationally, regulation of securities market easily, financial data across borders and accessories opportunities related with investment can be compared easily, enhanced credibility of local markets to FDI clientele and potential partners considering merger and acquisition deal and potential lenders related with the financial statements of business entity in developing countries. Nigerias Current Accounting Regulatory Framework and its Progress Towards Standardising on IFRS The international monetary fund, the world bank, the G8 and G7countries, international organization of security commission (IOSCO), the United Nations (UN), the organization for economic co-operation and development (OECD), Finance ministers and central bank governors, and Basel committee on banking supervision in the international front have recommended the implementation of IAS or universal global set of accounting standards globally (Winney et al., 2010). In 200 the US SEC concept published on the IAS also promoted the convergence of quality global reporting of financial framework globally that will improve the strength of capital markets. In this regard the EU identified in the year 2002 a universal set of financial norms as a crucial support in developing a money market unity in European country. In the domestic market many countries and government along with tax regulator prefer a global accounting practice to monitor and tax the business entity conducting operation within the ir boundaries. In the context of Nigeria the convergence was initiated by the government of Nigeria in 2012 was supported by Nigerian accounting standard board (NASB) that has renamed as financial reporting council (FRC), Central bank of Nigeria (CBN) and Nigerian stock exchange (Winney et al., 2010). Generally the accounting and disclosure system of a country is crucial to the fiscal system and financial environment of the economy. This is guided by the contracting and informational requirement of the major stakeholder in the country and its function in the capital market and corporate governance. As the book-keeping method is corresponding to other aspect in the corporate structure, a match among them is obvious what outcome in various book-keeping method and financial management across different nation (Tarca, 2004). The corporate structure has implication over the structure and approach of accounting method and the application of global accounting standards. The requirement of Stock exchange is an integral part of the corporate framework and has direct implication on the application of international accounting system. The other implication includes foreign exchange choice of the company and the kind of disclosure. The listing of companies over the border create the need for IF RS reporting very essential for business entity with listing in stock exchange based on the jurisdiction related with IFRS. Convergence, Harmonization and Adoption of IFRS and its Clarification The harmonization process related with international financial system and followed by the process of convergence process in the 90s with respect to IFRS is concerned with the globalization of the wealth and financial market. In practice in it agreed that book-keeping and financial harmonization is essential for the globalization of wealth and financial markets. Financier in the capital and financial market now get opportunities to invest across the globe. Many companies undertake expansion of business across the national borders consistently. Business entities are able to seek capital at the minimum cost anywhere. The capital and securities market are increasing trhe capital flow with cross border. Some of the largest stock exchanges in the world execute the merger discussion and business deal with the help of internet (Tarca, 2004). In this regard the major concern is financial report transparency that encourages lenders, investors and other parties to gather the financial data of t he companies and conduct comparative analysis from one company in one country with other in another country. In addition there is requirement to give financial data with reliability, relevancy and comprehensive to fulfil the investors needs and help them to compare performance and take decision related with buying, holding and selling enabled by the minimization of differences related with the accounting and financial report between different countries. The term harmonization can be defined as the settlement of various book-keeping and accounting method by arranging into one group with the objective of keeping the standard form whereas content exhibit differences significantly. Convergence can be defined as the concept of bringing or converging the international accounting standard prescribed by the IASB and present accounting standard prescribed by the setters of standard nationally with the objective of removing option in financial system for events and transaction. The core purpose of convergence process is to establish a universal set of high quality and consistent international accounting standard internally as prescribed by IASB and followed by all the setters of standard nationally. The requirement for international accounting standard convergence for global standard setters is done with below objectives Identifying the increasing importance of global accounting standard. To make sure that individual standard setter does not exercise monopoly with respect to the best solution to problems in accounting. To make sure that national standard setters is not in a position to gain acceptance globally to set accounting standards. To elucidate different aspect of fiscal reporting where the countrywide standard setters is not capable to act on their own. Convergence is an approach whereby standard setters from across the countries conduct healthy discussion related with the problems of accounting and come to joint agreement using the combined experience thereby taking right decision. Obazee (2007) emphasis that convergence can be undertaken by two ways and they re adoption promoting complete implementation of IASB accounting standard or adaptation promoting modification of IASB accounting standard to adjust to the domestic market and financial attributes without deviating from the book-keeping standard and disclosure principles of the IASBs accounting standard. Convergence was developed with the view to transport accounting standard such as US GAAP and IFRS and harmonize by bridging the distance by producing standards that are identical. Based on SEC(2010) IFRS adoption across the globe require two approaches and they are convergence approach and endorsement approach It divides jurisdiction not following the IFRS ADOPTION as stated b y the IASB as observing the convergence approach. They maintain their local accounting standard but taking measures to converge and follow IFRS in the course of time as exhibited by the case of China. On the other hand endorsement approach is related with jurisdiction promoting individual process of IFRS to match with the local standard as exhibited by the countries in the EU. The concept of adoption with respect to IFRS is related with the complete implementation or application of IFRS without any change in the practice (MARLBOROUGH, 2004). The process of convergence may support adoption based on a stipulated time frame but it is not replacement for the process of adoption. Thus it is recommended that countries should oppose the enticement of convergence approach and opt for complete adoption of IFRS. This approach is identified to have the highest impact on the reporting of accounting and financial function, provide improved transparency and the financial statement disclosure. Nev ertheless the distinct evidences of the financial implication related with the IFRS adoption process have been stated to be limited. Benefits of IFRS Adoption Thus the suggested process of adoption of IFRS process helps in better comprehension and transparency, cost reduction in capital to business and higher prices of shares based on the improved investors confidence and data transparency, national standard setting cost reduction, securities market regulation getting easier, financial data across national borders and accessories of opportunities of investment can be compared easily, reduction of standard setting cost nationally, regulation of securities market easily, financial data across borders and accessories opportunities related with investment can be compared easily, enhanced credibility of local markets to FDI clientele and potential partners considering merger and acquisition deal and potential lenders related with the financial statements of business entity in developing countries (MARLBOROUGH, 2004). In case of international business the process assist o meet the disclosure procedures of security exchange formalities across the world. The other benefits related with the adoption of IFRS the reduced exposure to political pressures compared to the national standards, guidance to local implementation based on local situation on consistent basis, and the attempt for raising the accounting standard to the optimum possible level of quality across the globe. The final market impact of the process of convergence is an application of two impacts. The first impact is the primary informational and it is if convergence process enable book-keeping quality positively or negatively (Nobes, and Zeff, 2008). The second impact is related with the acquisition expertise and it is of the investors gain expertise in international accounting and it is related with the cost factor of developing the needed expertise. Thus it can be stated ex ante final market impact related with the process of convergence is not certain. Thus based on the article Brexit is done, now what about accounting and the position of UK after the exit from European Union it is evident that the adoption of IFFR by Nigeria is useful measure in making the accounting and financial report in accordance with the international accounting system as prescribed by IASB (Nobes, and Zeff, 2008). The uncertain future of Britain in the light if Scotland and Northern Ireland seeking to leave Britain makes it is not the right choice. Thus Nigeria implementing the adoption of IFRS will help to facilitate capital flow across the globe and increase the interest of lenders and investors helping the economy of the country. References Ball, R., 2001. Infrastructure requirements for an economically efficient system of public financial reporting and disclosure. Brookings-Wharton papers on financial services, 2001(1), pp.127-169. Ball, R., 2006. 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The Pied Piper of Financial Reporting, being paper prepared for information for better markets conference ICAEW. London December, pp.20-21. Tarca, A., 2004. International convergence of accounting practices: Choosing between IAS and US GAAP. Journal of International Financial Management Accounting, 15(1), pp.60-91. Winney, K., Marshall, D., Bender, B. and Swiger, J., 2010. Accounting globalization: roadblocks to IFRS adoption in the United States. Global Review of Accounting and Finance, 1(1), pp.167-178.