24/7 writing help on your phone
Increasing globalization has led to the need o harmonize the world economy and this has been the case with financial standards. COSO (2009) considers monitoring of internal control as the best way to produce the most reliable information which is why there is need to control financial reporting according to certain standards. International Finance Reporting Standards (Formally known as International Accounting Standards) are a set of standards specifying rules and treatments of various financial and accounting reporting standards.
The IFRS came into being when the International Accounting Standards Committee adopted the IAS (International Accounting Standards) and developed them to the current IFRS starting 2001.
IFRS requires that all financial reports be prepared according to the acceptable standards of IFRS.
The US Security exchange Commission (SEC) has come up with a roadmap which will by 2014 require U.S Issuers (Companies registered with SEC) to prepare their financial standards according to IFRS. This has brought forth various reactions around the US corporate world. The National Association of State Boards of Accountancy (NASBA) has advised the Security Exchange Commission (SEC) to consider convergence between IFRS and GAAP instead of the roadmap in which it intends to adopt IFRS for use by US companies.
Convergence of the international reporting standards could go a long way in reducing unethical behavior and corruption in companies if it is adopted by all countries alike.
However, as long as countries can choose which of the IFRS principles to adopt, there are no way unethical behaviors and corruption cases such as in the Siemens’ article can be reduced. This is because countries are likely to avoid principles that inhibit or require certain procedures that they are not willing to change.
This kind of selection and changing of IFRS principles to fit to the country’s requirements will not guarantee the reduction in unethical behaviors in financial reporting. Cases of fraud can be enhanced when people in firms have opportunities (Deloitte, 2008). The IFRS guidelines may eliminate these opportunities by putting strict measures on the financial reporting standards but how the adopting country converges its system with the international reporting standards determine the effectiveness in reducing such opportunities.
There is considerable diversity in what different countries and firms take to be acceptable corporate practices. Each country may have its own financial standards which must be integrated with the IFRS such that the result is complete diversity in corporate practices. Financial reporting needs are highly affected by legal factors, environmental and cultural influences in different countries. Even when over one hundred countries have endorsed IFRS, there is still no uniformity in how different countries apply the standards.
Different tolerance levels are solely responsible for the different ways in which countries interpret IFRS and opt to only adopt the principles that go with their acceptable financial standards. NASBA (2009) notes that it is only in an ideal world where a single set of standards can work out for all countries and be accepted globally. Due to the differences countries have adopted few of the standards or made several changes tailoring the IFRS standards with theirs. This is the NASBA recommendation to SEC so that only acceptable changes are adopted.
An example of change in jurisdiction that would result with complete adoption of the IFRS standards is the elimination of the LIFO (last in first out) inventory reporting method which is not allowed by IFRS. This means companies changing from LIFO to FIFO (first in first out) would experience losses in millions through taxation. While this may not affect overseas countries, it may take sometime for US companies to adopt the standards. There would also be two standard setters in the US considering SEC sets standards for U.S issuers. Non-issuers would then be subjected to different standards.
It is important that an organization setting accounting standards be independent from any influence by member organizations. The independence of IASB can be challenged because its funding comes partly comes from public accounting firms which are likely to carry considerable influence on the organization.
Following differences in how different companies adopt the IFRS, the independence of IASB may be affected. In a bid to ensure independence, the member countries may require that the funding companies be discontinued and countries required to make the contributions instead. This way, the independence of the organization will be ensured.
COSMO (2009). Guidance on Monitoring Internal Control Systems. US: The Committee of Organizations of the Treadway Commission.
Delloitte (2008). Roadmap For The Potential Use Of Financial Statements Prepared
In Accordance With International Financial Reporting Standards By U.S. Issuers” US: Delloit.
NASBA (2009). Roadmap For The Potential Use Of Financial Statements Prepared
In Accordance With International Financial Reporting Standards By U.S. Issuers”. Nashville, TN: NASBA.
👋 Hi! I’m your smart assistant Amy!
Don’t know where to start? Type your requirements and I’ll connect you to an academic expert within 3 minutes.get help with your assignment