The International Financial Reporting Standards (IFRS) are common accounting and reporting rules that defines how business transactions should be recorded and reported, and what information a company should disclose in its financial statements. IFRS are playing a crucial role in global financial reporting as they are increasingly being adopted by many countries. The formation and adoption of international financial reporting standards enables investors, organizations and governments to compare financial statements from various sources supported by IFRS with more ease.
The following are some of the key reasons why you should adapt to the IFRS legislation:
1. Unifies business transactions
The International Financial reporting Standards seeks to place each person or business entity in the whole world on a plain field when it comes to preparing and presenting financial statements. This makes it possible for domestic firms to compare their performance against their foreign competitors. In addition, adoption of IFRS allows multinational corporations with various subsidiaries in other continents to consolidate and prepare their financial statements in a common accounting language understood by everyone. The adoption of uniform accounting and reporting standards will also eliminate the prevalence of different results on financial statements
2. Improved Transparency
International Financial Reporting Standards have enabled firms with subsidiaries in regional markets to harmonize their training, auditing, operation and reporting standards. The use of universal standards will thus allow a company to monitor the operations of her subsidiaries and therefore enhancing transparency. Whether the business is a global or domestic entity, their offices could adopt similar accounting and reporting techniques and standards providing consistent reporting and company records.
3. International Comparability
IFRS allows a single set of accounting standards enables companies from different parts of the world to apply similar standards and thus enhancing comparability. With increased transparency, the universal standards allows for easier cross-border investment with low cost of capital and greater liquidity. Foreign investors will be able to easily assess the performance of the company and utilize the disclosed information and thus make well-informed investment decisions. Otherwise, using different accounting and reporting standards would present challenges in analyzing and interpreting financial statements.
4. Market Efficiency
A single set of accounting standards will cut down time and costs of preparing and reporting financial statements due to different regulations and standards and thus achieve capital savings in the long-run. The use of uniform accounting and reporting standards such as IFRS will allow the business to reduce the costs of financial statements’ preparation. This will provide accurate and timely information to investors, used for making crucial investment decision. The availability accurate and timely information in the market increases the efficiency and performance of the market. If the SEC does not move to endorse the use of uniform accounting standards, many companies will be forced to use multiple accounting standards. This will not only increase the costs of financial report preparation through high auditing fees, but will also increase the probability of reporting errors. As such, the efficiency of the market will be reduced as a result of erroneous information and increased transactions costs.
5. Global Integration of Local Firms
Adoption of universal accounting and reporting standards allows local companies to compare their operations and performance with other companies in foreign markets. This will enable such companies to compare and implement new strategies for improved performance. The ability of firms in similar industries to compare their financial statements provides opportunities for mergers and acquisitions. Otherwise, valuation of a company that used different reporting standards will be costly and thus discourage cross-border mergers and acquisitions.
Given the above merits of adopting universally accepted International Financial Reporting Standards, it is time for every individual, corporate bodies and governments of the world to consider adopting the standards for financial reporting. However, this should not insinuate that other accounting and reporting standards be disregarded. The availability of other standards such as the GAAP and IAS will allow for increased competition and thus shape the credibility and efficiency of accounting standards. With the availability of other standards, IFRS will continue to be improved and thus address concerns that has been raised against its efficacy. Nonetheless, the merits of adopting a uniform accounting and reporting standard have been found to present more opportunities than costs. As such, everybody, irrespective of whether they have businesses or not, is affected by these standards and should be well-versed with them.