HA3051 Assignment, This assignment is to be conducted between two people. The assessment carries 20% of the total assessment for this subject. The assignment is due week 9 (by Friday 18 th January)....

Global Accounting Standard
Table of Content
Summary ............................................................................................................................................................... 2
Introduction .......................................................................................................................................................... 2
Benefits of Global Accounting Standard............................................................................................................... 2
Free Flow of Capital .......................................................................................................................................... 2
Reduced Information Asymmetry and Cost of Capital ..................................................................................... 3
Network Effect .................................................................................................................................................. 3
Number of Analyst covering companies .......................................................................................................... 4
Listing on foreign exchange .............................................................................................................................. 5
Relationship of legal activity and capital market development ....................................................................... 5
Financial re-regulation ...................................................................................................................................... 6
IFRS in developed capital markets .................................................................................................................... 6
Conclusion ............................................................................................................................................................ 7
Reference.............................................................................................................................................................. 8
Summary
International Financial Reporting Standard or IFRS are set of standard to be adopted across all
countries to ensure uniform accounting practises. This article summarises the benefits of adopting or
converging towards IFRS. With single set of accounting standards, the companies can raise capital
easily and make its financial comparable. It also helps to improve quality of disclosure, reduce
information asymmetry and cost of capital. With IFRS, the Company can expand its equity holder
ase to foreign institutional holder, mutual fund manager and other foreign investor. Implementation
of IFRS at either parent or subsidiary company has network effect on other group companies.
Though there are many benefits of converging to IFRS, its fair value method of accounting is subject
to lots of criticism.
Introduction
Single, Global set of Accounting Standard refers to the application of same method for preparing
financial statement for all companies across the globe. With the view to have uniform accounting
practises, the International Accounting Standards Board (IASB) was established to form International
Financial Reporting Standards (IFRS). IFRS is a principle-based standard and application of the
standard depends on the professional judgement of the Companies management. As it gives
management the option to exercise their judgement, which may differ from individual to individual,
it requires companies to provide detailed disclosures of the assumption considered while preparing
financial statements.
In mid 1990, the trading relation between Canadian and US companies were improving, and more
and more Canadian companies began raising funds from US. So, to facilitate smooth business
operation, the Canadian Accounting Standard Board began aligning its accounting standards with
U.S. GAAP (Generally Accepted Accounting Practice). So, in present scenario, when companies
located in any country can trade globally, there is a need for global accounting standard.
Benefits of Global Accounting Standard
Free Flow of Capital
In cu
ent period, the trades are more globalised and capital flows across all countries. However, the
investors are reluctant to provide capital to companies that prepare financial statement as per local
accounting rules or national GAAP (Hail and Leuz, 2007). With IFRS, the foreign investor can save
significant amount of time and money that is usually incu
ed in understanding domestic accounting
practices and re-stating financial statement (Paul, 2006).
There were instances wherein, if the financial statements are prepared as per local GAAP it shows
profit and if the same statements are restated as per IFRS, the Company reported loss. Thus, to
emove such ambiguity and subjectivity involved in preparing financial statement, the use of global
accounting standard would be prefe
ed. Further, IFRS would provide consistent presentation of
financial statement along with uniform measures for recognition, measurement and disclosures of
financial transaction. Also, the use of different set of statement may affect its financial ratio, which
plays a key role in lending decision by bankers and for compliance with debt covenant.
Also it was observed by Bradshaw, Bushee and Miller (2004), that the compliance with US GAAP
y foreign firm enabled them to attract US institutional investment. The US investor has a comfort
zone in analysing these financial statements prepared as per US GAAP and it reduces information
processing costs and provides higher quality information. Thus, with harmonisation of accounting
standard across globe, the Companies could easily raise fund form international capital market. With
IFRS based financial statement, the companies experience efficiency in capital-market as it...