Arguments for and against Accounting Standards

Hi guys,

How is your day going?

We previously examined the basic idea behind accounting standards. So we shall continue with the arguments for and against.

FOR:

The major argument is harmonization and uniformity in financial reporting. All financial statements reported using the IAS and IFRS would be stated in the same manner, format and content regardless of country or continent. As a result, these different financial statements can be easily compared against themselves, to monitor performance and trends. Just like in the previous scenario, we can easily determine the start and finish points of the 100, 200 and 400m tracks and further determine who comes first, second and third on the races, since there is a standard metric rule.

Furthermore, the standards help to encourage more international and cross border trading as well as investments since, it is assumed that, companies that adopt IAS and IFRS can be compared with international companies from different parts of the world. Also, in the previous post, we talked about how different companies can be quoted on foreign stock exchange and can report using IAS and IFRS, this helps them access more funds which wouldn’t have been accessed locally. 

AGAINST:

Let’s consider this: Most times when we have a headache or an illness, we go to the doctor and he asks for regular symptoms and then prescribeug which he expects to cure the headache or illness. However, we also know apart from general symptoms, there might still be specific symptoms to requiring different drugs or special treatment. That is how it is, with standards. The major argument is, the standards do not consider specific conditions prevailing in each country. Hence, some of the standards may not apply to certain countries. For example, IAS 29 - Financial Reporting in Hyperinflationary Economies, this standard would not apply to countries that do not experience hyperinflation. 

The standards may also be considered to be expensive to adopt especially for small and medium scale enterprises not quoted on the stock exchange and have limited users of its financial information.

Imagine, you and your friends go out for lunch to a particular restaurant. You want fries, your 4 friends want beans, spaghetti, rice and noodles. However, the restaurant only sells rice. It may only be able to meet the need of the person that wants rice. In the same vein, there are several users of financial information ranging from shareholders to lenders to employees, even the government and they have varied needs. For example, the government needs financial information for tax purposes and economic planning whilst employees need it to determine their job security and value (wages and salary) which they deserve. It is hence argued that, the use of the standards may not produce a statement that can meet these varied needs.

DAILY CHALLENGE: Come up with more arguments for and Against the Adoption of IFRS.

TIP: You can make use of scenarios whilst you come up with your arguments, they aid comprehension and retention.

For further clarifications, mail: nneomakristen@gmail.com

Have a wonderful day.