Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
Ifrs 13 adoption essay
Don’t take our word for it - see why 10 million students trust us with their essay needs.
2.5. IFRS and Financial Performance
One may be forced to ask if the adoption of a uniform global financial reporting framework (IFRS) would enhance financial performance. Theoretically, IFRS can help to promote excellent firm performance. However, there is as yet no robust empirical evidence that this causal relationship is quantitatively significant. Performance simply means any recognized accomplishment or the achievement of set goals. (IRONKWE, Uwaoma) A company that is performing well is one that is successfully achieving its goals and is efficiently executing suitable strategies. (Nsijilem, S.C, 2015)
However, Taiwo and Adejare (2014) “Empirical Analysis of the Effect of International Financial Reporting Standards (IFRS) Adoption on
…show more content…
Impact of IFRS Adoption on Profitability
Profitability is one of the key indicators, shows the health of a company; proponents of IFRS claim that adoption of IFRS results in increase in these ratios. Studies by Lantto and Sahlstom examined the impact of IFRS adoption on key financial ratios of Finnish companies. The results showed that, IFRS changes the magnitude of accounting ratios due to the adoption of fair value accounting and stricter requirement on certain accounting issues. The results indicated increase in profitability.
Suh (2012) “Effects of IFRS on Korean Banks and Future Prospect”, examined the impact of IFRS adoption on the performance of banks. The results of his study showed that IFRS Adoption favorably affected the profitability.
George Iatridis(2010), “IFRS Adoption and Financial Statement Effects: The UK Case” This study investigates the impact of the implementation of the International Financial Reporting Standards (IFRSs) on key financial measures of UK firms and the volatility effects of IFRS adoption. The findings show that IFRS implementation has favorably affected the profitability and growth potential of firms. In 2007 Marchal also found out in his research increase in Profitability under
…show more content…
Impact of IFRS Adoption on Liquidity
This is also a good indicator of financial health by determining financial strengths, weaknesses and ability to meet their obligation as they fall due.
According to the Yetunde Omowunmi Adeuja, examined the Impact of IFRS on the Performance of Banks in Nigeria. The result of his analysis showed a reduction in liquidity ratio computed under IFRS.
Latto and Sahlstom 2009 examined the impact of IFRS adoption on key financial ratios of Finnish companies. They also found out that liquidity ratio decrease under IFRS compared to local GAAP.
Daske, Hail, Leuz and Verdi (2007) studied 3,100 companies in 26 countries under mandate to adopt IFRS in “Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences.” The objective of the study was to examine the economic effects of IFRS adoption for both voluntary and mandated adopters. The results and conclusion were that a company’s adoption of IFRS creates unassailable economic gains in countries with uncompromising regulation over financial reporting. These benefits include an enhancement in the stock’s market value, an increase in market liquidity, and a lower cost of
Switching to IFRS will help not just companies but also investors and public globally to compare financial statements. If every country has different financial standards, if would be problematic to compare how each company stands because they are not the same.
Ratio of profitability is distinct to examine a firm’s ability to produce cash flow which is comparative to some metric. This is to establish the amount invested in the company. This ratio analyses and a...
Profitability ratios are a category of financial tools that are utilized to evaluate a company’s capability to produce revenue as associated to its expenditures and costs suffered during a specific timeframe. Profitability ratios present numerous gauges of the achievements of a company’s ability to produce revenue. For most of these ratios, having a greater figure in relation to a competitor or previous timeframe is suggestive that the business is flourishing. Common profitability ratios are profit margin, return on assets, and return on equity.
What is IFRS, and what is its significance in the world market? In 2001 the International Accounting Standards Board, or IASB, was created to develop a set of standards by which global financial statuses could be reported. According to financialstabilityboard.org, this set of standards, known as the International Financial Reporting Standards, or IFRS, falls under the jurisdiction of the IFRS Foundation, which is a non-profit, private and independently run entity that exists for the public interest, is based on four principle objectives. The first is to develop a single set of international financial reporting standards (IFRS). This set would be high in quality, readily understandable, easily enforceable, and acceptable world-wide. The second objective is to encourage the use of this set of standards in the international business world. Thirdly, the ISAB would like to monitor the needs of different sizes and types of businesses in different settings. The fourth objective is to promote the adoption of the IFRS by converging national accounting standards wit...
There are also other external economic factors that would have an impact to an entity, but having financial preparedness would enable the entity to cope with the situation. Being financially literate, even under different economic factors, would allow for more options in taking certain courses of action appropriate for the situation. The organizational financial literacy, having been gained, would also reflect the entity's capabilities, strength and competitiveness. This having sufficient financial literacy would aid the organization in keeping up with the economic
The Rosens charge that IFRS is a step backward and gives companies too much leeway when it comes to reporting. A company, for example, can record revenue if management believes there is a 50.001 per cent probability of collecting the cash. The situation makes it difficult for investors to truly gauge profitability-and it's made worse by the fact that companies use different estimates to calculate the value of their plants, and they're not always transparent
Monea, M. (2009). Financial ratios – Reveal how a business is doing? Annals of the University Of Petrosani Economics, 9(2), 137-144. Retrieved from http://www.upet.ro/eng
The Adoption Dilemma This is a period of mild economic conditions. The current shaken market confidence globally may present significant challenges to organizations. Adoption of IFRS could result in an added considerable
Among the study’s findings were that the deciding factor of the predictor of bankruptcy should not be only a few ratios, as the measure of a company’s financial solvency may differ as the firm’s situations differ. The important question is to which ratios are to be used and of those ratios chosen, which ratios are given priority weight.
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
Auer (1996) for instance, conducted a study on Swiss firms which switched from Swiss GAAP to either the European Directives or to IFRS. The focus of this study (Auer, 1996) was on market volatility and the basic assumption was that the major indicator of higher information processing by market forces was higher price volatility which by extension is an evidence of greater value‐relevance of accounting data. The results from the study of Auer (1996) however revealed that the variance of abnormal returns changed significantly for firms that switched to the European Directives or IFRS. In Bahrain, Joshi & Basteki (1999) conducted a survey on 36 companies in which questionnaires were designed and administered. Their study found that majority of the respondents (86%) believed that the application of IASs gave the contents of their financial statements more relevance. Contrary to the above, Barth, et al (1998) examined whether the application of IAS is associated with higher accounting quality, but found amongst others that firms applying IAS exhibit less earnings smoothing and a higher degree of association between accounting numbers with share prices and returns. In a similar vein, some studies conducted in Australia (Goodwin & Ahmad, 2006; and Goodwin, Ahmed & Heaney, 2008) found that differences between IFRS and Australian
The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S GAAP). The increasing recognition and acceptance of the International Financial Reporting Standards by accounting professionals in the United States, will affect the way in which the U.S will record financial statements in the future.
I have applied the IFRS to audit half-year income statement and statement of finical position from domestic sub-company or oversea branches. This allows me to understand the difficultly of dealing with accounting report form different nations. For example, we have to negotiate each report from the U.S. with their reporter by phone. It would take incredibly long time to explain the difference in order to adjust the figures in the reports. During the stuff training, we have been taught that to be professional at everywhere and anytime. Moreover, I realise that the most important feature to be a professional accountancy is responsibility. This is because that a unit of misallocation will cost other team number a huge amount of work to correct it. The experience of taking notes of weekly conferences between senior managers and PWC partner has indicates that how does change in financial policy influence the accounting treatment. For instant, since vice-perminster Mr Le Ke Qiang who visited China Construction Bank at earlier May. He point out that the Rate of Non-Performing Loans could not exceed 7% in the “BIG Four” Chinese bank. This has led Chinese bank to relax its accounting standard of credit rating. It allows me to understand the relationship between government and financial
Small, medium enterprises (SMEs) are largest types business in the world, making up an estimated 99.7% of business. According to the Federation of Small Businesses (FSB) there are nearly five million existing businesses in the UK as of 2013. SMEs are a key contributor towards economic growth in terms of creating more employment, stimulating innovation and promoting social unity. SMEs are responsible for 47% of private sector employment, yet despite such global present there is still no agreed definition of a SME (Storey 1994). Bolton (1971) attempted to define them through a statistical and economic analysis. Classifications which are based on criteria, such as number of employees or annual turnover, however, do not remain consistent across borders. Given their size, smaller companies tend to be more intent on survival rather than expansion and profit maximisation. Smaller sized firms have always felt that the current reporting framework for IFRS is tailored more for the needs of larger companies and that the heavy cost burden it imposes upon them may not be entirely justified. In response to these concerns, the IASB subsequently issued the IFRS for Small and Medium-sized Entities (IFRS for SMEs) in July 2009. This standard offers an alternative framework which can be adopted by entities in place of the already extant full set of IFRSs or local national requirement standards.(Holt 2010) This essay will critically evaluate the impact of the IFRS for SME’s and whether or not it stands as the most suitable framework available for SMEs to use.
A variety of groups are concerned in bank profitability for various reasons. The bank shareholders would want to know if the value of their investments is high or low. The investors also use current and past performance to predict future price of the banks’ shares traded on the stock exchanged. The management of the bank as trustee of the shareholders is evaluated and compensated on the basis of how well their decisions and planning have contributed to growth in assets and profits of their banks. Employees of bank also are concerned with profits, since their salaries and promotions are frequently tied to the profitability performance of their banks. Depositors use bank performance and profitability as indicators of security for their deposits in the banks. Finally, business community and general public are concerned about their banks’ performance to the extent that their economic prosperity is linked to the success or failure of their banks.