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International accountancy standards - Essay Example

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This paper is intended to analyze the arguments by many proponents of a more unified world through the use of common language and a standard financial reporting system. It is undoubtedly obvious that the world has diverse cultural, economic and social backgrounds through which the states have learned their functionality. …
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International accountancy standards
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? INTERNATIONAL ACCOUNTANCY STANDARDS It is undoubtedly obvious that the world has diverse cultural, economicand social backgrounds through which the states have learned their functionality. These foundations dictate the political atmosphere, economic cultural and social status of the individual countries. Nevertheless, continued efforts in different spheres of interaction have established the need for a more unified globe. The world has gradually modernized into a more sophisticated ‘global village’ in matters of economic cohesion, political integration as well as the social dynamics. Policies and frameworks have been developed in efforts to accommodate the entire human race into a more domesticated environment even while in a separate geographical orientation. Such ways through which the world has become integrated is through economic unions and integrations, through these, the world trade has been compressed onto a more unified unit in matters of trade, commerce, politics and social cultural divide among many others. Moreover, the emerging trends in financial operations are pointing out towards the same direction of globalization. More efforts by individual persons or nations are exerted towards harnessing global trade and relations in one global perspective. Though variations are persistent within the structures of governments and individual companies, there have persistently risen the needs to unify the systems through which the global players operate. International accounting standards stands to provide avenues through which trading organizations and the nations would converge through application of more unifying methods. This paper therefore is intended to analyze the arguments by many proponents of a more unified world through the use of common language and a standard financial reporting system. These are the main hindrances that have in the past been seen to water down the efforts of global advocacy for a unified globe. Language barrier in financial matters and accounting field has all through stood a block to these efforts. Accounting platforms vary by the common measuring unit and thus the efforts to interpret financial records have always been troublesome by the fact that different organizations or states use varying currencies. However, this has not been so hard for the economic blocks such as the European Union who uses a common currency, the euro. People are divided along language inclinations and people are found to identify themselves through cultural lines, language affiliation and the geographical identity. However, in the advent of the current global advancement in technology, these barriers are easily getting eroded and more unification result from the common use of technology. Nevertheless, countries and regions stand distinct on, matters of financial reporting as well as financial language. Technology has done relatively little to address unification of languages. This is the reason for the proponents of a common language in financial reporting to advance the proposition. Common international financial reporting standards are meant to drive the world to uniform global standards of accounting (Centre for Audit Quality, 2009, 1-7). IASB (International Accounting and Standard Board) is the overall body that is mandated to oversee the accounting policies and implementations thereof. Constituted in 2001, the body designs policy frameworks that run the accounting field as pertains to financial reporting in the world. According to the report by Centre for Audit Quality (2009), IRFS has been adopted and accepted in many countries since 2001. This is seen to be a positive step towards realization of a more unified system of accounting in the world. However, close analysis requires thorough scrutiny on feasibility of the adoption of this common standard of accounting among organization in different countries. Nations ascribed to the standards operate the different sectors of their economies by the international standards of accountancy. Deliberations on the future adoption are underway and the focus is more on the nature of investment in which the standards will be more feasible and appropriate. Unlike the historical designs of the financial standards that were designed to suit individual needs of nations, the current deliberations intend to unite the countries of the world. A report by Sidik and Rahim (2012, 98) reveal that Malaysia adopted the system and fully implemented it under the IFRS guidelines. However, accounting practitioners in the country have sited some strengths and weaknesses for the FRS. Through the shortcoming, the practitioners are turning their focus on the more generalized universal mechanism of international standards of financial reporting. There are fears of exposing more of the departmental information as well as the information for the nations. The international standards require the use of standardized regulations in accountancy to allow easy retrieval, analysis and interpretation of other companies or countries data. The accountancy standards require the placement of the accounts information in ways accessible to all. The system has basic requirements through which the countries accented to it must comply. These requirements include consensus by all affiliated nations and more so to the international standards. Customized policies are made to ensure that the countries are evaluated on a basis of common measure. The countries are also obligated to maintaining international standards in professionalism. Companies in the countries affiliated to the international standards of financial standards must adhere to the governing principles. The companies must also exhibit supervision competency for the accounting standards (Ailemen and Akande 2012, 305). These were among other findings that Ailemen and Akande found while studying the efforts of Nigeria signing into the international standards. The paper sought to understand how prepared Nigeria was to adopt the international standards of accounting. Nevertheless, the efforts of unifying the international standards of accountancy have suffered hindrances by the lack of common measurement units. This therefore acknowledges the need for a common accounting language that can be easily used, interpreted and understood by all. Research and development expenditure has been one of the areas focused by the IFRS. It has laid down certain requirements that nations abide to dictating the expenditure on research as well as development. Research and studies have been done in various institutions and countries to understand the requirements of the international accountancy standards regarding various sectors of a nation. The PricewaterhouseCoopers report on the requirements outlines the essentials of accounting as regards to research and development. Among other considerations for any country as regards to accounting for research as well as development, the paper cited inclusion of all payments that are received to facilitate research studies, the payments that a nation receives to carry out development; through all the phases such as initiation, progress and the completion, donations for research, loans advanced to fund the projects and the internal funding received for research as well as development (PricewaterhouseCoopers, 2012, 7-104). Moreover, the requirements stipulate the mandatory need for the accounting procedure to include receipts of all manners, revenues of all manner and any other expense and that are presented for development purposes. By including the incomes spent or gained through the different stages, the accounting standards provide a comprehensive cover of the entire amount used. The IAS has a provision through the asset accounting on the conditions for ascertaining assets feasible for inclusion within the accounting system. The IFRS fact sheet of 2011 illustrates the conditions for assets to be tackled within the provisions of intangible assets as understood by IFRS. IAS 38 includes all intangible assets in the evaluation except for those that are in application by other standards, IAS 32 definition of financial assets, assets for evaluation and exploration and assets usable in the exploration for those resources that lack regeneration capacity such as minerals, coal, natural gas among others (Thornton, 2011, 1). According to the health sector accounting procedure, the income statement reveals the expenditure in research as well as development within the stipulated period. Capitalizing expenditure is only allowed whenever the criteria set up for identifying an asset is wholesomely met. The depreciation of plants, machinery and tools that are employed during the researches are accounted for in accordance to the policies as well as rules of the company. IFRS standards of accountancy reveal the inclusivity of all aspects of costing in the areas of research and development. These areas may include the costing of medical materials spent in the laboratory tests in developing a product, workers benefits, direct costs and the overhead costs during the process. Other costs inclusive are insurance, legal costs as well as the designing and construction costs incurred during the research study and development (PricewaterhouseCoopers, 2008, 13). Nevertheless, a critical analysis of the IFRS requirements for research and development, points to rather strict rules through which companies or individual countries feel obligated to reveal or omit their rather sensitive information. If we take a real example of the Malaysian adoption of the IFRS standard through a study conducted by Sadik and Rahim, we shall find that the adoption of these standards is not wholesomely beneficial. An analysis of the adoption and implementation of the IFRS standard by the Malaysian companies found out that among other shortcomings of the IFRS, its adoption is burdensome, costly as well as complex. By implementation of the standards, companies are expected to increase their capital instead of empowering them. Moreover, the adoption of IFRS was projected to result to hire volatile results in Malaysia as compared to other standards that were in use before (Sidik and Rahim 2012, 101). When we analyze the Coca Cola company financial information for the year 2011 in U.S, we find that the report cites significance difference in having adopted the IFRS system. The company put into recognition the historical costs and valued the assets by the application of IAS 38 principles. The provisions of IAS 12 lead to differed outcome of the income tax. Moreover, the report indicates that the company was required to omit the operating income line though this was overlooked and hence included (Castro et al, 2012, 2). It therefore is the recommendation of this paper that the international accountancy requirements be made to follow the American standard. The accounting procedures in research and development should be expensed in the format of the American standard. The report by the AICPA (2010) revealed the risks associated with the IFRS as compared to the U.S standards as improper management of data, overspending of resources and the probable future standards that may in future be designed and enforced. The era of information revolution points to the ease of circulation of information from a country to another and from one stakeholder to another. Globalization has also taken effect on policies that govern the working of IFRS and the influence is felt by individual players; therefore, the finding propels the need to this recommendation. A report by the (American Institute of Certified Public Accountants, 2010, 1-2), cites the basic information that the US companies intending to adopt the IFRS accountancy standards must be aware of. The adoption of the system entitles a multinational company to the privilege of accessing the cross border investments and the global capital markets. Comparability of financial statements of each company and the usage of common financial reporting mechanisms are equally points to note. In evaluating the accounting system under the American standard, it becomes clear that there are many logistical requirements that the IFRS requires. Operating income line for example has always been included in every accounting of a company. The coca cola illustration shows that under the IFRS, it is to be omitted. Differentiated income tax resulting from the IFRS lead to misleading figures as was the case with the Coca cola company financial figures. These among other reasons support my recommendation for the U.S system of expensing. The change from the IFRS into the American standards would be more effective in that more accurate figures would be gained. It is also positive in that evaluation of the records would be easier, comprehensive and more accurate as against the distortions that would result from some omissions that the IFRS system advocates for in the differentiation criteria applied. From the example above, the coca cola company would have better accounting on income tax and operating income in the financial statements as against what is advocated for by the IFRS. Information revolution and enterprise operations Information revolution refers to the process through which the current social, economic and technological features have transited from the traditional scope before the industrial revolution to the modernized information technology era. We are living in the age of advanced technology, whose effects, though silently, are continuously taking over all aspects of human life. (Papp and Alberts, 1997, ii). For instance, digital technology has simplified the communication means of individual persons as well as organizations. Through the revolution, the industrial performance has as well changed. Business enterprises are seen to be in the centre space of the discussion of the effects of information revolution. Traditionally, small enterprises have been seen to be poor recipients and dispersers of information. Records reveal that easy ways of receiving information, processing and storage through advanced computer systems are seen to be the key the expansion of small business enterprise in credit markets (Gupta, 2001,4-50). In studying the effects that the information revolution has on the small enterprises, the paper found that the technological advancement has eased the productivity and efficiency of the financial industry especially in dealing with small enterprises. The study found a rather easy way of lending that small enterprises are adopting through which it is easier to lend and follow with the borrowers without the actual meeting as aided by the technological advancement. Online operations are feasible illustrations of this. Analysts have also revealed that the competition in the business through information technology has also positively influenced the lending rates as competitors risk low sale as compared to their opponents who have lowly priced commodities. It is thus beneficial to the small enterprises that are intending to venture into new businesses as the adoption of appropriate technology place them at an advantage. Lending institutions such as the banks and microfinance institutions have revolutionized their operations on the advent of technology that is currently evidenced in the world. Evolution can be ascertained through the adoption of new forms of production by the world of business through the evaluation of enterprise performances. In the advent of information revolution, traditional methods of production are easily being forgone for the better methods that have been advanced. Mazurkiewicz in his paper sought to understand the incorporation of private enterprises in matters of public interest like security and environmental conservation and preservation. History showed that traditionally, it was in the docket of public domain to conserve and preserve environment. These measures have easily seeped through the world through the advent of corporate social responsibility (Mazurkiewicz, nd, 2). Despite the traditional methods of administration, the importance of a company dealing with her internal environment as well as with the outside environment is well espoused. The private sector has been seen to have an active part in responsible living as a member in the global market. The corporate social responsibility ensures that enterprises act in such a manner that the employees and the third parties are well taken care of. However, with the advance of information technology, environmental interest has been shifted or shared by the private as well as the public domain. Through this, private enterprises have been seen to formulate and implement policies that are environmental sensitive. The governments through the pressure of international community have also acknowledged the role that the private sectors play in the overall performance of an economy through among other ways conservation and protection of environment. Brown, in his report on boundary less organization, wrote that the information revolution would erode the structures of organizational structures. The event that there will be easy flow of information, Brown reasoned that it shall be easy to pass and access information between departments. He reasoned that this will eventually improve the overall performances of enterprises owing to minimal expenses reduced by adoption of favorable technologies (Brown, 2003, 1-2). He found out that the advent of information revolution; risk mitigation and reduced costs are realized. Globalization has been interpreted to imply the advent of integration in the world of trade as well as commerce. Information technology has played a great role in unifying the globe especially in matters of trade. The means of production, storage and marketing of produced commodities has become cheaper than it ever was through technological advancement. It is easily seen as an aspect of revolution in information (Baker, nd, 1-12), through which, information, figures, images and even currencies are transmitted through coded language through computerized systems from one person to another and from one region to another. Globalization allows enterprises to access other markets through internet and other digital platforms. Trade activities can now be easily conducted through the media where the seller advertises online, negotiate and strikes a deal and the delivery is done on matters of sealing up a deal. Through this, enterprises have continuously enjoyed improved profit margins through lowered operational costs. Ogunsola (2005, para 1-9), outlines the inception of revolution of information into socioeconomic aspects of a nation by the government. In his paper on effects of globalization as well as information revolution, he argues that more governments have become more aware of the essence of integrating the information technology in the affairs of economic importance within their respective countries. The small manner of business operations made it burdensome for these enterprises to enjoy the scale of operations until the coming of IT through which such services as advertisement can now be easily enjoyed by these small enterprises as compared to the past when only the major companies would access these services (McVay, 2002, iii). Taken as an example to the revolution, the uses of computers in almost all enterprises have taken shape. Computers are easy, convenient and efficient ways through which business enterprises store, process and retrieve data (Drucker, nd, 1). The efficiency in data handling on the other hand results to great returns by minimizing time loss through the manual filing as well as reducing chances of data loss and manipulation. It is also relatively cheap for organizational departments to communicate through improved channels of communication at this era with the revolution in technology and information. Enterprises have then changed the use of manual methods of operation. The companies have gradually changed from the initial stages of using mainframe computer systems to the current pc tablets through which convenience is ascertained (Kerschner, nd, 8-44). The benefits enjoyed are numerous, including higher outputs per worker and overall improved performance of the enterprise (Atkinson and Mckay, 2007, 11). Therefore, the information revolution has been seen to bring about prosperity to firms and enterprises. Bibliography Atkinson R. D. and Mckay A. S. 2007. Understanding the Economic Benefits of the Information Technology Revolution. Digital prosperity. March 2007. AICPA. 2010. Financial System Considerations in IFRS Conversion Projects. 2010 American Institute of CPAs. Retrieved on 1/5/2013 from http://www.ifrs.com/pdf/10414 378_IFRS_IT_White_Paper_WEB_FINAL.pdf Alberts D. S. and Papp D. S. 1997. The Information Age:An Anthology on Its Impact and Consequences. CCRP Publication Series 1997. Baker R. nd. The Impact of Information Technologies on Organizations and their Employees.1 of 12. Retrieved on 1/5/2013from http://jupapadoc.startlogic.com/compresearch/papers/JCR04-2.pdf Brown A. 2003. The‘boundaryless’ organization. Retrieved on 1/5/2013 from : http://www.opengroup.org/downloads/Boundaryless_Organisation.pdf Thornton G. 2011. International Financial Reporting Standards (IFRS) FACT SHEET September 2011. Retrieved on 1/5/2013 from http://www.cpaaustralia.com.au/cps/rde/xbcr/cpa-site/IFRS-13-Fair-Value-Measurement.pdf Castro J. et al. 2012. Coca-Cola FEMSA presents 2011 Financial Information under International Financial Reporting Standards (IFRS). Stock Listing Information Mexican Stock Exchange Ticker: KOFL NYSE (ADR) Ticker: KOF. Mexico City, Mexico – March 29, 2012 Centre for Audit Qulity. 2009. Guide to International Financial Reporting Standards. September 2009. Retrieved on 1/5/2013 from :http://www.thecaq.org/publications/GuidetoIFRS.pdf Drucker P. F. nd. The Next Information Revolution. Retrieved on 1/5/2013 from http://www.s-jtech.com/Peter%20Drucker%20-%20the%20Next%20Information%20Revolution.pdf Gupta A V. 2001. The Information Revolution in Small Business Finance – the Singapore Experience. Dissertation submitted in partial fulfillment of the requirements for the degree of Master of Business Administration 2001. Ikpefan A. O. and Akande A.O. International Financial Reporting Standard (Ifrs): Benefits, Obstacles And Intrigues For Implementation In Nigeria. Business Intelligence Journal - July, 2012 Vol.5 No.2. Kershner E. M. nd. The information Revolution. Lesson 03. 8-18 of 44. Retrieved on 1/5/2013from http://pages.stern.nyu.edu/~ekerschn/courses/c150042/lectures/03_information_revolution.pdf Sidik M. H. J., Rahim R. A. 2012. The Benefits And Challenges Of Financial Reporting Standards In Malaysia: Accounting Practitioners’ Perceptions. Australian Journal of Basic and Applied Sciences, 6(7): 98-108, 2012. Mazurkiewicz P. nd. CORPORATE ENVIRONMENTAL RESPONSIBILITY: Is a common CSR framework possible? Retrieved on 1/5/2013from http://siteresources.worldbank.org/EXTDEVCOMSUSDEVT/Resources/csrframework.pdf McVay M. 2002. An Information Revolution for Small Enterprise in Africa: Experience in Interactive Radio Formats in Africa. SEED WORKING PAPER No. 27. Series on Innovation and Sustainability in Business Support Services (FIT). Ogunsola L. A. 2005. Information and Communication Technologies and the Effects of Globalization: Twenty-First Century "Digital Slavery" for Developing Countries--Myth or Reality? Electronic Journal of Academic and Special Librarianship v.6 no.1-2 (Summer 2005). Retrieved on 1/5/2013. Web: http://southernlibrarianship.icaap.org/content/v06n01/ogunsola_l01.htm Pwc. 2012. International Financial Reporting Standards (IFRS) Issues and solutions for the pharmaceuticals and life sciences industries–Volume I&II updates. July2012. Pwc. 2008. International Financial Reporting Standards (IFRS) Pharmaceuticals and Life Sciences Issues and Solutions for the Pharmaceutical and Life Sciences Industries – Vol I & II UPDATES.2008 Read More
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