Account for decision maker - Essay Example

Account for decision maker Report on drivers for International Accounting Standards and barriers to its adoption by companies globally International accounting standards are sets rules that guide and regulates accounting information for uniform presentation and facilitated understanding of accounting information among stakeholders across the globe. The standards offer guidelines that national accounting bodies apply in developing national accounting standards. This identifies two sets of regulatory frameworks but national laws have tried to integrate the two by allowing companies to apply either or both of the set of rules based on form of business and commercial laws.

Many factors however exist that drives organizations into application of IAS. These are: Globalization Increasing number of stakeholders to accounting information Cost efficiencies Globalization is the major driver to adoption of IAS because of its developed intercinectivity among organizations. Competition that occur at international level requires comparative basis for organizations from different countries and this a similar accounting standard is necessary because accounting information is a significant basis for comparison.

An example is the use financial ratios to compare performance of firms that compete in the global market. Globalization also drives adoption of IAS because operation in different countries with different domestic laws require common international accounting standards for uniform legal environments. This is because adopting IAS, where domestic laws allows, will ensure application of similar accounting rules irrespective of the jurisdiction in which a company has a subcidiary. Users of financial information may also exist in different regions and a uniform standard for presentation and intepratation of financial information is necessary for meeting the user’s needs.

this motivates companies to adopt the uniform IAS (Edrey and Greggi n.d.,p. 30). Application of different rules in different jurisdiction also means that multinational corporations have to change their accounting information for uniformity and this is costly. Application of IAS in different regions resolves this by eliminating the need for conversion of originally prepared financial information (Edrey and Greggi n.d., p. 29). Many factors, despite significance of the drivers, have also limited adoption of IAS by companies across the globe.

These are: Differences in accounting and cultural practices across countries Absence of a regulatory body for enforcing the standards Nationalism Time value of money and appraisal techniques that use the concept The concept of time value of money identifies increasing value of money with time and explains people’s preference of immediate payments over future payments. This is because after payment has been made, it can be invested to generate returns over its value. Simple interest and compound interest valuation are some of the appraisal techniques that applies the time value of money concept.

The simple interest appraisal accumulates a constant value over the principal amount at equal time intervals while the compound interest approach accumulates value based on cumulative amount with time and informs value of money after a period of time (Porter and Norton 2009, p. 439, 440). DCF method of appraisal is another appraisal technique which uses the concept of time value of money. The appraisal establishes current value of a future income or expenditure item and depend on such factors as discount rate and time.

The net present value, a version of the compound interest appraisal, is another appraisal that uses the concept. (Wyatt 2013, p. 383, 384). Reference list Edrey, Y and Greggi, M n.d., Tax law and the Mediterranean area, Marco Gregg. Porter, G and Norton, C 2009, Financial accounting: The impact on decision makers, Cengage Learning, Mason. Wyatt, P 2013, Property valuation, John Wiley & Sons, Hhoboken.