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Accounting Policies International Financial Reporting Standards Adoption and Effects - Literature review Example

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In the paper "Accounting Policies International Financial Reporting Standards Adoption and Effects", a brief look at the International Financial Reporting Standards (IFRS) was undertaken to provide some background information that will be useful in this analysis of its adoption in the UK and China…
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Download file to see previous pages In 2002 the EU made it mandatory for all member states to use IFRS for listed companies beginning in 2005 (Jermakowicz and Gornik-Tomaszewski, 2006). The uniformity of accounting standards represented by IFRS was crafted to create an easier platform for investors (inside and outside of the EU) to analyze the financial statements of companies and draw comparisons (Jermakowicz and Gornik-Tomaszewski, 2006). It provides a common accounting framework for international investors along with the fact that the UK (London) is the second-largest financial center globally after Wall Street in the United States (Jermakowicz and Gornik-Tomaszewski, 2006; Engelen and Grote, 2009). The above stock exchange aspect and EU member state adoption represent the application of economic network theory that states additions to a network benefit the entity joining as well as the other members in the network and can drive change regarding policy (Lafour, 2005). There is also the net political value of IFRS that consists of the overall gain in creditability that the EU benefits from by harmonizing accounting practices in order to increase transparency within the trade bloc (Ramanna and Sletten, 2009). In terms of factors that helped to shape the IFRS in the UK, Horton et al (2008) advise that the adoption of IFRS has the potential in many cases to decrease information costs, increase liquidity, heighten efficiency and foster more balanced competition in markets. In terms of the adoption of IFRS in the UK, the following represents the exchanges affected (Deloitte, 2015):





London Stock Exchange – Regulated Market






London Stock Exchange






London International Financial Futures and Option Exchange






London Metal Exchange






ICAP Securities & Derivatives Exchange






ICE Futures Europe






NYSE Euronext London





 In terms of companies that are not listed the UK permits them, with the exception of charities (that must use UK GAAP), to use either UK GAAP or IFRS (Deloitte, 2015). The above adoption of IFRS that applies to listed companies was done in order to comply with the EU directive on IFRS as well as to provide a common financial statement reporting system that is uniform among member states (PriceWaterhouseCoopers, 2005). The ability of companies that are not listed to use either UK GAAP or IRFS was done in order to minimize potential increased accounting costs for non-listed companies in terms of compliance (PriceWaterhouseCoopers, 2005). A look at factors that helped to shape the adoption of IFRS in China, its admission to the World Trade Organisation (WTO) was one integral part (Buthe and Mattli, 2011).  This is done to create a sound and easily understood financial reporting system to help further the country’s economic development (Walter, 2008). In terms of China’s push to advance its footing in global markets, the Chinese Ministry of Finance, that oversees China’s accounting policies, sought to increase investor confidence in the financial information provided by companies (Walter, 2008). Regarding the effects of accounting policies and IFRS adoption in the UK, a study by Nobes and Kvaal (2010) found that despite the EU shift to IFRS, there is still the British UK GAAP version that was in place prior to the EU IFRS mandate which is in use by companies that are not listed. ...Download file to see next pagesRead More
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