International Financial Reporting Standards are standards based on the general accounting principles for purposes of international financial reporting for uniformity. They are generally for conversion purposes of issues that relate to the elements of the financial statements. IFRS also poses a very strict and well-defined structure and framework; this is so to give a guideline in its operations. The origin of these standards resulted from several deliberations and a series of negotiations by the interested parties. This resulted in the adoption of the reporting standards by the International Accounting Standard Board (IASB) (Board 64). IFRS is today adopted in over 100 countries worldwide including the economic powerhouses like Russia, Australia, Japan, The USA, and The Republic of China among others. They use these standards for the proper identification and valuation of items in their financial statements to enhance and facilitate the validity of the statements. The statements should uniformly aid in the comparison of such statements to determine the performances of the firms since they engage in a world where performance is fundamental for competition (Hussey and Ong 121). The evolution of the IFRS involves a series of steps and positive developments. This was started by the establishment of the International Accounting Standards Committee (IASC). This took place 30 years ago by representative countries that fairly brought on board all the participating countries including Australia, North America, and some representatives of the European countries (Hussey and Ong 153). Their first mandate was to set up and publish the first International Accounting Standards (IAS). The publication took place in the year 1975. The standards stood out, expanded, and attracted a large number of countries worldwide. Later in the year 1999, 49 international accounting standards alongside other 32 standing interpretations committee schedules became available. Some parts of the IAS were established in the year 2001 (Board 32). It was the role of the International Accounting Standards Committee (IASC) to do this. It is from the IASC that another new body, IASB took over to aid in the functions of setting up the international standards, which they performed conclusively. International Accounting Standards Board became a body based in London charged with the responsibility of setting standards for both Non- profit-making organizations and government standards. The foundation of the IASB at this point became shaky because it had a weak financial support base. Its only source of funding was the funds raised by its member countries, which at the time were composed of just a few countries with weak economic bases. In as much as the sole function of the IASB was to initiate the functioning of the IFRS’s, another great challenge presented itself in that the existing body was not in a position to create another body with the same financial challenges. IASB was only willing to create an IFRS system with the ability to sustain itself through constant source of funding (Board 85). It could only be possible if more countries became members and adopted the use of the standards set. The structure of operations of the yet to be established Reporting standards framework would emulate that of the Financial Accounting Standards Board in the United States of America. Later, several demands of the ever-growing global marketplace, which among others included the demand for the use of a common financial statement to aid in the comparison and control as well as the dire need for a common financial reporting language, influenced both FASB and IASB. They were, to produce and present a paper called the Norwalk Agreement. This paper ensured that the bodies would be engaged in the setting of high-quality standards that would set outlines for facilitation of decreasing operation cost, aid in the improvement of how effective and efficient firms’ operations would be. Moreover, effective resource utilization is monitored as well. With regards to the changes made by the Norwalk paper, the European Union rolled out an extensive and elaborate plan to ensure that all firms within Europe which are listed in the stock exchange had to contend and go down to prepare consolidated financial statements with strict adherence to the IFRS (Board 237). Later, several other transformations took place where it was required that the generally accepted accounting principles (GAAP) be converted to the IFRS. This role was passed to the Securities Exchange Commission (SEC). Given the very wide framework, the conversion was not an easy task and required thorough brains at work to bring it to accomplishment. All these were happening at a time when the United States still insisted on the use of the GAAP as their standard reporting technique instead of the recommended IFRS. After the release of a concept by SEC to allow the United States firms to use the IFRS’s, it became vividly evident that these principles thought to be inapplicable in the rigid US system became of use to firms in the US and they even came to like it more (Hussey and Ong 211). Today, IFRS consists of up to nine sections with about forty-two international accounting standards. About1500 companies worldwide have also adopted the standards, with the only major challenge being poor communication systems that hinder information reach to all firms globally. However, countries that are still not in the capacity of contracting and applying the concepts of the IFRS because some of these firms were still small ones. However, they still have local standards, which are at par with the IFRS (Hussey and Ong 234). Financial efficiency has greatly improved because of the up to standard principles defined in the IFRS frameworks. Professionalism which includes the ACCA and CPA have had presented mixed reactions in the employment of the techniques. These results from the fact that based on the knowledge acquired from such reporting standards, accountants in companies are now ready and in the position of quality delivery of their piece of work as well as timely delivery of accounting work required. We also need the ability the integration data systems. Whether they know that, someone else can access them for efficiency in the facilitated communication. Businesses are operating in an environment where competition is at its epitome and resources are ever-shrinking due to competition for the same inadequately endowed resources. Despite the facts above, businesses have to be in existence for the better reasons of shareholder wealth maximization, profit maximization, and provision of information for managerial decision-making. Qualified officers of respective organization and more specifically the accounting department who then avail themselves to the financial management departments for verification and implementation must just prepare such information. Such standards set must be up to date and must be constantly reviewed. This has led to the shift from the old standards that were rigid and incorrigible through the assistance and facilitation of the international accounting standards board and the financial accounting standards board which are the bodies mandated with the authority of forming such standards and ensuring their implementation. The member states subscribing to such standards are only left with the sole role of putting in place appropriate funding to support such institutions in line with the rules signed in the statutes that these firms are signatories to (Board 236).
The major evolution is that which involves transformation from the current recognized standards way into the future and approved international accounting standards (IAS). These standards find use with the aid effective valuation of the financial components of the financial statements plus the non-financial components ranging from environmental accounting and auditing aspects and liabilities. In the evolution of the technical standards, the foremost step is that of processing the IAS’s and ensuring that they are in place at the time. This would help do away with the cast aspersions on the uncertainties suspected. The second in the process is to enact the standards through implementation to ensure they reach all the targeted countries and multinationals. A review was conducted after a grace period of a quarter to one year to find out whether the standards are actually effective in the process of their application and operations (Board 286). In this process of evolution, the International Accounting Standards Board that is the board mandated to form and distribute the International Accounting Standards (IAS) comes in further to form sets of accounting laws and regulations with the internationally expected level of quality. The rules and regulations formed must be legally and in all aspects highly enforceable meaning they have the capacity of performance, and therefore putting them into action becomes an easy task. Through relevant procedural requirements, the IASB has the responsibility of making the standards set applicable internationally through devised relevant means and procedures (Hussey and Ong 97).
The basis of the matter is that the international Financial Reporting Standards called for their implementation and that only a procedure to use was the question remaining unanswered. Later in the time, a suggestion passed by the International Accounting Standards Board through a paper to all those countries who purported to be its members laid down four clear ways through which the implementation of the standards could take. The first and foremost step was the identification of the companies that made up the financial institutions of the various countries in both developed and developing ones. This suggestion input that IFRS’s applications could only be applicable to companies that had very strong financial base and which were trading in the stocks exchange markets of their respective countries. In addition, such companies ought to be under regulatory authorities meaning their operations if need be, interrogated and monitored very closely. Furthermore, the resolution demanded that the applicability of the standards to the institutions required interpretation by IFRIC. Consolidated financial accounts were again to be the basis for the reporting standards. Secondly, the resolutions passed were for the idea that a clear way through which the IFRS would be promulgated be defined and interpreted clearly. Interpretations on such matters and any complications could still be referred to IFRIC. The other resolution passed also demanded that the implementation of the standards be almost immediate as opposed to being delayed, which would lead to its derailment from its developmental rail of development. The need to revise the accounting procedures of the member countries to ensure that they were in line with the IFRS’s or if they were not then to make a point of aligning them according to these standards. This would only add to the realization that even the small and non-listed firms in these countries could also plan for the future use of the standards and even prepare for them in complete adequacy (Hussey and Ong 237).
Implementation is a tedious and very costly exercise in terms of monetary resources, time as a resource and even other country and company resources. Despite this, the truth of the matter is that the benchmark benefits would even outweigh the costs claimed. This is true because of the satisfactory standards that companies are able to be competitive in the world market. Competition, in this case, would mean that it can make the profits it needs within a set timeframe. It also means that the companies in the capture are in the position of acquiring funding across the board. The standards would also devise better ways in which costs in organizations could be controlled and they provide enough information for decision-making. This is because any investor in the contemporary society who does want to invest in given companies’ financial securities, would only agree to do so if convinced by the financial statements which are prepared with adherence to the IFRS’s. IFRS in organizations is also the only tool that could be used in the advocacy of transparency in institutions and actually achieve the desired level of such transparency, this can aid the management in undertaking its managerial decisions and implementing them conclusively in the most appropriate way. The organization as a whole is much able to benefit from quality IFRS due to the economization effect that audited finances have in the company. The capital markets and regulatory authorities of such countries also benefit a great deal since those organizations with the responsibilities to oversee the various financial institutions are highly strengthened and mandated to discharge their obligations. Here, only the policymakers gain since they are given a solid base for which to base their decisions on validity and reliability of the policies. The policies could also support well-developed confidence in investors as well as the provision of enough and good information to aid proper decision-making. Risk and return are very lethal factors that would threaten the survival of any business. The standards provide the investor with opportunity to be in the position that it is able to deal with the challenges of the risks associated with business operations (Hussey and Ong 241). The stakeholders of the companies, who are the members of the public and who are by far the majority stakeholders in almost all the sectors of a business operation would also benefit. The benefit is right from production where the public provides the labor, through a series of steps all through the way to sale and distribution where they act as the clients or the consumers if the word customer is not appropriate. Due to IFRS’s such stakeholders benefit from the transparency created on the company financial accounts. They could now be able to improve their planning. Despite the achievements, several challenges may not stop surfacing. The most infringing problem is that of the harmonization of the standards. This is because each country has its own financial reporting standards, which are in totality different from those of the others completely. IFRS also faces a stiff challenge at implementation because of the form in which the statement of the standards is done. The statements are conceptual in their definition and application. In accounting the framework can be named “substance over form,” this makes it hard for accountants if in case they are not conversant with the concept of substance over form.
Another challenge that is faced in the adoption of the international financial reporting standards is the disparity in the economic levels of different countries. Countries that are required to adopt and implement these standards are in different levels of economic development and therefore may have different reporting entities. Again, some developed economies have their own standards that they have given more emphasis than IFRS. Moreover, the countries at different economic levels can contribute different amounts of resources in support of the research on the reporting standards. Economics is a rule-making unit that applies theoretical frameworks in its analysis of the components of the society that affects the socio-economic conditions of living. This alone is contrary to the principles of the IFRS that in itself are conceptual. Economics being theoretical means that it misses the practical definition and application components thereby making it hard for nations to integrate both the valuation of financial aspects of an organization and the nature of the economic times. In addition, the effects of an economic downturn are likely to be felt across the globe whenever they take place (Hussey and Ong 386). Generally Accepted Accounting Principles (GAAP) on the other hand have their own effects as compared to the IFRS’s. GAAP is based on principles that started operations before those of the IFRS’s and if this is to go by then they have a more stable base than those of the IFRS’s. The only setback comes with the irony that GAAP’s appear stronger when in the real sense they are only applicable in the USA and in companies that are of the US origin that is their subsidiaries in the Diaspora. IFRS may also experience sharp deviations from the GAAP’s, which arise due to the changes in policies (Board 201). Such changes in policy may be more or less caused by amendments made during the efforts to try to implement the IFRS. Tremendous development so far realized in the financial sector are great and it is now the work of the International Financial Reporting Standard’s team of regulatory bodies which among others are; IASB, IAS, IFRIC and also the SIC. These bodies are entitled to research the additional basics and ingredients that need to be added to the framework of standards that are already in place and in full operation. This entails looking at the challenges and suggesting the way forward on how the eradication of the challenges commences. The other future of the IFRS is efforts to ensure that they reach all the countries all over the world given its narrow coverage that is current. This the bodies concerned can do through thorough advocacy and awareness creation as well as collaboration with local financial regulators such as the insurance regulatory boards and central banks of the member countries and those that they target. Financial regulatory authorities ranging from the international regulators all through to the local accounting bodies also have a very hard task to perform. This is because they are first of all regulators who in their role are supposed to ensure that there is no abnormal occurrence in the financial sector which is likely to threaten the economy in any way. Moreover, it is the same duty of the regulators to ensure the successful implementation of the standards. IFRIC in this case has the responsibility of spearheading interpretations in this process and ensuring the implementation of the IFRS’s. Another future and role of the regulatory authorities are that of the amendment of inappropriate policies, policies that may stagnate the functioning of the standards. In conclusion, International Financial Reporting Standards have a groundbreaking history in terms of its foundations of developments, the series through which it has undergone in development. The system has also undergone much development through the inputs by several individuals as well as the relevant bodies. The system has also contributed greatly to the sanity in the financial industry in terms of contributing to the transparency and validity of the reports by the financial sector agencies. As a result of the contributions mentioned plus the ones that are not mentioned, the prudent fact is that financial management has received applause and therefore the IFRS standards deserve only more reinforcement on its fundamentals. This is to ensure its thorough functioning even in the future and even more efficiency in the future.
Board International Accounting Standards. International Financial Reporting Standards (IFRSs®) 2008.London: Kluwer, 2008. Print.
Hussey, Roger and Audra Ong. International Financial Reporting Standards Desk Reference: Overview,Guide and Dictionary. New Jersey: John Wiley and Sons, 2005. Print.