International Financial Reporting Standards

707 words | 3 page(s)

International Financial Reporting Standards (IFRS) are a set of rules and guidelines prepared to regulate the financial operations in different parts of the world. The introduction of IFRS facilitated the need for investing globally with the help of the International Accounting Standards that regulate the global market and the operations of international accountants. Using IFRS contributes towards the harmonization of different accounting policies that are used to determine the performance of an organization. Therefore, IFRS acts as a platform for internationalization of the accounting practices into the global arena. The international standards can help in making investment decisions based on policies of different countries.

Nevertheless, IFRS does not guarantee the best results in measuring the performance of different companies in different regions. For example, the use of IFRS as a consultant tool for investment has received disparity whereby investors argue differently regarding the use of IFRS in making investment decisions. For instance, it would not be advisable for using only the IFRS in making investment decisions based on the argument that the use of IFRS is not practical in various countries. Therefore, the applicability of the IFRS would not provide reliable information regarding the investment decisions.

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Additionally, the use of IFRS in making investment decisions cannot make a big difference based on the assumption that people would not invest their time, energy, and resources in analyzing markets but would instead invest their time in looking for investment opportunities and would focus largely on the real economic results. Therefore, using the IFRS would be meaningless at some point. Moreover, some countries may be affected by their political climate which can affect the credibility and reliability of their IFRS. Additionally, the development of a country may also create a difference in the IFRS whereby the developed countries have established reliable and tested IFRS compared to the developing countries. Therefore, using the developed country’s IFRS in the developing countries would create disparities in the investment decisions.

A country can lack the criterion of developing their own IFRS whereby they would just adopt any other IFRS to look justifiable from the international market. For instance, some developing countries lack the skills and resources to develop internally developed IFRS and would just acquire international IFRS which would not have an impact to the decision-making process of the investors. Therefore, it is advisable for an investor to look for other alternatives before making decisions of investing in a global market based on the information acquired from the use of IFRS. Moreover, there are various strategies for making healthy investment decisions apart from the use of only IFRS.

The internationally recognized Financial Accounting Standard Board (FASB) came into existence in 1973 with the purpose of regulating the international standards of regulating the foreign currencies. FASB provides a platform for translating the foreign currency whereby there are various numbers introduced to facilitate the understanding of foreign currency exchange. For instance, FASB No. 52 provides a statement of foreign currency translation. The FASB ensures that foreign investors can be affected by the international market atmosphere through financial reporting. Moreover, the FASB entails the process of translating the foreign currency. The process starts by the identification of functional foreign currency, measuring the elements of the functional currency in their financial statements, using the current exchange rate of the currencies, and differentiating the impacts of the exchange rates into the foreign investment whereby the profit and loss account might be affected by the exchange rate. Additionally, the FASB No. 133 entails the information regarding the applicability of hedge accounting. Hedgy accounting requires an entity to recognize most of their activities as either assets or liabilities to ascertain whether the activities are profitable or liabilities. Therefore, the earning of both activities would result in either profit or loss and would be accommodated in the financial statements.

IASB was introduced in 2001 as an independent body which operates with the purpose of improving the financial accounting. For instance, IASB No. 21 describes that a business entity should determine a functional currency based on the economic environment. Therefore, FASB and IASB have different perspectives of describing the foreign currency exchange based on the understanding of the foreign investments whereby FASB stresses in the analysis of foreign investors, but IASB can be used by local investors.

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