International Financial Statement Analysis

875 words | 3 page(s)

In 2007, the option of possible convergence of the FASB and IFRS was discussed. The reasoning to the adoption of common accounting standards were referred to the fact that it would assist in preparation of better financial reports. Besides, the convergence of these accounting standards is pursued over almost the last decade and it is hard to state that progress has been achieved in this area (Apergis, Christou & Hassapis, 2014).

For sure, there are numerous advantages of the development of single set of the global accounting standards. These benefits are comparability of the correspondence in the communication between state bodies, international expansion of the global financial standards. In turn, the leadership of the accounting institutions prefer stay focused on the disadvantages of this process. In particular, selection of specific accounting rules and standards requires companies to follow them accordingly without any shift. Following this statement, it is evident that small business units will be not able to incur costs related with shift of the company to new accounting standards (Apergis, Christou & Hassapis, 2014).

puzzles puzzles
Your 20% discount here.

Use your promo and get a custom paper on
"International Financial Statement Analysis".

Order Now
Promocode: custom20

The Financial Accounting Standards Board believes that adoption of common set of standards will positive affect operation of the capital markets as well as reduction of the costs to the financial statements users will be decreased. The convergence of principles is made through alleviation of the differences between two different approaches to the preparation of financial statements. For example, listing of income taxes, regulation of the research and development activities and others remain within major sphere for harmonization of the standards. It is hard to state that this convergence will be finalized in the nearest future due to the fact that this process is costly and requires joint cooperation of different stakeholders (Apergis, Christou & Hassapis, 2014).

The most significant differences that have resulted in absence of the harmonization between FASB and IFRS lie in the inability of the boards to develop common set of rules as to the tax income rating, listing of expenses and shares. Both these standards infringed the network properties of the economic transactions. From this point of view, thy can not be merged. In the meantime, one can not specify exact timeframe for convergence of these systems due to the fact that it depends on the political will. For sure, FASB and IFRS now are much closer that it was ten years before. In order to determine the date for final convergence, it is highly important to find agreement between IFRS and FASB with use of rules over principles. Until politics is involved in the issue about convergences, the harmonization will not be finalized as there is a high concern that accounting supervision should not be passed to external bodies.

There is a heat discussion about efficiency of rules based approach over principles based approach in the preparation of the financial statements. Rules based accounting is a list of rules that should be followed when the company prepares its financial statements. In turn, principles – based accounting is used as a conceptual framework for the accountants. The main difference of the principles based approach lies in the fact that it is flexible and provides relevant guidance in application to the variations in business performance of the company. In addition, this approach may cope with the rapid changes in the business environment so that the companies should not have difficulties with preparation of the financial statements. In turn, it is much easier for the companies to comply with the rules based approach as the requirements of these standards are prescripive.

The majority of the companies have to follow principles – based approach with the preparation of the financial statements. This implies that the companies should adhere to the norms and requirements of the Financial Accounting Standards Board. In turn, the experts in financial system started discussion that the use or the principles – based accounting should be much more beneficial for the companies in order to tackle with such scandals as Enron case, WorldCom. The main strength of the rules based approach to accounting lies in the fact that it does not require companies to have comparable financial statements. In the meantime, both approaches to the preparation of financial statements have pros and cons.

In this respect, it is highly recommended to develop hybrid vigor as a compromise standard. While accountants prefer reliance on the rules – based approach in comparison to the principles – based accounting system, the main concern remains with presence of legal liability of the accountants with preparation of the financial information. Hence, one should understand that when companies have to comply with the rules that are hard to abide by, the opportunity to be sued decreases. Hence, it is reasonable that the business units are looking in accuracy with convergence of the principles in removal of the ambiguity and equivocality in the preparation of the financial reports by the management of the companies.

Moreover, one should keep in mind that it would be always hard to define what accounting method is much more beneficial. When preparing financial statements, one should presume that the information is relevant, reliable and comparable across all the reports. This fact will simplify use of specific accounting approach. Despite the fact that accountants continue reliance on principles – based approach, it is evident that modification of this method is needed.

puzzles puzzles
Attract Only the Top Grades

Have a team of vetted experts take you to the top, with professionally written papers in every area of study.

Order Now