Pros and Cons of International Financial Reporting Standards

Pros and Cons of International Financial Reporting Standards
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Introduction
The International Finance Reporting Standards (IFRS) are accounting guidelines for public corporations tailored to ensure that companies' financial reports demonstrate transparency, consistency, and comparability across the globe. Initially, the establishment of IFSR aimed to enhance reporting quality and improve financial statements comparability across all countries globally. Accordingly, 2023 marks the twenty-second anniversary since the European Union (E.U) approved IFRS for all firms enlisted on its key European stock markets. Since its approval by E.U., IFRS has had its share of pros and cons. IFRS has achieved international adoption, with over ten thousand companies in more than 100 jurisdictions basing their domestic accounting principles. Proponents of IFRS adoption suggest that it improves financial accountability and transparency and lowers information asymmetry, thus allowing countries to activate the interests of foreign investors. The significant criticisms against IFRS come from practitioners and related users. In this context, practitioners typically argue against the IFRS board's fair value requirements, governance, and transparency structure, questioning its legitimacy in issuing the accounting guidelines. Some benefits of IFRS execution include improved financial accounting transparency, the capacity to boost foreign investments, and better comparability of financial reports. The paper also includes criticisms against IFRS adoption, citing the lack of technicality, financial reports' incomparability, and the high cost of implementation efforts.
Critical Discussion for/against IFRS Adoption
Pros of IFRS Adoption
Improves Financial Accounting Transparency
Typically, financial statements are prepared to inform the stakeholders about the company's financial performance to support their investment decisions. Financial statement information quality is significantly influenced by the book-keeping rules used by financial practitioners in preparing them. IFRS can be theorized as practical regulations central to the preparation of high-quality financial reports. As a high-quality principle-driven guideline, IFSR improves transparency by encouraging disclosure and effective comparability between economies, which offers an impetus for low information asymmetry thresholds. It also assists in predicting a firm's possibility of financial challenges based on the status quo. Indicators of financial distress in corporations enable investors, management, and other stakeholders to take the appropriate measures (Ebaid, 2022, n.p). In addition, financial distress signs help management to predict organizational challenges early enough to prepare and take necessary precautions to avoid financial problems leading to a stable financial performance (Valiyev et al., 2021, p.587).
Increased Foreign Investments
The IFRS conference discusses and drafts transparent and efficient financial data for all global investors in different financial markets. Reviewing comparable accounting data, investors can make accurate and rational decisions before investing in foreign countries. Accordingly, IFRS promotes foreign investments by reducing information asymmetry. This equips foreign investors, including but not limited to multinational companies, financial institutions, and international organizations, with qualitative financial statement information to evaluate before establishing their business in a foreign country (Tudor, 2022, p. 871). For instance, in 2003, Bulgaria implemented the IFRS in all banks, mutual funds, and all listed companies by preparing and consolidating their financial statements based on the standards. The adjustment of Bulgaria into the market economy attracted foreign investors (Tudor, 2022, p. 874).
Promotes Financial Comparability
Nowadays, the current economies rely on global transactions. IFRS assists in promoting financial statements comparability and allows stakeholders and companies to make informed investment conclusions. Indeed, better comparability augments the data available to company managers by enabling them to understand their contestant's financial reports and share the information obtained across the companies and countries. IFRS implementations improve the global comparability of financial data by creating reports of similar companies that look more alike and different firms with distinct investment options and strategies (Almaheiri et al., 2021, pp. 1-2). Also, IFRS requires financial practitioners to disclose more outstanding data than General Accounting Principal (GAPP) standards to allow financial stakeholders to better understand companies' performance and actual market position. Therefore, adopting IFSR fosters cross-economic comparability of investment information across countries, especially when the underlying economic variables coincide (Valiyev et al., 2021, p.587).
Cons of IRFS Adoption
Incomparable Financial Reports
Economies, creditors, and investors depend on investment and free capital flow worldwide. IFRS is a fundamental global tool via which companies and investors make judgments with respect to foreign investments. However, critics indicate that adopting IFRS has fueled incomparable financial reports between the companies listed on different countries' stock exchanges. According to Prather-Kinsey et al. (2022, p. 331), few measures have been implemented to upgrade the comparability of financial information, particularly for the presentation of the statements of financial position. In this regard, there is an indication that IFRS firms calculate subtotal earnings differently. As a result, stakeholders create and compute their subtotals differently, leading to biases in the comparability of revenue statement subtotals, including operating income. Moreover, the challenge in the comparability of the financial report could also arise within one country's financial market. For instance, a stakeholder in one's home state's financial market may compare IFRS financial reports of firms integrated into various countries but outlined in their home state's financial needs (Kinsey et al., 2022, p. 330-331). Even if these firms' financial reports utilize IFRS, effective comparability might be difficult to achieve between domestic and global companies guided by diverse levels of IFRS execution, enforcement, and adoption.
Lack of Technical Competencies
Education constitutes the primary determinant of IFRS accounting systems adoption and execution. Indeed, effective adoption and execution of complex accounting standards require highly-trained and knowledgeable IFRS personnel with adequate accounting and technical competencies. Most developing nations lack competent accounting professionals due to low-quality education, which renders them lacking the proper knowledge to adopt and operate an IFRS account information processing system. For instance, the Iraq government fell short when adopting IFRS due to low education level, which led to a lack of qualified ac...