Question

With the expansion of international business and global capital markets, the business community have shown an increased interest in single high-quality accounting standards. do you agree?

Answer 1

International business has increased in size in past couple of decades. The largest firms are mostly of MNC (Multi-national company) ot TNC (Trans-national company). Subsidaries of companies are present in countries other than their home country for production and sale of goods in host country, this helps reducing tariff burdens that would have been present if exports were done.

Many companies also sell their stocks in different countries capo]ital markets through processes such as ADRs, GDRs, Masala Bonds etc.

Because these companies are raising funds from capital markets of host countries, they have to adopt the accounting standards of the host nation to meet disclosure requirements.

Accounting standards for treatments items such as depreciation, Deferred tax and capitalisation of expenses differ from country to country. With greater integration of world economy, the need for similar accounting standards across the world was felt in order to present a more transparent picture for the investors and regulators.

IFRS(International financial reporting standards) was introduced with the same thought process and has been largely successful in its endeavour. The major benefits reaped from IFRS has been :

1. Transparency - IFRS brings transparency by enhancement of comparability across borders and quality of information provided in the financials. This helps investors to make informed choices
2. Accountability- It helps reduce information gap between capital providers and people entrusted to manage the money. IFRS provide information that is needed to hold account the management.
3. Efficiency- It helps investors to identify opportunities and risk across the world, and helping to improve allocation of capital.