Question

In an article for the International Journal of Accounting, Auditing and Performance Evaluation, the scholars Axel Haller and Maria Scholssgang maintained that:

"According to the Framework of the IASB, profit is a frequently used measure of an

entity's performance. Yet in developing its standards, the IASB has not paid much

attention to the presentation of profit, but primarily concentrated on recognition and

measurement requirements. As a consequence, the International (Accounting) Financial

Reporting Standards (IAS/IFRS) do not provide a sound conceptual basis for the

presentation of income and expenses.”

Do you agree or disagree with their assessment? Why? (Please limit your response to 200 words or less)

Answer 1

The flexibility provided by International standards can produce numerous advantages, but this feature also creates a disadvantage. Organizations can choose only to use the methods that they wish to incorporate into their reports to show the results they wish to achieve. This structure facilitates the inclusion of profit or income manipulation in the results. International financial reporting laws may also lead to fraudulent practices, such as manipulating inventory value to make the declaration of profit and loss appear to be greater than the company is. The application of the International Accounting Standards may also lead to certain disadvantages. While the United States has an effective accounting compliance program, attempting to ensure this degree of continuity is difficult in the other Member States. Differences in political and economic systems reduce the amount of comparability available, although they can increase audit efficiency or remove the understanding of knowledge.

From the above, we can say that International (Accounting) Financial Reporting Standards (IAS/IFRS) cannot completely provide a sound conceptual basis for the presentation of Revenue and expenditures.