Question

Describe three benefits for every country using the same GAAP; that is, IFRS?

Explain why a country would not want to adopt IFRS?

Explain the main sources of finance for international trade and investment.

Distinguish between short-term and long-term finance sources.

Answer 1

Answer:-

Explain the benefits of countries adopting single financial reporting system that is IFRS?

There are many accounting standards in the world, with each country using a version of their own generally accepted accounting principles, also known as GAAP. These allow firms to report their financial statements in accordance with the GAAP that applies to them. The complication lies in whether the firm does business in multiple countries. How can investors then deal with multiple standards, which ones are accurate, and how can corporations be compared based on their financials? The answer to these questions lies in the adoption of the International Financial Reporting Standards, or IFRS, which is being developed and supported by the International Accounting Standards Board (IASB)

The key advantages of having the single set of the global accounting system are:

1. Comparability

The biggest advantage of a single set of global accounting standards is the enhancement incomparability between companies in different countries. Currently, accounting standards can differ greatly between countries. Before an investor can compare two potential investments, she must reconcile the two companies to the same basis of accounting. The problem is similar for creditors: When evaluating a company's creditworthiness, differences in accounting standards can make two companies that are in similar economic shape appear very different. Enacting a set of global accounting standards would put comparisons on equal footing, making it easier for small-business owners to evaluate international options for investment and cash management. Right now, many small-business owners do not have the resources to effectively compare international and domestic investment options. If financial statements were more comparable, owners would be able to complete more of these comparisons in-house.

2. International Expansion

Moving to a single set of global financial standards would also ease barriers to expansion for companies. If companies wish to expand overseas today, they need to consider international costs of compliance, which could mean adopting a completely new set of accounting records to meet statutory requirements in the new country. In some cases, this would nearly double the company's accounting costs. For many small businesses, even the large rewards of moving overseas are dwarfed by these expansion costs.

3. Central Authoritative Body

From a policy-making standpoint, moving to a single set of global standards puts rule making into the hands of one body. Currently, accounting standards are set within each country by each standard-setting body, as well as by an international group. One set of standards would reduce disagreement between countries and international regulators, and it might also cut costs. In some countries, businesses are required to pay reporting fees that go to fund these standard-setting bodies. While the costs may not affect large companies, they can have a huge impact on a small business. Moving to a central authoritative body could reduce these costs drastically.

4. Consistency and transparency of financial reporting

This factor can also be mentioned as one of the crucial advantages of converting to IFRS as it makes the EU member countries to be consistent not only on macroeconomic aspects, but also on financial reporting which improves relationship between investors and companies among member countries.

5. Loss recognition timeliness

Recognizing the loss immediately is one of the key features of IFRS as it is not only the benefit for the investors, but also for the lender and other stakeholders within the company. The increased transparency and loss recognition of IFRS, usually increases the efficiency of contracting between companies and their management, which also enhances the corporate governance.

With increased transparency as promised by IFRS, the lenders also benefit from IFRS as it makes it compulsory for the companies recognize the loss immediately. This timelier loss recognition of IFRS, triggers the issues as when the companies face economic losses, it will be known to the stakeholders of other potential investors. Timelier loss recognition also enables the company review its book values of assets and liabilities, earnings, equity.

Explain why a country would not want to adopt IFRS?

Moving to a single standard has plenty of advantages but also some disadvantages as well. Below are key reasons for a country to not to adopt IFRS:

Laws & regulations are different & so need of financial reporting system: A country may not adopt IFRS as laws and other regulations are not common across the countries and so that country would like to continue with its existing financial reporting system,

Cost associated with the changing the existing financial reporting system: Moving to a new financial reporting system requires lots of changes in information infrastructure, training of employees and so on.

Monopoly in setting & revising the standards, rules: International Accounting Standard Board will have