Question

"The arguments in favour of requiring the utilisation of international accounting standard for large companies significantly outweigh any arguments against so doing"

Critically discuss this viewpoint

Answer 1

First of all, we need to discuss the arguments in favour and against utilisation of international accounting standards

Arguments in favour of utilisation of international accounting standards

1. Transparency: by enhancing the international comparability and quality of financial information, enabling investors and other market participants to make economic decisions.

2. Accountablity: by reducing the information gap between the providers of capital and the people to whom they have given their money.As a source of globally comparable information, International accounting Standards are also of vital importance all over the world because the information all over world is comparable, management will be more accountable to the providers of capital from all around the world.

3. Efficiency: the use of single accounting language makes it easy to identify investment opportunities and risk across the world and from the business perspective, there will low reporting cost since there will no seperate international reporting cost.

A study was also conducted which shows that market liquidity increases after the adoption of international standards.

Arguments in favour of utilisation of international accounting standards

1. High cost: The initial cost of conversion is very high

2. Cost of changing Internal system is very high, since training cost, policies, etc will be changed.

3. Time to convert: It takes a lot of time to convert to international standards depending upon the size of the company.

Since very clear there is always a transitional effect of anything but that does not mean the benefits are low. It will costly in the initial phase but in long run it will create more investment opportunities, reduction in cost, more transparency.

So the benefits outweigh the disadvantages of the same.