Question

1. Describe the criticism and consequences of IFRS adoption

Answer 1

Recently there a wave to adopt or align the accounting in multiple countries to IFRS (International Financial Reporting Standards) across Europe and around the world. This wave is partly because of the general perception that IFRS is a product with network effects and perceived globally as a high quality accounting standard when compared with multiple existing standards. IFRS is expected to provide greater transparency, comparability and understandability with lower cost to capital, better investor confidence, easy of operations for domestic and foreign investors, etc.

Although the benefits of IFRS are many, there are multiple challenges attributed with it. One general challenge is w.r.t the difficulty in convincing the people about the benefits and changing the mindset of people. People and companies do not desire this change due to either accepting change, need to learn and make changes in business accounting and need to educate staff on the changes. Technological limitations and communication limitation make it more difficult for a smaller firm to adopt changes more difficult than larger firms. Also for multi national firms, different regulations at different countries make such changes difficult to execute. Moreover, accounting is also impacted by the cultural framework in a particular country. Thus making changes in accounting when its different from the existing cultural norms is difficult.

Thus although there are benefits to IFRS the current challenge in implementing it has slowed the spread of its adoption. But going forward with more awareness and technological development with some regulations can help adoption of IFRS globally.