Question

Considering the viewpoint of Governments

Two advantages of international accounting standards

Two disadvantages of international accounting standards

Give One academic and/or Practical example to support points

Answer 1

Solution:

Advantages of International Accounting Standards

1. Global Comparability: When different companies are located in different countries, they use generally accepted accounting principal (GAAP) of that country. So comparison of financial statement of two companies located in different countries is difficult. When all companies in different countries follows the single set of accounting standard, comparability of financial statement becomes easy. If financial statements of the companies are prepared according to IFRS, owners/investors are able to compare it easily.

2. High Quality and transparency: International accounting standard uses principal based philosophy rather than rule base concept philosophy. Rule based philosophy may good for some entities and bad for others or may good in one period & may bad in other period. Whereas principal based philosophy always shows equality and transparent picture. IFRS always looks into substance over the legal form. This improves the quality and transparency of the financial statement. IFRS insures the financial statement should give complete, relevant, accurate picture and transparent picture of the transactions. There is least scope of manipulation.

Disadvantges of International Accounting Standard

1. Small Entities are forced to follow the same resulting in there increased cost.

2. The local tax laws of each country is difference for all the counries, hence to obliged with the local tax laws a seperate balance sheet has to be prepared.

Practicla example - When there is global comparability and high quality and trasparency it is being used by the investors all over the world to use such information to compare it with other reporting entities and advise which entites have a strong fundamentals and where to invest in those funds. hence practically it is being followed all over the world and such standards are being used and financials being drawn based on such standard are used by investors to assess the financial information.

Practiclal example - There are disadvantages in respect of small entites which have to follow such standard there cost have increased and they have to prepare seperate financials for following the tax laws relating to their country. Hence the same increases the cost and if a entity is a small enterprise it has to bear the same and though it might not have a large no of investors who have invested in his company.