Contemporary Accounting Theory Regulatory Framework

Question: 1) Investigate and write a brief history of the IFRS. 2) Select any country and report on its current accounting regulatory framework and its progress towards standardising on IFRS. Answer: Introduction Accounting theory is a set of methodologies and assumptions that are used in the application and study of the financial reporting principles. Generally, the study of the accounting theory includes review of both the ways in which accounting practices are changed and are added to the regulatory framework as well as the historical foundations of accounting practices. This helps to govern the financial reporting and financial statements. All the theories that are associated with accounting are bounded by the conceptual framework of accounting. The Financial Accounting Standards Board provides the framework and works to establish and structure the main objectives of the financial reporting by both private and public businesses (Glover Werner 2015, pp. 113-131). Moreover, accounting theory is considered as the logical reasoning that helps in evaluating and guiding the accounting practices. Additionally, the regulatory standards of accounting theory also help in developing new accounting procedures and practices. Therefore, International Financial Reporting Standards (IFRS) have been structured as a universal language for businesses such that the financial records of the organizations are easily explicable as well as analogous across international limitations. 1. A Brief History of the IFRS In the year 1973, the organization named International Accounting Standards Committee (IASC) was established in order to deal with the requirement for the principles that can be utilized by the minor countries for developing their personal standards of accounting (Markelevich, Riley Shaw 2015, p. 8). Moreover, in the year 2001, this particular cluster was thrived by the International Accounting Standards Board (IASB). The basis of IASB is in London and it is a standard authority for setting the private sector for both non-profit entities and non-government entities. On the basis of the background of various countries and their technical skills, all the fifteen members have been selected. It has been found that four out of the total numbers of associates are American and only two among the sitting associates are constantly as part-time. The activities related to fund raising mainly help to fund the IASB. However, one of the challenges or issues that are faced by the body is the conve rsion to IFRS and it makes sure that the IASB possesses a constant basis of fund generation for the prospectus activities. The main aim of the IASB is to propagate the IFRS. It has been found that in the United States, the structure of governance is much alike to the Financial Accounting Standards Board (FASB) and the IASB directly responds to the Foundation of IASC. It has been noted that with the growth of the international markets, the longing of the international corporations for single set of financial declarations and the requirement for single international language for reporting, the IASB and the FASB concerned the Norwalk Agreement in the year 2002. This particular agreement indicated that their assurance to establish a solitary set of elevated quality standards that would reduce the expenses, raise rate of effectiveness and offer superior and detailed information and data to the investors. In the starting of the year 2005, the European Union (EU) needed its listed organizations to organize the combined financial statements underneath the IFRS. During the year 2006, the IASB and the FASB got on several numbers of combined chief ventures (Ionascu et al. 2014, p. 311). The Securities and Exchange Commission (SEC) undertook two activities throughout the year 2007 and hastens the timeframe of the modification from the GAAP to the IFRS (Borke r 2013, p. 167). Then in the month of November of the same year, the SEC Final Release considered overseas filers in the U.S. in order to develop for submitting the financial declaration as per the IFRS devoid of settlement to the GAAP. Then a Concept Release was subjected by the SEC in the month of December in order to seek feedback on allowing all the public companies of U.S. to consider the option of using IFRS as an alternative of GAAP. It has been found that when the AICPA Council modified the Rule 203 of the Code of Professional Conduct in the month of May of the year 2008 in order to identify the IASB as a global standard of accounting setter, then all the private companies along with the non-profit firms were provided with the alternative of following the IFRS (Jones 2012, pp. 112-126). At present, the IFRS is composed of nine IFRS and forty-one IAS and some of them have been outmoded. A strict code of due diligence along with the FASB has been employed during the process of promulgation. It has been found that nowadays, more than 12000 companies have adopted the IFRS across the world i.e. in around hundred countries (Nobes Stadler 2013, pp. 573-595). These particular nations either permit or require IFRS on the source of the preparation of the financial announcement by the public companies. The nations which have already adopted the IFRS are Australia, Israel, New Zealand, the European Union States and Canada. On the other hand, the countries which are in the process of adoption of IFRS include Japan, India, Nepal and many more. Therefore, in a summarized way, it can be said that the International Financial Reporting Standards are the interpretations that are based on some principles and standards that have been incorporated by the IASB as a framework for the international financial reporting (Pacter 2015, p.13). In other words, it can also be said that the IFRS is the guideline that are followed by the international companies for preparing their financial statements. It was formerly known as IAS (International Accounting Standards), however in the year 2001 the IASB took the dependability for locating the IAS. From then onwards, the IASB has been continued in order to establish the standards that are known as IFRS. It has been found that about 120 nations and reporting authorities entail or permit IFRS for the domestic listed businesses, although around 90 states have wholly conformed to the IFRS as propagated by the IASB (Smith, Boje Foster 2013, p.27). This also includes a statement of acknowledging such conformity in the report of audit. 2. Current Accounting Regulatory Framework For studying the adoption of the IFRS, the country India has been selected and along with the progress of adoption of IFRS towards its standardization, the current accounting regulatory framework of India has also been studied critically. It has been found that within the country India, the accounting regulatory framework that has been currently implemented is the Accounting Standards (AS). As per Evans Kamla (2016, pp. 126-139), India requires major improvements in the present Accounting Standards of the country. It has been found that over 100 countries in the worldwide require change and many of the nations are in the way of replacement and acceptance of the standard. This is generally based on two concepts and the principles are primarily based on accrual and going concern. Opined to Cotter (2012, pp. 52-78), its framework is qualitative and it can be characterized as relevance, understandability, comparability and reliability. Indian Accounting Standards are a set of principle s of accounting that are indicated by the Ministry of Corporate Affairs that are converged with the IFRS (International Financial Reporting Standards). It has been found that the principles of accounting are formulated by the countrys Accounting Standards Board of Institute of Chartered Accountants. Presently, India has two sets of principles of accounting; these are principles of accounting under Companies Rules, 2006 and the IFRS joined with the Indian Accounting Standards. It has been noted that as per Marulkar et al. (2013, pp.125-142), the convergence towards the Global Standards is required as the last decade has resulted into a huge change in the international economic scenario. The emergence of the corporations in search of money not only for the growth of fuelling rather also to sustain the currently occurring activities has raised the capital from all parts of the world cutting across the frontiers. According to Srivastava Gupta (2014, p. 7), each nation has its own sets of rules and regulations regarding financial and accounting reporting. Thus, every organization should follow all the accounting and financial rules of a particular nation especially when it expands its business to other overseas countries. Therefore, it has been found that the international investors and analysts generally prefer to compare the financial statements on the basis of similar accounting standards. Thus, this willingness of the international investors and analysts of implementing international standards of accounting and financing supports the growth for an internationally accepted set of standards of accounting for cross border filings. In addition to this, the harmonization of the financial reporting will help to increase the confidence level of the investors and this will make them able to use their decisions and also to assess their risks. A high demand was recognized by the legislation in order to bring in rationalization, uniformity, transparency, adaptability and comparability in the financial statements. Thus, a better way can be suggested to get rid of all the issues faced by various methodologies of standards is to have one set of international standards of high quality that are set in the interest of public. Opined to Ahmed, Neel Wang (2013, pp.1344-1372), with the passage of time, it has been found that the feel for the need of the convergence with the IFRS by the Indian businessmen and accountants increased constantly. In addition to this, it has been noted that the capital markets provide a vital explanation for the change that take place. The accounting standards that are accepted internationally becomes the language of communication for the companies of India. In order to bring the Standards of accounting of India at par with the IFRS/ IAS, some of the prior Accounting Standards and Guidance Notes have been revised. Nevertheless, currently, the Accounting Standard Board along with core group composed by the MICA (Ministry of Corporate Affairs) with the aim to convergence the Indian Accounting Standards (IFRS) has decided that two sets of separate sets of Accounting Standards should be prepared. These include firstly, Indian Accounting Standards converged with the IFRS and secondly , the present Accounting Standards. According to Agarwal (2015, p.92), it has been found that after the enactment of the Companies Act of the year 2013, the Ministry of corporate affairs has transferred its goals on rolling out international standards of reporting for the companies of India. The ministry intends to implement the IFRS with the organizations that have a net worth of more than Rs 1000 crore from 1st April 2015. Secondly, both the unlisted and listed companies having a net worth of more than Rs 500 crore but lesser than Rs 1000 crore will have to converge with the IAS from the beginning of the financial year 1st April, 2016. As per Mishra Aggarwal (2014, pp. 152-169), the IFRS has been put on the back burner by the countrys government as per the provided issues highlighted by the corporate and unsettled issues of taxation. Opined to Landsman, Maydew Thornock (2012, pp.34-54), the implementation of the IFRS is expected to cause some disturbance in the finances of the companies in the initial stage as the standards for protecting the real value of the assets. According to Kamath Desai (2014, p. 25), various sectors like real estate and banking might be hit. As per the result of the sector-wise study that has been conducted by the Institute of Chartered Accountants of India, it has been found that all the Indian companies which have been listed overseas presently prepare the financial statements according to the International Standards. However, it has also been noted that the banking companies might exempt from the implementation of the IFRS. Lastly, it has been found that in the beginning of the financial year 2017, the relatively smaller firms should require to prepare their accounts according to the International Standards. As rightly stated by Reddy Desai (2015, p. 7), the primary sectors that might be affected include finance, oil and gas, infrastructure and telecom companies. More than 100 countries have already accepted the IFRS, but the country India has congregated its st andards of accounting with the international standards of reporting. At present, the countries like the U.S., India and Japan are considered as the primary economies which have not adopted the IFRS. On the other hand, the countries like Russia, Brazil and Canada switched over to IFRS in the last year. As per Singh (2014, pp. 79-87), the implementation of the IFRS has both positive and negative effects on the financial and accounting regulations of the country India. The shift of the accounting and financial regulations to IFRS is not only a technical accounting exercise, rather it is an exercise in the change management that offers various opportunities for the process of improvement. It has been found that the shifting of the accounting standards generally provide offers to the companies regarding their improvement in various ways. Firstly, the implementation of IFRS might reshape the systems of management reporting in order to manage both the financial statement and accounting generation. This also provides leadership to the company with important information. Secondly, the implementation of IFRS in the companies of India might improve the disclosure to the investors, analysts, stakeholders and regulators regarding the financial situation, results and other indicators of perform ance of a particular firm. Thirdly, this implementation of IFRS within the organizations might also improve the metrics that are used for evaluating the executive performance as well as the company performance. Fourthly, the IFRS implementation benchmark itself alongside its worldwide peers. Fifthly, it also ensures all the team members of finance regarding having training, skills and knowledge that are required to perform their roles accurately. Lastly, the incorporation of the IFRS makes the accounting policy choices which are aligned with the worldwide industry practice. Opined to Yadav Sharma (2012, pp. 59-86), the adoption of IFRS by the corporate of India is considered as very challenging as well as also rewarding at the same time. The corporate of India is expected to harvest important advantages from adoption of IFRS. On the other hand, the experience of the EU focuses various perceived advantages due to the outcome of adoption of IFRS. Moreover, most of the financial statement preparers, investors and auditors agreed that implementation of IFRS has improved the quality of financial statements and it was also considered as a positive development for the financial reporting of EU. Conclusion Therefore, it can be concluded that there is an urgent requirement for addressing all the challenges and should also work towards entire adoption of the IFRS in the country India. The important requirement is to develop an adequate IFRS skills and the expansive knowledge base amongst the accounting professionals of India in order to manage the translation projects for the Indian corporate. This can be performed by leveraging the experience and knowledge that have been gained from the IFRS conversion in other nations. It can also be done by implementing IFRS into the curriculum of the courses of professional accounting. Finally, it can be said that it is crucial for the Indian corporate to make their attentiveness better for the adoption of IFRS and to get the process of conversion correct. The present condition of the market and any restatement of the outputs due to minor errors in the process of conversion might be detrimental to the organization that is involved and might also dama ge the confidence of the investors in the financial system severely. 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