Issues In Financial Reporting Essay Example | Topics and Well Written Essays - 2000 words

Issues In Financial Reporting - Essay Example IASC has seven members which "have formal liaison responsibilities with the national standard-setters in their respective countries" (Carrol and Dixon, 2003). These countries are the United States, Canada, the United Kingdom, France, Germany, Japan, Australia and New Zealand (the last two being represented by the same liaison member). Earlier the Australian Financial Reporting Council supported the policy of international harmonization in the sphere of accounting standards; Australian government launched one of the most effective programs of compliance with the IFRS in the world; at the same time Australia had a very developed accounting system which allowed to effectively monitor the firm's condition. However, recently the Australian Financial Reporting Council (AFRC) proclaimed the policy of adoption of IFRS. Such radical change has caused a lot of debates whether this decision will be a benefit to Australia or will worsen its position. This essay is dedicated to analysis of advantages and disadvantages of the AFRC's decision. Since globalization is one of the main tendencies in international economy, the interaction between Australian companies and foreign firms is increasing. It is common knowledge that volumes of international trade are growing rather in geometrical than in arithmetical progression. The countries which will be the first to open their economies to international trade, will receive the chance for significant economical growth. One of the necessary demands of international trade is the compliance of accounting standards and maximal ease of financial reporting. Adoption of IFRS, according to Collett et al. (2001), will lead to the increase of capital flow to the national market, and will also give the possibility to export the capital to other countries with lower cost for this and with simplified procedure. On one hand, these arguments are evident; the increased flow of capital is likely to benefit economical growth of the country. On the other hand, the expansion of foreign capital means a challenge to the national companies; it can also be doubted that national capital will quickly flow to other countries; this can be true only for countries with less developed economical and financial system than the Australian one. In my opinion, it is difficult to determine whether this argument belongs to advantages or disadvantages of IFRS adoption since the flows of capital depend on many other factors. 1.2. Improvement in capital market efficiency There exists an opinion that adoption of IFRS will lead to better accuracy of capital pricing and to higher efficiency of Australian