International Accounting 10 August 2019

PT12IA_UP797002.ppt

THE ADOPTION OF IFRS AND ITS ATTEMPT TO SEEK HARMONIZATION

Student Name: Wong Yu Ling Evelyn

Kaplan Student No.: CT0160439

UOP Student No.: UP797002

Overview

Objectives of harmonization

As the global financial market evolves, global investors and businesses seek diversification and investment opportunities across the world.
In the past, every country maintains its own set of accounting standards. This can impact the interpretation of the financial position and performance of the company as profits and losses can be calculated on a difference basis in accordance to the nation’s policies. As such this can pose as a risk to the companies and investors that are interpreting those financial statements to make informed economic decisions.
Harmonization of these accounting practices will require common accounting standards globally.
In 2001, International Financial Reporting Standards (“IFRS”) was established by the London-based International Accounting Standards Board (“IASB”) to address these challenges by initiating a synchronized set of accounting standards globally that are transparent, comparable and efficient in enabling companies and investors in making informed economic decisions globally.

Reasons for harmonization

Of course, there were many objections against adopting IFRS.
Every country has different tax treatments which IFRS does not demand 100% replication.
Some countries have different attitude towards embracing debt as a means to raise capital, while others do not welcome it.
Countries with British colonial past may have less difficulty adopting IFRS than those countries with no direct link to Britain.
Countries with a highly educated workforce and sophisticated financial services will have less difficulty adopting IFRS than countries with lower levels of education.

Overcoming obstacles to harmonization

Why would a country want to modify its local accounting standards?
This will incur additional cost and effort not just to individual companies but also for diversified companies operating under the same umbrella but in different countries.
The issue isn’t whether IFRS is beneficial. The question is whether the benefits outweigh the costs to the adopting country.
To step out of the narrow box of viewing the limitations of the country as an individual, you will be able to see that the advantages out weigh the obstacles.
Adoption of IFRS can bring about increased foreign investors, and in return bring about a greater flow of capital internally and externally.
Therefore, this will not only benefit the companies and investors, but also the government bodies by taxing the companies and individuals to bring about economic benefits to the country.

Case study: Application of IFRS in Singapore

Singapore can trace its heritage to the British colonial era and therefore, has been very accepting towards British legal systems and also IFRS.
Singapore, as an international financial and business centre, has long since recognized the importance of adopting a single set of globally recognized accounting standards, so as to reduce financial reporting costs and to raise funds for entities operating globally.
In 2009, the Singapore Accounting Standards Council (“ASC”), an intendent national accounting standard-setter appointed under Statue, announced its strategic direction of working towards the full convergence of Singapore Financial Reporting Standards (“SFRS”) with IFRS for Singapore listed companies.
In 2018, Singapore achieved full convergence with IFRS for Singapore listed companies. For non listed Singapore incorporated companies, it is permitted voluntarily.

Case study: Jardine Matheson Holdings Limited

Jardine Matheson Holdings Limited is a Singapore-based diversified business company focused principally on Asia.
The company has a standard listing on the London Stock Exchange, with secondary listing in Singapore Exchange.
The company engages in engineering and construction, transport services, property investment and development, retailing, restaurants, luxury hotels, motor vehicles, financial services, heavy equipment, mining, and agribusiness through its subsidiaries.
Due to the diversification of businesses globally, it is only natural that the Group company adopts IFRS globally.

Case study: Jardine Matheson Holdings Limited

One of the examples is as published in the Annual Report 2018, the auditor's report and/or the basis of presentation footnotes states that financial statements have been prepared in conformity with SFRS or IFRS.

Case study: Jardine Matheson Holdings Limited

A further discussion and analysis of the Group company’s conformity will be included in the assignment.

Conclusion

In summary, global harmonization of accounting standards increases transparent, comparable and efficient financial statements to be understood globally and hence, benefitting companies and investors in making informed economic decisions.
Although IFRS is currently adopted globally, IFRS does not demand to be standardized and replicated 100%, but instead, allows certain discretion and modifications since it is based on principles and it is still ultimately based on individual national accounting boards to evaluate and implement these standards to suit the nation individually.
Even though IFRS has since overcome harmonization in most countries on a national and international level, it is still continuously refining its accounting standards in line with the individual national bodies globally to bridge across the world in a common standard. Therefore, we can further expect improvement in the reporting quality, relevance, understandability and comparability on a global scale in the near future.

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