Benefits of International Standardization

Discuss about the Benefits of International Standardization.


The adoption of “International Financial Reporting Standards” (IFRS), set by the IASB (International Accounting Standard Board) has become the most controversial topic in the modern international accounting field. By providing guidelines based on the principles rather than the rules, the users will deliver best quality of information to the company’s investors and leaders (Cazier et al. 2015). Though it is an important aspect for establishing the global standards in order to prepare statements of financial for companies, there are several confusions related to make the standardization of the financial records. There are many varied views about the costs and benefits of international standardization. However several public listed companies are already showing their commitments towards the adoption of global standards (Botelho et al. 2015). Furthermore, this has already acknowledged by them that a sound financial reporting system, certainly supported by high quality accounting and auditing standards and backed by a solid fundamental governance, regulatory and ethical framework.

During the international accounting practices, the international companies often find difficulties while dealing transactions with different countries. There are several countries followed different accounting standards. In this context, the Financial Reporting Council (FRC) announced that it fully supported the adoption by Australia of the International Accounting Standards (IAS). The main perceived benefits of adopting the IAS were improved access to international cash flow s and decrease costs of reporting of financial for Australian multinational companies. (Botzem 2014) Now the Australian reporting entities are now needed to prepare their statements of financial based on the Australian Equivalents of the International Accounting Standards. However, IFRS is still not accepted by the US SEC for US domestic companies, but US FASB and the IASB are presently working on a convergence.

In this project, the researcher will identify the importance of global standards along with addressing benefits and limitations. By exploring the diverse applications of the international standardization, the study will identify the required initiatives to get the benefits from it during the phase of reporting of the financials.

Motivation and Justification

IASB has formulated and published accounting standards to promote the world-wide acceptance. This centre of international standardization does not appear to believe reasons provided as to why different nations should follow different standards of accounting. The rule based concepts are followed by US standards whereas IFRS are more “principles-based”. However, the growing acceptance of IFRS is higher compare to GAAP. Evidence has been taken after the research carried out by ACCA which indicated that CFOs in Singapore, Hong Kong, Singapore and China strongly supported the adoption of IFRS because they believe to be added value to the market of the Asian markets by creating easy comparability for western investors (Bebbington, Unerman and O’Dwyer 2014).

The standards of international accounting are required to provide global consistencies in the area of reporting financial performances of companies. The need for financial reporting reformation is particularly acute at present with the lack of harmonization adding to the general confusion prevailing on the financial markets. “The contradictory signals likely to originate from a group of people that works with more than one set of standards tend to undermine the credibility of information related to financials “(Horton, Serafeim and Serafeim 2013). Furthermore, investors are willing to accept transparent and high quality financial reports which ensure the company’s financial stabilities in the global platform of accounts. IFRS always looks for substances over the legal reform. With this approach, it improves the transparency and quality of the statement of financial. However, the mandatory adoption of IFRS is still pending and the adoption has been restricted within 13 countries and twenty industries (Ahmed, Neel and Wang 2013). By this research, evidence will be investigated the level of accuracy and high quality of financial reporting disclosures at the end of the fiscal year. The significance of this research also increased because the study will also explore the issues faced by many reporting entities (Landsman, Maydew and Thornock 2012). For instance, some small entities have good system of accounting, but forced to incur the cost to change the new accounting system. After identifying the benefits, the reporting entities can enhance the financial reporting performances and companies can enhance the confidence of global stakeholders.

Research Aim and Objectives:

The aim of the research is to explore the diversified applications of international standardization in the modern theory of accounting. Moreover, the evidence of international differences of accounting will be addressed in this research.

To attend to the research aim, the following objectives need to be taken:

  • To address the importance of the adoption of IFRS in theory of accounting
  • To address the issues in adoption of IFRS in Australia
  • To identify the benefits associated with international standardization
  • To discuss the initiatives needs to be taken to get the benefits of international standardization

Research Questions:

The following research questions needs to be addressed:

  • What is the importance of the adoption of IFRS in the application of accounting theory?
  • What are the benefits of international standardization?
  • What are the issues associated in adoption of IFRS?
  • What are the initiatives needs to be taken to get the benefits of internal standardization?

Literature Review

In recent years, there has been a trend towards the uniform accounting standards for recording transactions in the advanced reporting purpose. To encourage transparency and easy comparison in transactions crossing borders and jurisdictions, the international standardization has received the global acceptance in the international accounting literature (Bebbington, Unerman and O’Dwyer 2014). Accounting provides companies, investors, regulators and others with the standardized way to describe the financial performance of an entity (Saidu and Dauda 2014). While the standards of accounting present preparers of the statements with the set of rules to abide by to prepare the accounts of an entity, it needs to be ensured for standardization across the market. However, the true financial positions cannot be disclosed or compared, if different companies followed different accounting standards for recording their financial position at the end of the reporting financial period. Companies listed on public stock exchanges are legally required to publish the financial statements in accordance with the relevant accounting standards. In this context, “International Financial Reporting Standards” provides a single set of accounting standards and ensured the financial reporting consistency in the international accounting filed. “Association of Chartered Certified Accountant” relies on the global standards of accounting, not only for the professionals of accountant, but for the global economy. According to Krishnan and Zhang (2015), the sound financial reporting system is the backbone of the solid financial stability and an effective corporate governance of the reporting entities. This is the main logic behind the introduction of “International Financial Reporting Standards (IFRS). However, IFRS still not accepted by the US SEC for US domestic companies because they have a confusion related to the convergence between the standards of accounting and the systems of corporate governance which is so different in an important economic region (Ramanna and Sletten 2014).

Benefits of the international standardization:

By providing the globally acceptable financial reporting frameworks, the reporting entities and the associated stakeholders get several benefits. These are as follows:

Improved flow of capital:

By facilitating the convergence and transparency of accounting practices by the adoption of IFRS, the reporting entities can boost their flow of capital across the global markets. In this context, investors and other stakeholders can compare the business performances with other international companies more conveniently (Krishnan and Zhang 2015). Moreover, this is an easier way for the public listed companies to raise business capital from investors across the globe.

International orientation:

After the adoption of IFRS, the regulatory bodies of accounting get the global acceptability to the reporting entities. Here companies don’t need to prepare other sets of the statements of financial when pursuing business interests in the IFRS-complaint countries (Barth, et al. 2013). The international standardization reduces the costs of preparing statements of financial which has given the framework for the global audiences.

Generalized standard setting:

The business entities can adopt the expected and unexpected changes in the global business environment after the successful convergence of the generalized standard setting approach which is based on broad principles (Ramanna and Sletten 2014). By this process, companies can easily accommodate changes in result of jurisdictional circumstances and traditions with the limited intervention of the IASB (Landsman, Maydew and Thornock 2012). For instance, IASB does not specify any format to the reporting companies for providing the statements of the financial. This gives the business an operational flexibility in the presentation of the financial report for the best suited of their users.

Enhancement in reporting:

By accepting the approach of IFRS, the quality of financial report has been enhanced along with the internal accounting systems. Under the following principles specified by the IASB, the reporting entities determine the set of standards which is unlike country –specific accounting rules (Ramanna and Sletten 2014). Thus, the internal auditing perspectives are also enhanced.

Limitation of international standardization:

Moving to a single set of global standard gives several advantages. However, several accounting practitioners have identified its limitation as well. Whatever standard is chosen, companies will have to adopt it. Some small businesses may have a good accounting systems but a lot of investments needs to make for changing into the new system (Daske et al. 2013). During the international financial reporting standards find difficulties to sustain with laws and other regulations at the national level. The biggest challenging part is the convergence with accounting standards with the individual corporate governance of the companies. Thus, this standardization process could hamper the comparability of the statements of financial across countries (Horton, Serafeim and Serafeim 2013). In other sense, the domestic and internal investment opportunities might have developed a false perception about the different understanding laws and regulations practiced by the reporting entities. In addition, the financial reporting convergence is the long process and entities need to involve in high costs.

Problems in mandatory adoption of IFRS:

The first problem is with the core IFRS concept of “fair value”. If the standardization is adopted, the “fair value” of a “non-current assets” should be its fundamental value. However, the collapse of Lehman Brothers and the ensuring international financial crisis have clearly indicated that “market price” have the potential of diverging broadly from the conventional values of assets. Secondly, the adoption of the IFRS hardly represents the interests of investors (Saidu and Dauda 2014). It is mainly discloses the present financial standing of companies. Thirdly, IFRS is followed “principle based standards” which do not define the rules. Thus, transactions of the similar nature may be processed distinctively according to the interpretations made by different companies (Bebbington, Unerman and O’Dwyer 2014). All these concerns have been voiced by many researchers and accounting professionals. Thus, literatures are still finding the solution for the same.

Research design and method

The methodology of the research provides a philosophical framework within which the research is conducted. According to Mackey and Gass (2015), it is the foundation upon which the research is based on. There are several tools and techniques needs to be taken for capturing the data and relevant information in order to conduct the research. In order to carry out the research, the researcher will chosen “realism research philosophy”, “descriptive research design”, and “deductive research approach”. By selecting the “realism research philosophy”, the researcher will rely on the independent observations after exploring the different viewpoints and interpretation of several accounting practitioners. During the qualitative data gathering process, the researcher will incorporate the guidelines provided by the international accounting bodies.  In other sense, the data will be gathered from the published accounting standards and the work of the improvement and standardization of the standards of accounting. Thus, the “critical realism approach” will argue the experience of accounting practitioners and collect data through the accounting journals, books, online guidelines of regulatory bodies of accounting (Flick 2015).

In this project, the researcher will follow the secondary data collection method for analyzing and interpreting the collected evidences from the quantitative study of research. During the quantitative research, the researcher will generally quantify the opinions, attitudes and behavior related to the accounting applications and other defined variables. For this reason, the researcher will be structured their data collection method by conducting the online survey process and face-to-face interviews. During the survey process, the researcher will design research questionnaires for accounting practitioners and the users of the financial statements. The sample will be chosen by the following “simple random technique”. On the other hand, the researcher is all to looking for face-to-face interviews with the regulators of the accounting bodies to record the experiences of public listed companies for better understanding about the prospects of  international standardization in global accounting filed.

Ethical considerations

During the process of the research, the researcher will maintain the confidentiality while exploring the evidence related to the adoption process of IFRS, followed by the several public listed companies for assessing the financial statements and their practicing approaches in accordance with the relevant accounting standards. All the collected information and relevant data related to the international accounting will be used only for the academic purpose and such information will be destroyed after the completion of this research.  On the other hand, the researcher will enable to maintain code of ethics which are followed by all professional accountants of public listed companies by the “International Ethics Standards Board of Accountants”.  

Expectation of findings

The single set of global accounting standard can create the trust between the investors and investees, suppliers and buyers and so on. When all companies in different countries follow the uniform standards, it would be easier for companies to be compared with each other. After the successful standardization, the reporting entities can record activities related to cross-border mergers and acquisitions and strategic investment in more integrated manner. By representing the financial statements in a transparent manner, the company can ensure high accounting and auditing standards at the end of the reporting period. At the end of the study, the researcher will help to identify the benefits of the standardization. However, it is completely depends on the successful adoption process of IFRS. By the end of the research, it will be find out that the reporting entities can recognize financial instrument and get post employment benefits because the system of standardization by the adoption of IFRS can give a comprehensive picture of the reporting companies. The research will further guide the initiatives which need to be followed to get the benefits of the standardization. For instances, the Australian company needs to issue “AASB 1047 Disclosing the impacts of Adopting Australian Equivalents to IFRS” to facilitate IFRS adoption. On the other hand, the practitioners of IFRS can identify the impacts of the financial conditions of the entities for the year proceeding the year of adoption easily by the issuance of AASB 1047.


Ahmed, A.S., Neel, M. and Wang, D., 2013. Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), pp.1344-1372.

Barth, M.E., Landsman, W.R., Lang, M.H. and Williams, C.D., 2013. Effects on comparability and capital market benefits of voluntary adoption of IFRS by US firms: Insights from voluntary adoption of IFRS by non-US firms. Rock Center for Corporate Governance at Stanford University Working Paper, (133).

Bebbington, J., Unerman, J. and O’Dwyer, B., 2014. Sustainability accounting and accountability. Routledge.

Botelho, R., Azevedo, G., Costa, A. and Oliveira, J., 2015. Property, Plant and Equipment disclosure requirements and firm characteristics: the Portuguese Accounting Standardization System. International Journal of Academic Research in Accounting, Finance and Management Sciences, 5(1), pp.58-71.

Botzem, S., 2014. Transnational standard setting in accounting: organizing expertise-based self-regulation in times of crises. Accounting, Auditing & Accountability Journal, 27(6), pp.933-955.

Cazier, R., Rego, S., Tian, X. and Wilson, R., 2015. The impact of increased disclosure requirements and the standardization of accounting practices on earnings management through the reserve for income taxes. Review of Accounting Studies, 20(1), pp.436-469.

Crawford, L. and Power, D.M., 2015. Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8. Journal of Applied Accounting Research, 16(1), pp.2-27.

Daske, H., Hail, L., Leuz, C. and Verdi, R., 2013. Adopting a label: Heterogeneity in the economic consequences around IAS/IFRS adoptions. Journal of Accounting Research, 51(3), pp.495-547.

Flick, U., 2015. Introducing research methodology: A beginner’s guide to doing a research project. Sage.

Horton, J., Serafeim, G. and Serafeim, I., 2013. Does mandatory IFRS adoption improve the information environment?. Contemporary Accounting Research, 30(1), pp.388-423.

Krishnan, G.V. and Zhang, J., 2015. Does Mandatory Adoption of IFRS Enhance Earnings Quality? Evidence from Closer to Home. Evidence from Closer to Home (September 1, 2015).

Landsman, W.R., Maydew, E.L. and Thornock, J.R., 2012. The information content of annual earnings announcements and mandatory adoption of IFRS. Journal of Accounting and Economics, 53(1), pp.34-54.

Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design. Routledge.

Mardini, G.H., Crawford, L. and Power, D.M., 2015. Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8: Evidence from Jordan. Journal of Applied Accounting Research, 16(1), pp.2-27.

Ramanna, K. and Sletten, E., 2014. Network effects in countries’ adoption of IFRS. The Accounting Review, 89(4), pp.1517-1543.

Saidu, S. and Dauda, U., 2014. An Assessement of Compliance with IFRS Framework at First-Time Adoption by the Quoted Banks in Nigeria. Journal of Finance, 2(3), pp.64-73. is
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