Adoption of IFRS-Free-Samples for Students-Myassignmnthelp.com

Questions: 1.Critically evaluate whether a shock to financial reporting, the 2005 adoption of International Financial Reporting Standards (IFRS) has a differential impact on the debt and equity markets. 2.The key qualitative characteristics in the Conceptual Framework are relevance and faithful representation. Preparers of financial statements may face a dilemma in satisfying both criteria at once. Critically evaluate on situations where there might be a conflict. Answers: Introduction It is often criticized that the implementation of IFRS in 2005 has focused too much on providing financial information related to equity investment decision that areas pertaining to Stewardship and debt contracting. The first part of the report aims to critically evaluate whether this adoption to the new standards is having any differential implications on the debt and equity markets. The second part of the report has been able to identify the key qualitative characteristics associated to the conceptual framework with regards to faithful representation. The main criticism related to the qualitative characteristic is seen in terms of preparers of the financial statements who may often face the confusion of satisfying both criteria at once. To present a critical evaluation of the facts the learning objectives are relied on macroeconomic data along with a pre-post design centred in 2005 (Agyei-Mensah 2014). 1.Rational for Financial Reporting Standards (IFRS) having a differential impact on the debt and equity markets The primary objective of FASB and IASB is designed to provide information about entities reporting which is beneficial to both existing and potential investors in making decisions pertaining to resources. Based on the previous empirical investigations shows limited research conducted for evaluating relative impact of financial reporting on equity versus the debt markets. However, among the few evidences included in Macroeconomic Evidence from Mandatory IFRS Adoption in SSRN Electronic Journal and other such research, the use of macroeconomic level investment for equity and debt is seen to provide a common platform to know about the impact of IFRS acceptance on investment decision and equity (Santos, Fvero and Distadio 2016). The differential effects of IFRS is able to know about that option process of debt and equity investment as per countrys governance before IFRS implementation. The discourse from the research is able to signify that on using of difference design, general trading has increased with foreign investment than by use of non-adopting countries as controls. There is existence of a strong correlation between adoption of IFRS and foreign investment (combination of both equity and debt investment) in a country (Ewert and Wagenhofer 2016). However, several results of the research have found that the implementation of IFRS is not robust to alternative deflator as these are excluding U.S. as a potential investor. In contrast to this the debt results are more robust to inclusion/ exclusion of countries. So, it may be stated that IFRS is having a significantly greater implication on the debt market in compared to the equity market. This notion is constant with investors placing more reliance towards financial statement evidence than equity investors (Dvo?k and Vaek 2015). There are similar studies conducted to know about governance on debt investment and foreign equity around the adoption of IFRS. Differential impact effects in terms of governance on equity investment and foreign equity with IFRS adoption has a limiting effect to countries having high governance quality before the adaptation. This increases the foreign equity investment which are associated with increases in quality of governance surrounding the adoption. The overall impact of the IFRS adoption suggests that the increase in equity investment are dependent with high living of pre-adoption governance however, the debt investment have not shown this relevance to the limit of governance prior to that adoption (Eng, Sun and Vichitsarawong 2014). Several types of earlier research studies have been able to state that this shock in the financial reporting via the intimidation of IFRS greater debt market influence than equity markets. Henceforth, the debt markets are having a greater impact on characteristic nature of financial reporting rather than equity markets. Based on the findings of these research IFRS adoption is considered to be having a greater impact on debt financing rather than equity financing decisions. These insights provide important understandings on the regulators and the standard setters for differential influence of financial reporting on debt versus equity markets (Zakari 2014). Despite of most of emphasis on providing financial information for equity investment decisions few prior work is able to suggest that IFRS earnings are much more effective for individual companies and debt contracting to derive debt market benefits. These research studies further suggest that voluntary IFRS adopters has to bear lower rate on private loans for obtaining a favourable loan term, thereby attracting more number of foreign lenders. In addition to this, these companies are more likely for issuing public bonds after mandatory IFRS adoption process. Several other research studies have suggested that IFRS adoption is related to increasing credit sensitivity ratings in terms of accounting default factors (Gao and Sidhu 2016). 2.Critical evaluation of conflict between relevance and faithful representation The concept of relevance is identified as one of the two fundamental decisions for specific characteristics of implying useful accounting information. The use of relevant information can make a difference in a decision-making process and helps the users to make predictions about the outcomes of future, present and past events. It needs to be further understood that the use of relevant information can be both predictive and confirmatory. The faithful representation on the other hand is among one of the two fundamental decisions which is useful in terms of accounting information for defining a specific characteristic. The information represented with this criterion is intended to represent the dependability aspect of the reporting events. The faithful representation of report is depicted in terms of neutrality, error free and completeness of the financial information (Ali, Akbar and Ormrod 2016). However, satisfying both the criteria at once can be a major challenge while financial reporting. In situations where repayments and loyalty scheme accruals are estimated, the accruals for sales and loyalty scheme redemption is often estimated based on historical returns. This is recorded so as to allocate them in the same financial year at the time of noting down original revenue. The provisions are reviewed on regular basis and updated for reflecting managements-based estimates on actual returns and redemptions which can vary accordingly (Sutton, Cordery and van Zijl 2015). The organizations include an expanded discussion for providing information on refunds and loyalty schemes for the preparation of financial statements as per appropriate options and estimates. However, there may be different results for these estimates from the actual results due to significant risk factor associated to material adjustment to the carrying amount of liabilities and assets (Mala and Chand 2014). To undertake an effective representation of financial information the compliance between both the frameworks are necessary. However, when they are in conflict IAS 1 almost equates the fair presentation of the standards to ensure only true and fair values of financial information is provided. However, under extreme conditions management may reach to a decision which may show that certain provisions of standards may be misleading with the objectives of IASB framework. Under these situations, the management may decide to depart from provisional standards which is also known as true and fair override (Poudel, Hellmann and Perera 2014). Henceforth, the fair presentation is not only seen with compliance to the standards, but as standards which are detailed in every circumstance for achieving fair presentation. Henceforth, it needs to be understood that to interpret the situation of problem by deciding on choosing fair presentation over relevance. The choice of true and fair presentation ov er reliability is dependent on desired behaviour considered with the opportune and relevancy of the ethical or moral objectives (Madah Marzuki and Abdul Wahab 2016). Reliability should not be confused with conformity however, based on true and fair override standards and it can be said that relevant information is more important than fair representation. These depictions are based on discussions associated to the inclusion of implicit and explicit hypothesis for the new accounting model prepared as per Conceptual Framework of the International Financial Reporting Standards (IFRS) (OBrien et al. 2014). Several types of modern conceptual framework researchers have opined that economic phenomena allow the existing and potential investors to take economic decisions based on purchase, sale or retention of stock. In addition to this, the previous studies have extended the needs of other stakeholders. This approach of amalgamating partnership into accounting standardization have led to open debate on concerns for selecting standard and decision or behaviour. However, as per the evidences of these studies, the accountants need to focus more on the effect s of distribution of income, wealth and power for relying on relevancy versus true and fair presentation (Perera and Chand 2015). Conclusion The conclusions drawn from the discourse of critical evaluation whether the IFRS adoption to the new standards is having any differential implications on the debt and equity markets have shown that there has been a strong correlation between adoption of IFRS and foreign investment (combination of both equity and debt investment) in a country and IFRS is having a significantly more influence on debt markets than equity markets. This notion is dependable with investors placing more reliance towards financial statement information rather than equity investors. In addition to the discussion on differential impact is also seen with debt markets having a greater impact on characteristic nature of financial reporting rather than equity markets. As per the latter part of the discussions the preparers of financial statements may face the dilemma of including both relevance and faithful representation where refunds and loyalty scheme accruals are estimated. In addition to this, accruals for sa les and loyalty scheme redemption is often estimated based on historical returns. However, organizations may introduce an expanded discussion for providing information on refunds and loyalty schemes for the preparation of financial statements as per appropriate options and estimates. These may produce different results for these estimates from the actual results due to risk factor associated to material adjustment pertaining to carrying amount of liabilities and assets. References Agyei-Mensah, B. K. (2014) Adoption of International Financial Reporting Standards (IFRS) in Ghana and the Quality of Financial Statement Disclosures, International Journal of Accounting and Financial Reporting, 3(2), p. 269. doi: 10.5296/ijafr.v3i2.4489. Ali, A., Akbar, S. and Ormrod, P. 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