International Journal of Research and Innovation in Social Science (IJRISS) |Volume III, Issue VI, June 2019|ISSN 2454-6186

Benefits and Challenges of Adoption of International

Financial Reporting Standards
Waheed Solagbade OLADEJI#, Elizabeth Oyebola AGBESANYA*
#,*
Department of Accountancy, The Polytechnic, Ibadan, Nigeria

Abstract:-The objective of financial statements is to provide must be disclosed in financial statements and how transactions
information about the financial position, performance and must be reported.
changes in financial position of an entity that is useful to a wide
range of users in making economic decisions especially investors IFRS standards are International Financial Reporting
who seek diversification and investment opportunities across the Standards (IFRS) that consist of a set of accounting rules that
world. The application of the principal qualitative characteristics determine how transactions and other accounting events are
and the appropriate accounting standards normally results in required to be reported in financial statements. They are
financial statements that provide fair presentation. However, designed to maintain credibility and transparency in the
these accounting standards differ from one country to another financial world, which enables investors and business
thereby producing difference in financial statement quality
across countries and creating difficulty in comparison and
operators to make informed financial decisions.
transparency in financial information. The need to harmonize IFRS standards are issued and maintained by the International
accounting standards which will decrease information Accounting Standards Board and were created to establish a
asymmetry between stakeholders and the companies necessitates
common language, so that financial statements can easily be
the development of IFRS.This study focuses on identifying the
benefits and challenges associated with adoption of International
interpreted from company to company and country to country
Financial Reporting Standard. According to Izedonmi (2011), the need and feasibility for
Keywords: Accounting standards, Stakeholders, Information a uniform global financial reporting framework has been on
asymmetry, Economic decisions, Financial statements for many years. He identified the following factors supporting
the adoption of IFRS:
I. INTRODUCTION 1) Continuous integration of world economy;
2) Increased interdependence of the international
T he key to economic development is a sound financial
reporting system aimed at making information available
for decision making. Over the years, many and several
financial markets;
3) Absence of barriers of capital flows across national
financial reports have come with discrepancies and boundaries;
differences due to application of different accounting 4) Increased mobility of capital across national
standards that render such reports incomparable across boundaries;
nations. Secondly, reconciliation of these reports may not 5) Multiple listing by companies in capital markets
really be possible and thus it becomes difficult to use them to within and outside their home jurisdiction;
make financial decision across nations. 6) Continuous demand by stakeholders for quality
information and greater disclosures.
Consequently, when comparing financial statements under
two different accounting standards, the information provided Having an international standard is especially important for
by annual statements may be communicated differently and large companies that have subsidiaries in different countries.
might even be misleading. (Daske, Hail, Leuz & Verdi, 2000). Adopting a single set of world-wide standards will simplify
accounting procedures by allowing a company to use one
As we globalise, the significance of convergence with reporting language throughout. A single standard will also
International Financial Reporting Standards (IFRS) increases provide investors and auditors with a cohesive view of
because financial information prepared and audited finances.
according to National Accounting Generally Accepted
Accounting Principles (NGAAP) no longer satisfies the The adoption of IFRS framework according to Schachler
needs of users whose decisions are more international in (2012) has assumed such universal relevance because of the
scope. Hence, a lot of countries have already move from the anticipated benefits expected in terms of transparency,
Generally Accepted Accounting Principles (GAAP) towards uniformity, reliability and comparability of the accounting
the International Financial Reporting Standards (IFRS), of numbers in financial statements of companies.
which common accounting rules define what information A number of challenges are experienced by countries in their
adoption of IFRS, its world-wide adoption has been promoted

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International Journal of Research and Innovation in Social Science (IJRISS) |Volume III, Issue VI, June 2019|ISSN 2454-6186

on the premise of its perceived benefits which are considered language allowed greater communication worldwide.
to outweigh its disadvantages. Although not all countries of the world uses IFRS,
participating countries are spread all over the world, rather
In order to successfully implement the IFRS within the
than being confined to one geographic region.
emerging economies, it is essential to identify and analyse the
potential benefits and challenges that may occur during and According to Carson, E., and Dowling, C. (2010), financial
after this process to obtain the highest impact from the information prepared and audited according to a national
positive aspects. accounting standards may not be useful to users due to the
high level of globalisation of businesses and financial
II. STATEMENT OF THE PROBLEM
markets.
The compliance challenge with the adoption of IFRS has been
The adoption of IFRS will save multinational corporations
a significant focus of many organizations’ conversion efforts.
the expense of preparing more than one set of accounts for
Many firms perceived that IFRS adoption has resulted in an
different national jurisdictions, the professional status of
ongoing increase on annual accounting and compliance costs.
accounting bodies will be enhanced and the big accounting
Consequently, it is found that some companies continue to firms will benefit in their efforts to expand the global market
follow the accounting treatments under past Generally for their services.
Accepted Accounting Principles. Hence it becomes necessary
4.2 Benefits of IFRS Adoption
to outline the benefits and the associated challenges to
enhance understanding of stakeholders about the decision A good number of studies carried out in different countries
involving adoption of IFRS. have highlighted the benefits of having single set of financial
reporting standards across the globe. According to(Irvine &
III. OBJECTIVE OF THE STUDY
Lucas, 2006), various studies conducted on the adoption of
The objective of the study is to identify benefits and IFRS at country level indicated that countries that adopted
challenges associated with the implementation of International IFRS experienced huge increases in Direct Foreign
Financial Reporting Standard (IFRSs) Investment (DFI) flows across countries
IV. LITERATURE REVIEW Research conducted in countries like Great Britain, Italy and
Germany, by Iatridis (2010); Paglietti (2009); Pannanen and
4.1 Historical Review
Lin (2009) revealed that, the implementation of IFRS has
The International Accounting Standards Committee (IASC) improved the quality of accounting information. Kunle,
was established in 1973 as an accounting regulatory authority Omoruyi & Hamed (2011) posited that the adoption of IFRS
to bridge the gap between accounting standards among will foster common benchmark in financial information across
countries. Its pronouncements are known as International international borders with the aim of generating greater
Accounting Standards (IAS). In April 2001, International momentum for economic development. Ng, Tsang and Yang
Accounting Standards Board (IASB) took over the setting of (2013) argue that, IFRS is capable of financial transformation
International Accounting Standards from the International because it comes with it accountability and transparency in
Accounting Standards Committee (IASC). This new body fair value measurement and investment efficiency. Imhoff
now describes its pronouncements under the label (2003) also described the objective of the IFRS standards as a
"International Financial Reporting Standards"(IFRS) while it yardstick that enables organizations to provide stakeholders
continues to recognise the IASs issued by the defunct IASC with relevant, reliable and timely information and that such
(IFRS Foundation, 2010). One of the goals of the IASB is to information contributes towards the achievement of orderly
develop high quality international accounting standards that capital markets around the world. Gordon (2008) listed the
will be easily understandable and enhance transparency in benefits from adaptation of IFRS over the world to include:
financial reporting globally (IASB, 2010). This is hoped to be better financial information for shareholders and regulators,
achieved through the elimination of differences in accounting enhanced comparability, improved transparency of results,
policies and principles between countries. increased ability to secure cross-border listing, better
management of global operations and decreased cost of
IFRS are accounting principles issued by International capital.
Accounting Standards Board (IASB) its adoption is believed
to enhance greater transparency and disclosures in financial IFRS leads to high-quality, transparent, and comparable
statements (Epstein, 2009, Adam, 2009). This will eventually financial information. This is useful for International
lead to the harmonisation of financial statement across organisations, as it helps investors, creditors, financial
borders. analysts, and other users of financial statements thoroughly
assess the performance of their investment. (Carson and
IFRS originated in the European Union, with the intention Dowling, 2010; Latifah, I., Asfadillah, C. & Sukmana.R.,
of making business affairs and accounts accessible across the 2012).
continent. The idea quickly spread globally, as a common

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International Journal of Research and Innovation in Social Science (IJRISS) |Volume III, Issue VI, June 2019|ISSN 2454-6186

Generally, among the benefits identified in several studies financial communication system because a single set of
performed are: accounting standards cannot reflect the differences in national
business practices arising from differences in institutions and
i) The increase in the level of comparability between
cultures.
the financial statements and the improvement of the
transparency level. Michas (2010) Alp and Ustuntage (2009) and Zhang et al.
Businesses using similar standards to prepare (2007) are of the view that, the implementation of IFRSs by
financial statements enhance transparency and can developing countries comes with a lot of challenges. Some of
more accurately compare with each other. This is the challenges include the complexity of the standards, fair
very useful when comparing businesses that are value issues, cost, regulation, lack of technical skills and
based in different countries, as they may otherwise knowledge in standards, inadequate education and training of
have different methodologies and rules in preparing accountants (Schachler et al., 2012; Laga, 2012; Masoud,
these documents. This greater comparability has 2014). According to Obazee (2007), challenges are cultural
aided investors and other market participants to make issues, mental models, legal impediments, educational needs
informed economic decisions. and political influences.
ii) IFRS Standards strengthen accountability by
A study by Ionaşcu et al (2011) revealed that lack of active
reducing the information gap between the providers
markets needed for fair values determination may reduce the
of capital and the people to whom they have
quality of accounting information presented in financial
entrusted their money. As a source of globally
statements prepared in accordance with the IFRSs. Another
comparable information, IFRS Standards are also of
challenge identified was that because IFRSs is principle-
vital importance to regulators around the world.
based, it may create avenue for earning management (Hong
iii) It creates more flexibility.
2008; Chand, Patel & Patel 2005; Jeanjean & Stolowy 2008).
Using a philosophy that is based on principles,
According to Rong- Ruey Duh (2006), the challenges of IFRS
instead of rules, this set of standards will have the
adoption includes the ability of accountants to interpret
goal of arriving at a reasonable valuation with
standards, and the knowledge level of financial statement
various ways to accomplish tasks. This would give
users, preparers, auditors and regulators in accounting
businesses the freedom to adopt IFRS to their
information.
specific situations, which will result in financial
statements that are more easily read and useful. According to Obazee, 2007 as reported by (Odia,.J.O. and
iv) The industry is able to raise capital from foreign Ogiedu, K.O. 2013) The principal impeding factors in the
markets at lower cost if it can create confidence in adoption process of IFRS in Europe, America and the rest of
the minds of foreign investors that their financial the world are not necessarily technical but cultural issues,
statements comply with globally accepted accounting mental models, legal impediments, educational needs and
standards. political influences
v) IFRS Standards contribute to economic efficiency by
helping investors to identify opportunities and risks The implementation challenges include: timely interpretation
across the world, thus improving capital allocation. of standards, continuous amendment to IFRS, accounting
knowledge and expertise possessed by financial statement
For businesses, the use of a single, trusted accounting
users, preparers, auditors and regulators, and managerial
language lowers the cost of capital and reduces
incentive (Ball, Robin & Wu 2000).
international reporting costs.
4.3 Challenges of IFRS Adoption From the foregoing, it can be deduced that the obstacles met
in the process of IFRS implementation in the emerging
Few of the studies have given contradictory views questioning economies include the following:
the relevance of IFRS adoption in developing and emerging
economies.  the lack of relevant specific knowledge and of
practical experience;
Rong-Ruey, D (2006) argued that one single set of accounting  the need of training and consultancy services;
standards cannot reflect the differences in national business  difficulties encountered in using the fair value
practices arising from differences in institutions and cultures. concept;
In countries where the quality of governance institutions is  the transition costs.
relatively high, IFRS adoption is likely to be less attractive as
high quality institutions represent high opportunity and V. METHODOLOGY OF THE STUDY
switching costs to adopting international accounting The paper used current international publications from highly
standards. reputable journals and documentary materials from the
Sawan, N and Alsagga, I (2013) have found that cultural, internet with focuses on the analysis of the benefits and
political and business differences may also continue to impose challenges in the process of adoption of IFRS standards
significant obstacles in the progress towards a single global involving a predominant review of existing literature thereon.

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International Journal of Research and Innovation in Social Science (IJRISS) |Volume III, Issue VI, June 2019|ISSN 2454-6186

VI. CONCLUSION [4]. Daske, H., Hail, L., Leuz, C., and Verdi, R. (2008). Mandatory
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