Advantages and Disadvantages of adopting IFRS

International Financial Reporting Standards (IFRS) is the set of accounting standard. IFRS is developed and published by International accounting standard board (IASB). IFRS becomes the global standard for preparation of financial statements. More than 150 countries have adopted the IFRS as accounting standards and most of the countries are on the way of adopting. As worldwide acceptability of IFRS is high hence there must be advantages of the adoptions of accounting standards.  The advantages of this single set of global accounting standards are listed below.

Global Comparability:

When different companies are located in different countries, they use generally accepted accounting principal (GAAP) of that country.  So comparison of financial statement of two companies located in different countries is difficult.

When all companies in different countries follows the single set of accounting standard, comparability of
financial statement becomes easy. If financial statements of the companies are prepared according to IFRS, owners/investors are able to compare it easily.

High Quality and transparency:

IFRS uses principal based philosophy rather than rule base concept philosophy. Rule based philosophy may good for
some entities and bad for others or may good in one period & may bad in other period.  Whereas principal based
philosophy always shows equality and transparent picture. IFRS always looks into substance over the legal form. This improves the quality and transparency of the financial statement. IFRS insures the financial statement should give complete, relevant, accurate picture and transparent picture of the transactions.  There is least scope of manipulation.

More Cross Border transactions and investments:

The single set of global accounting standard creates the trust between the investors and investees, buyer and suppliers, etc. The foreign investor can easily trust on the financial statement of the company and can make investment easily. It helps the companies enhance the confidence of global stakeholders. IFRS facilitate in the process of mergers and acquisition, access to international capital and investment. Institutional investors can increase their holdings if the companies adopt IFRS.

Disadvantages of IFRS

The International Financial Reporting Standard has many advantages but have some disadvantages also. Some small
entities have good accounting system but forced to incur the cost to change the new accounting system. Local rules and regulation and tax laws of the each country is different. In some cases, entities may require to prepare different
financial statements for local laws and tax departments.

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