International Financial Reporting
International Financial Reporting
The chairman of IFRS Michel Prada in his speech “The Success Criteria Of Global Standards” declared three important area for the success of the global standards and the speech was concluded by the statement that all the three accounting standards had been met and there are also evidences for the achievement of these three important areas that has led them towards the success.
The financial crises of 2007-2008 were a major event that affected the financial institution all over the world. This financial crisis was due to the housing bubble that has been faced by the economy due to the lending decisions of the financial institution and the borrowing decisions of the people that are the individuals. On the other hand, the adoption of the global accounting standards was started by the financial institutions to cope up with the housing bubble burst and to resume in the financial crisis. The main cause of the financial dilemma and the housing bubble burst was the differences between the national GAAP and the IFRS. The national GAAP was different in the orientations of shareholders and the stakeholders. There was a difference in the accounting formats and plans of uniformity. These differences and the expectations that the prices will get to double in the short run and thus the potential of yielding high profit will be there. In order to meet the increasing demands of the housing, the mortgage facilities were provided to the individuals and this led to the financial dilemma all over the world (Ewert & Wagenhofer, 2005). >
The IASC that was working according to the national GAAP was then reformed to IASB. IASB was a new model of the accounting standards that was created to replace the IASC because of its nil working in all the aspects. 2001 was the year in which the IASB started its working and in most of the countries the national standards were replaced by the IFRS (Hail, Leuz & Wysocki, 2010). However all the counties did not adopted the IFRS standards but the economies that adopted it like the developing and the underdeveloped economies both gained much success from it as it proved to be successful in the entire economic situation. However the differences still prevailed and it influenced the IFRS standards compliance with the National standards.
The reason behind the statement of Prada was this that in the financial crisis, the IFRS standards were adopted and the purpose of adopting the standard was the critical situation that was being faced by the world. Thus the standards of IFRS that are the global standard were very commonly used by all the financial institutions in the years of crisis and there is a proof of its adoption as the situation became better than before. The third important area is also achieved by the Global accounting standards as the global standards successfully delivered the benefits in the form of reshaping the financial crisis to the recovery phases. That is why it is true that the global accounting standards are being met and there are also evidences for it which are obvious in the different phases of the financial crisis of 2007-2008 (Hung, 2000). Prada concluded his speech with a real conclusion that could be the conclusion of any of the financial analyst about the global accounting standards and its effectiveness.
Ewert, R., & Wagenhofer, A. (2005). Economic effects of tightening accounting standards to restrict earnings management. The Accounting Review, 80(4), 1101-1124.
Hail, L., Leuz, C., & Wysocki, P. (2010). Global accounting convergence and the potential adoption of IFRS by the US (Part II): Political factors and future scenarios for US accounting standards. Accounting Horizons, 24(4), 567-588.
Hung, M. (2000). Accounting standards and value relevance of financial statements: An international analysis. Journal of accounting and economics, 30(3), 401-420.