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The Effects of the Implementation of IFRS on Developing Countries

Updated on October 23, 2017

Recently, many countries throughout the world have begun to adopt the International Financials Reporting Standards into their accounting protocol and philosophy. In doing so, there have been many repercussions and trickle down affects that have occurred because of this. Throughout this paper, I will be taking a look into the effects of the implementation of IFRS and how countries have been reacting to this transition. To begin, it is essential to look into different studies put in place to examine these effects.

In the journal of Accounting in Emerging Economics, they looked at micro-specific factors that looked into compliance with IFRS. Some corporate characteristics that have been analyzed include: auditor size, leverage ratio, profitability, corporate size, internationality and ownership dispersion. For example, the study realized that in certain Asian countries, compliance with IFRS is substantially related to the auditor type. The difference between big four and no big four in Asian countries has been a standout whereas profitability has not been a focus. Looking at the big picture, IFRS being the standard that accounting firm’s must follow directly relates to auditing and the type of auditor associated with your company. A firm not focused on profitability or being extremely profitable should not be a deciding factor as to whether or not that firm should comply with IFRS. This could also lead me to believe that Asian countries are more concerned about working ethically as the way they are audited is important yet profitability is not. Within this study, countries such as Egypt, Kenya, and Kuwait as well as a few others were also considered. In concluding this study, the journal of Accounting in Emerging Economics found that most of these developing countries relating auditor type as a top priority relative to compliance. A fewer number of countries represented a positive relationship between size and compliance with IFRS. An even fewer number out of the six countries recognized profitability as a leading reason to comply with IFRS. Finally, there were no countries involved in this case study that found a side effect of using IFRS that was related to industry sector. (39, Karim and Zeghal)

To dig even further, now let us take a look into how Spain has reacted to the implementation of IFRS in their country. IFRS regulations in Spain have consisted of the requirements for certain groups to prepare financial statements under the international standards formatting and to bring change to rules locally. The feedback has shown that comparability has worsened. Also, there has been no improvement in the relationship between financial reporting to local market values due to the widening of the gap between market and book values since the application of IFRS. This analysis has shown me that not all countries are having positive relationships after the International Financial Reporting Standard has been put in place. (Callao)

Aside from looking into the positives and negatives on countries using IFRS, it is also important to recognizes the benefits from a global perspective. Generally speaking, a single established accounting standard cuts costs for businesses across the board. Also, one standard makes information much more comparable which allows for the evaluation process to be much more in depth. Due to the fact that everything is the same, there is then a significant reduction in uncertainty. (Madawaki) Although there are quite a few benefits to implementing IFRS, it is also imperative that the challenges are understood.

In order to benefit fully from the practice of the International Financial Reporting Standards, the challenges must be recognized. A major challenge especially in developing countries, is the significant downfall in knowledge. The good side of this challenge is that when IFRS is put into place, there is an extensive amount of education and training that takes place. Although training is available, developing countries do not have the extra funding to pay for such a thing. Another challenge is the tax conversion associated with IFRS entering a country with a different tax law. Finally, with a new accounting standard applied, there is a challenge within itself. That challenge is to be able to get the country as a whole to follow through with it and comply. In conclusion, there are many benefits and challenges to implementing a new standard to different countries but in particular developing countries. (Madawaki) With that, recognizing that the benefits can outweigh the costs, this implementation will be a continuous success.

Work Cited

Callao, Susana, et al. “Adoption of IFRS in Spain: Effect on the Comparability and Relevance of Financial Reporting.” Journal of International Accounting, Auditing and Taxation, vol. 16, no. 2, 2007, pp. 148–178. 2007.

Madawaki, Abdulkadir. “Adoption of International Financial Reporting Standards: The Case of Nigeria.” International Journal of Business and Management, vol. 7, ser. 3, Feb. 2012. 3,

Mhedhbi, Karim, and Daniel Zeghal. “Adoption of International Accounting Standards and Performance of Emerging Capital Markets.” Review of Accounting and Finance, vol. 15, no. 2, Sept. 2016, pp. 252–272. 2013.

© 2017 Nicole Baxley


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