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Concept and Benefits of Adopting IFRS Assessment Answer

MSc in Professional Accountancy

Module: Global Issues for the Finance Professional [PAM100]

Coursework 1

The Coursework Task

There is one requirement in this section. The response to the requirement should be submitted in no more than 4,000 words. Penalties apply for exceeding the word count. No formal penalties apply for using fewer than 4,000 words but in so doing you may be penalizing yourself as it is likely to be challenging to respond to the requirement in less than 4,000 words.


The coursework is based on Themes 1 and 2 of the study materials. Theme 2 is focused on the benefits, both actual and perceived, that regulators believe accrue from IFRS, in general, but specifically on those that arise from harmonisation of IFRS. These benefits include, but are not limited to, improvements in the quality and transparency of financial reporting so that the value of earnings in a period are accurately produced.

However, topic 4 of Theme 1 focuses on tax avoidance by corporations and the effect this can have on stakeholders. In such circumstances, managers are effectively using earnings management techniques to report lower than actual profits. These techniques may be allowable within the reporting regulatory framework but could adversely affect the transparency of reporting.

So there appears to be a problem. On one hand IFRS is designed to improve the information obtained by financial reporting but on the other hand it is still possible for firms to undertake earnings management with the deliberate intention of reducing tax liabilities.


Discuss the issues raised by having an apparent conflict between the application of IFRS with the benefits it provides with earnings management which is designed to avoid paying corporation tax liabilities. Consider if there is justification for allowing any form of earnings management within IFRS.

Some thoughts from the GIFP Team regarding Coursework 1


You will be aware that this coursework draws upon selected issues from Theme 1: Selected issues in Sustainability (especially topics 2 and 3), and Theme 2: Harmonization of Accounting standards (topics 4, 5, 6).

At Masters level we often ask students to critically evaluate a situation. What is important is to not just use materials located in the core study materials but to supplement them with additional research you undertake. You will therefore have enough information to set out arguments for and against the issues raised in the assignment. You should demonstrate that you are able to select appropriate matters from the core and additional research materials, analyse them and present a cohesive set of arguments for or against the issues that have been raised in the assignment and come up with a solid conclusion.

The readings and material you have been given, articulate a number of the potential benefits – at least theoretical benefits - of IFRS. Your assignment should review the readings you have been given, together with any additional research you undertake. The core readings should be supplemented by additional research.

Some thoughts on process for this essay

You need to be aware that there is in effect no one set answer – your critical evaluation may be different from that of another student. The essay will be judged on the merits of the scope and relevance of the materials selected, the arguments and evaluation put forward, and the flow of the work.

The assignment requires you to critically evaluate the issues. To reiterate, critical evaluation is not just setting out the points but explaining their significance and showing how and why they help you to answer the question that has been set.

It is one matter to identify relevant materials and set out key points, it is another to assemble them in a way which makes sense. It is not uncommon for individual paragraphs to read well on a standalone basis but to lack an ongoing thread - a flow which promotes a well-constructed assignment which makes it easier for the marker to award higher marks. In this assignment you should consider the following:

  1. Set out an introduction clearly outlining what it is you are looking at, why you are looking at it, and how you intend to set about looking at it.
  2. You should also address the potential benefits of IFRS and why it is important to have a transparent reporting system.
  3. Consider the need for earnings manipulation – any benefits for having this type of process? How can regulators differentiate between legitimate practice and one that deliberately attempts to lower taxable profits? Should the process be banned? Consider whether there is a process by which both of these potentially conflicting processes can work together.
  4. Draw a conclusion based on the evidence you have produced.
  5. Ensure that all of the points above that you include, together with any others, are set within a piece of writing which is integrated and coherent and ‘flows’. Do not put forward a set of standalone paragraphs work must flow, and build up to a clear set of recommendations at the end of the work. Work that does not “flow” is likely to lead to a lower mark.
  6. Key points to remember: a) adhere to the word count and instructions regarding use of charts, diagrams, tables, etc., and b) incorporate ‘proper’ referencing - whether we like it or not ‘proper’ referencing is considered an essential ingredient of Masters-level work. Harvard-style referencing is preferred but other valid ones may be used in its place. Apply your referencing consistently.




           The word International Financial Reporting Standards (IFRSs) seems to have a definition that is both specific and wide. Closely, IFRSs applies to the latest numerical set of declarations accounting standards board (ISAB), as distinguish from the sequence published by its precursor, the international auditing (Carter and Spence, 2014, 11-23). More generally, IFRSs applies to the whole body of IASB declarations, including criteria and explanations accepted by IASB including IASs as well as SIC meanings accepted by the precedent Committee for financial accounting principle. IFRS refers to the systematised body that pertains some rules and regulations which are required to be implemented by the organizations globally while preparing their financial statements. The only motive is based on presenting the financial statements with pure consistency, transparency, and comparability throughout the universe. IFRS are created and formulated by International Accounting Standards Board (IASB). The report pertains the concept of IFRS as well as the several benefits of adopting IFRS.  


 IFRS acts as the guidelines or regulations according to which the organizations are needed to prepare as well as maintain their financial accounts (Huber, 2015, 7-11). The main aim behind the establishment of IFRS was to develop a common accounting language and for ensuring the consistency, accountability and reliability among the financial statements of the business entitiy to entity as well as nation to nation.

IFRS are followed by several organizations globally that is why having an international standard (Saha, Morris and Kang, 2019, 14-23). IFRS are crucial for large scale organisations have their several branches in different nations. It acts as a single transparent and consistent framework of standard throughout the entire world therefore, simplifies the accounting processes by ensuring organisations to adopt and apply single system of financial reporting. This benefitted specially for organisations as well as the potential investors of different countries. 

Moreover, during the present era, more than 100 countries made compulsory for all large scale organizations performing business within the boundaries of their lands, to follow the IFRS. Elements of IFRS as an ISB preserve that the expenses of following IFRS must be offset through possible forces for compliance as well as to improve credit results. After the establishment of IFRS, this was named IAS (International Accounting Standards) later on it was replaced with International Financial Reporting Standards. The Norm incudes determination and calculation format, disability, recognition and specific hedge accounting (Dowling, 2014). The IASB have implemented the IAS 39 other project levels, giving to the norm as each process is complete. The 2014 edition of IFRS 9 overrides all older iterations and is obligatory for periods prior to 1 January 2018 with approved initial implementation (specific topic to local approval requirements). Older versions of IFRS 9 may indeed be implemented early for a limited time until they have actually achieved so if the appropriate initial implementation date was at 1 February 2015. IFRS 10 annual financial statements detail the conditions for combined financial statements to be compiled and published, enabling companies to combine the organisations it manages. Control includes visibility or access to current shareholders, as well as the ability of an owner to manipulate such returns by authority. Since every small business cause increasing enforcement costs since different pairs of policies are in impact today, the additional cost of making a financial report employing IFRS and GAAP may be cost-prohibitive (Burritt and Tingey-Holyoak, 2012, 29-37). This mainly restricts the capacity of the entrepreneurs currently by becoming the foreign pathfinders of tomorrow. 

Furthermore, IFRS are adopted and following by the organizations for financial statements preparation and reporting, globally accept United States. In United States the organisations follows Generally Accepted Accounting Principles or GAAP for their financial report preparation and their disclosure. GAAP also acts as the guidelines and regulatory accounting framework for the organizations. GAAP consists more rigid rules and guidelines in comparison with IFRS. But, the IFRS mainly depicts more general principles than GAAP, which enables the IFRS mechanism of working smaller, cleaner, and easier to understand in comparison with GAAP (Gilbert, Rasche, & Waddock, 2011). Besides this the mechanism of IFRS considers several crucial elements of financial reporting like, disclosure of financial reports, income recognition, worker benefits, Borrowing expenses, net revenue taxes, Investment in assets, stock, Fixed, Intangible assets, Leases, pension benefit plans, economic combinations, Fx rates, Operating portion, Subsequent functions, Industry-specific reporting, like mineral resources as well as agriculture (Suryanto and Komalasari, 2019, 17-25). In short, IFRS acts as the general guidelines which are mandatory to follows by the public organizations of whole universe while preparing and disclosing their financial statements.

There are some importance of International financial reporting standards which depicts the need or requirements of IFRS in context of accounting process as well as the benefits of transparent financial reporting system. 

Benefits of adopting IFRS

1. It helps in creating a single framework of accounting rules throughout the entire universe.

Rather than of adopting different framework for preparing and disclosing the financial statements it is more benefitted to follow the single language of accounting throughout the whole world. By following the International Financial Reporting Standards makes agencies enables for applying the common standards over each transaction and event, from several segments of world. This would help in rendering more transparent reporting, which also helps in ascertaining the foreign investments and boosts the share market also. Besides this, it also helps in decreasing the costs of capital also rendering high liquidity and rapidity in making performing transactions (Chaplin, 2017, 56-63). 

2. International financial reporting standards helps in reducing time, effort, and expenditure in preparation of different reports.

The worldwide adaptation of IFRS assists the business entities in reducing their time in preparation and disclosure of financial statements. The preparation of financial reports consists some costs as there were several different standards before the establishment of IFRS  which were followed by the organizations but after the establishment of IFRS a single body of standards and regulations is required to follow by the organizations performing businesses every financial year (Robinson, 2020, 3-10). Several agencies instantly decrease the number of reports which are to be prepared by them. This all helps in saving their time, labour and money, in short procedure of accounting performed by organisations in time and cost effective manner (Sikka, 2010)

3. It would not be a costly transition in the United States.

Despite of having one of effect of following IFRS is one-time cost that can influence the whole economy, although the real expenditure of transitioning to IFRS global standard is minimum. The final worth of whole economy of the USA was estimated approximately $8 billion, therefore, it depicts that averaged one-time cost for MNC may be $3.25 million approximately. Generally a lot of agencies may able to save huge amount of their money if they follow International Financial Reporting Standards. This is because IFRS helps in reducing the expenses of work and reconciliation of errors, complying with several regulations, and distributing information effectively. That is why, more than 100 countries adopted IFRS after seeing the several valuable benefits of transparent and consistent financial reporting mechanism (Schmitz and Leoni, 2019).

4. IFRS helps in easy monitoring and controlling the subsidiaries from foreign countries.

The present system of USA, authorities and their subsidiaries required for creating the parallel statements with the help of GAAP as well as IFRS, it depicts that means there are more chances of increasing risk of errors and possibilities of extra auditing which is crucial for ensuring compliance. If the International Financial Reporting Standards would adopt by government and private organizations then only it may wipe out the potential for misinterpretation. It may also helpful for stakeholders and entity to clarify their investment decisions (Burritt and Christ, 2016, 24-38).

USA is longer leader of universe to take a tough moral stand over financial ethics, while almost all countries follows the single financial reporting mechanism or standards as USA for generations. Now, more than 100 organizations of world following the rules and guidelines of IFRS, which means it should be strongly considered for implementation for American firms as well (Murphy and Quinn, 2018, 19-31).

5. It may adopt the single process that several agencies of USA had already adopted

It is also an advantage of considering with the follow of IFRS, based on true event that several American-based organisations performing business overseas adopted IFRS and following standards while preparing their financial statements. They are preparing a concurrent GAAP summary for satisfying the domestic regulations along with following the international standards. While performing such practices, the USA may ensure several large scale industries for disposing off their extra work burden instantly, by enabling them to follow on what is more benefitted (Baskerville and Grossi, 2019, 77-85). This benefit may enables USA organisations to be the driving force in adoption and expansion of IFRS.

6. IFRS facilitates more flexibility while preparing and disclosing the accounting reports. 

IFRS is based on principles mechanism rather than based on that methodology of following specified rigid rules. It depicts that the target of every standard of IFRS is to perform appropriate and justifiable valuation, and there are so many for attaining the that result. This system renders the freedom to several authorities for following the globalised standards, while preparation of the business reports which are crucial for its internal as well as the external users (Bicudo de Castro and Mihret, 2019).

7. It would make it easier for all companies to do business in foreign countries.

The Internet, transportation technologies, and communication tools encourage us to use a system of globalization today more than ever before in human history. Almost any company has the power to expand beyond their country of origin when providing goods and services to their customers. Because small business owners face a high cost of compliance since there are two sets of standards in place today, the added cost of reporting a financial statement using IFRS and GAAP can be cost-prohibitive. That limits the ability of today’s start-ups to become tomorrow’s international disruptors (Santi, Ghani and Puspitasari, 2017, 43-53).

8. IFRS helps in ascertaining the return on equity.

The mechanism of IFRS helps in ascertaining the higher return over equity funding as while following IFRS in preparation of financial statements helps in maintaining systematic disclosure of each and every of balance sheet and profit and loss account. This helps in attracting the investors, as it shows the clear and true position of the financial situation of the organization that is why it promotes the transparent and consistent operational workings which helps in ascertaining the return rate of equity (Mullinova, 2016, 52-57).

9. IFRS helps in improving the foreign direct investments throughout the world.

Although the single accountancy procedure is followed through out the universe helps the investors in analysis of the financial statements of the organisations. As single mechanism of accounting renders a common base of comparison which attracts the foreign investors towards the developing and progressing industries of different nations. This leads incrementing the foreign investments (Dellaportas and Hassall, 2013, 42-50).

10. IFRS helps to new investors and their small investments.

IFRS is helpful for new investors who are so capable for understanding the details pertain in financial reports because the details are presented in most simple way as well as in appropriate quality. Such kind of benefit enables anyone to become competitive investor. As with such great understandability of current financial health of an organization as well as prediction and projects for future. IFRS is shorthand for International Guidelines on Financial Statements. IFRS is the universal accounting system in which income reports should be adequately compiled and published Such categories of structures leads to reducing the risks and ensuring the advantages while every trading transaction because each person would work with same understandability of every set of details rather than of  multiple-tier system which are presently using by international entities and small entities in USA (Tulvinschi, 2019, 71-80).

The above mentioned benefits of international financial reporting standards, states the organizations which prepares and discloses the financial statements per the rules and conditions of IFRS standards are benefitted as their records are prepared with consistency, transparency as well as simplicity. This makes an organization able to. Make comparative analysis with their own past results as well as with the performances of competitive organizations (Voegtlin, & Scherer, 2017).  This all helps in improving the performances of the organisation as well as facilitates them to focus over the deficiencies between their competitive firm's performances after that find out the best ways to overcome from such differences. At last, the IFRS is must be followed globally by all the organizations no matter it is small or large scale.  USA should also allow their organizations to follow the IFRS and makes it a single global language of accounting (Mchedlishvili, 2019).

3. Consider the need for earnings manipulation – any benefits for having this type of process? How can regulators differentiate between legitimate practice and one that deliberately attempts to lower taxable profits? Should the process be banned? Consider whether there is a process by which both of these potentially conflicting processes can work together.

Need for earning manipulation 

Earnings are defined as NET income or profit that a company earns after a certain period of time. There are various organisations which are using earning management for or managing the fluctuations in earning. When there are large fluctuations in income then it is normal for any organisation profit. These reflect growth and stability of organisation. Stock price of a company can increase or decrease after an earnings announcement. In depends upon the way in which earnings are meeting expectations of finance analyst (Bhimani, 2020, 87-95). Management of an organisation may have problem in managing earnings by manipulating accounting practices of company for meeting financial expectations. There are several executives of company who can have an effects on earning performance of the company. There are various individuals in the company who are eligible for stock options if there is an increase in it. There are different earning manipulation that can be managed by using audit (Maynard, 2017, 15-28). There is need of managing the manipulation effectively so that accounting process can be easily implemented. There is one method of manipulation in which managing earnings is done by changing accounting policy which is generating higher earning in less time period. In this type of system, the newest units purchased of the product are considered to be sold first. The inventory cost increase over time and the new units can be more expensive. This leads to the development of costing of inventory items effective manner (Leuz, (2010When the retailer have to switch to another method which is first in first out, then company considers less expensive units which can be sold at first. This creates low cost of the products and goods sold. There is another way of earning management which is used within company policy for managing cost which is capitalised and it help in increasing profit of company (Mullinova, 2016, 37-55).

Earning manipulation is not an accounting rules and activities. In the financial results, there are some misinterpretations and they lead to reality of actions while managing the writing task and practices (Căpușneanu and, 2020, 34-42). Main step of earning money population starts with keeping record of success. Different companies have to manage sales and earnings growth over the ear in order to maintain stability within market (Musvoto, 2011, 111-119). It is important for companies to manage expectations of customers and finance officers have to focus more upon interpretations of instalment sales and expense accruals (Suryanto and Komalasari, 2019, 22-37).  There is need of managing the earning manipulation it will lead to create pressure on financial managers to control the transactions taking place within a period of time. The concept of earning management is known as acceleration of expenses and revenues by use of accounting and operating practices (Bota-Avram, (2014), 22-32) The main objective of this is to manage the timing of operation and complete them in effective manner. Moreover, there is need of managing the expense ratio and earning practices in order to analyse intentional fraud but it can be stated as accumulation of of various interpretations in the economics of enterprise. There are few principle of managing earnings including capitalisation practice, cookie jar reserves, big bath losses which are involved in altering the timing of business operations for analysing revenue and acquisition practices. When the profit earned by companies is more, it is also important to manage financial data and statistics in order to interpret effective decisions (Santi, Ghani and Puspitasari, 2017,).

Benefits of using earning manipulation 

Earning manipulation is defined as action of management which is taken for bringing several earnings at a desired level. Main objective of earnings manipulation consists of three forms that include earning fraud management and creative accounting. This provides help in analysing any kind of fraud in their financial aspect of company (Fleischman, and McLean, 2020, 3-13). The earnings manipulation is managed for conducting the financial activities then company value is negatively impacted (Mullinova, 2016, 66-76).  According to earning management, it is important for or violating or accounting standards because there are no standards or laws within the organisation. There is need of motivated employees who can work for managing financial operations of company (Sundvik, 2019, 39-49). Earnings management can be harmful and it is important to manage wealth that is earned by using it. There are four main factors on which earnings management works. Main thing is that earnings management is a fraud. The second part includes that earnings management can lead to unfaithfulness of financial statements. It also means that there are unethical actions taken place in company which is misleading users of financial information. It is necessary to manage wealth redistributive which is affecting among the financial parties (Grosu, and Bostan, 2010, 105-115). 

How can regulators differentiate between legitimate practice and one that deliberately attempts to lower taxable profits

A tax policy is used for managing the plan and strategy for managing and developing factors that are useful in financial aspect of company. There is direct venture within companies that is involved in cautiously gauging the relative points of interest of elective assessment. There are some strategies which are used for making effective decisions. There is need of managing the danger and expenses associated with macroeconomic conditions (Covaleski, 2020, 85-91). The tax policies include guidelines and managerial practices. These are used for managing the benefits of explicit area openings (Măciucă, Hlaciuc and Ursache, 2015, 99-113).

There are different assessments including rules and regulations which are associated with measuring the resolution factors. These are involved in managing of instalment of expense which have to be managed properly for implementing tax policies properly. Some of the assessment rules as well as obligations are present which needs to be solved properly.  This means to measure instalment in case where expense is expected. This is involved in managing the instalments and developing frameworks. This is helpful for empowering citizens to figure out what is known to be assessment base. There are several decisions made by using idea of exchanges (Lehman, Raney, and Franz, 2011, 22-45). On the off chance that the exchanges subject to burden are anything but difficult to recognize and esteem. In these type of cases, there are some regulations and rules used for managing the expense base (Mchedlishvili, 2019, 48-62).  There is need of managing on emotional valuations or exchanges that are troublesome. There is need of classifying and accomplishing the rule of sureness. There are some changes in the process which are adopted by companies. This helps in managing and controlling activities and tasks that lead to handle material laws and rules (Căpușneanu and, 2020). There is requirement of proper guidelines and documents needed for managing the fundamental files. 

4. Conclusion 

It is concluded from the above scenario that international financial reporting standards are required for or manager account processes in effective manner. It is also essential to manage the financial reporting in order to develop the accounting standards and practices properly. These are issued for or enhancing the working of record keeping, account reporting and other financial reporting properly. This is helpful in in managing various operations related to finance and achieving targets in less time for stop when there is earning manipulation and then there is use of international financial reporting standards which help in in managing the business operations in smooth way. IFRS is shorthand for International Guidelines on Financial Statements. IFRS is the universal accounting system in which income reports should be adequately compiled and published.  Typically it's really the mandatory accounting system in over 120 countries. IFRS allows corporations to record their accounting statements and financial status following the very same regulations; this ensures that, in the absence of any dishonest interference, the accounting information of all firms following IFRS is substantially consistent, making it possible to make a comparison their financial performance. There are different types of transactions which state place in business and such financial statements must be consistent and reliable within different companies. This will help in managing the work properly and analysing the financial impact on business activities properly. There is need of developing and enhancing trust among companies in order to manage business practices. Main objective of company is to have all the operations performed in right manner. There is need of managing the work properly related to financial data and statistics. This can be done by adopting IFRS regulation within the company policy. This will help in attaining successful managing of all financial operations within the company. There is analysis of records and transactions within business as they will be helpful for conducting business operations in ethical manner. No frauds in financial terms can be increased by the use of IFRS policies. Moreover, if a business is adopting these regulations, then there are less case of frauds and problems. If there is any presence of such kind of activity, strict actions are taken and business operations are managed. It is seen that all the activities of financial operations and transactions is done according to audit planning so that there are no frauds.  

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