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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Advances in Accounting, Volume 26, Issue 1, June 2010, Pages 79–86
The study discusses how IFRS's objective of the harmonization of accounting standards and improvement of quality of financial reporting may have been negatively affected due to public authorities' influences in the European Union (EU), the U.S., the U.K. and China. In addition, we discuss issues related to the inconsistent interpretations and implementations of IFRS as principle-based accounting standards. Moreover, we discuss how the funding system of the IASB may (or may not) have affected its independence. The review of relevant literature and discussion is critical to IFRS adoption/convergence efforts in the U.S.
The adoption of the International Financial Reporting Standards (IFRS) by public firms around the world is one of the most significant financial accounting and reporting changes in accounting history. Currently, over 100 countries have implemented IFRS or at least have taken steps in adopting these standards in the future (Sacho & Oberholster, 2008). In Europe, every publicly traded company in the European Union (EU) member state is required to apply IFRS when preparing the consolidated financial statements (IASPlus (a). (n.d.). In the U.S., the Securities and Exchange Commission (SEC) has allowed non-US firms to file financial statements in accordance with IFRS of the IASB without reconciliation (SEC, 2007). In Asia, countries with substantial economies, such as Japan, India and China, are either in the process of transitioning to IFRS or have already converged to IFRS (PwC, 2008). In addition, most listed companies worldwide are directly or indirectly affected by IFRS issued by the International Accounting Standard Board (IASB). Accounting standards setting is shaped by both economical and political considerations (Ball, 2006). On the one hand, the IASB has to consider the interests of different parties including multinational corporations, audit firms, investment banks, international organizations, and various public authorities in Europe, China, the U.S. and elsewhere (Véron, 2007a). On the other hand, countries that are notably affected by the IASB standards have a stronger interest in the IASB's work and are seeking to influence it. Although researchers argue that “accounting standards are as much a product of political action as they are of careful logic or empirical findings” (Keiso, Weygandt, & Warfield, 2007, p. 15), many believe that accounting standards can lose credibility and reliability if they are open to political intervention and professional interpretations (Fogarty, Mohamed, & Edward, 1994). The purpose of this paper is to: (1) discuss how political influences from public authorities and interest groups may have affected the IASB's rule setting; (2) discuss the effects of uneven implementations and interpretations of IFRS; and (3) examine whether the funding system has affected the IASB's independence and thus reliability and credibility of IFRS. Increasing pressure on the IASB from authorities and interest groups may undermine its independence, and thus questioning the reliability and credibility of IFRS. This study suggests that, in some cases, political influences from authorities, regulators and interest groups have led the IASB to make potentially unjustifiable changes to IFRS. Moreover, the objective of IFRS is to set globally accepted accounting standards to improve the comparability of financial information (SEC, 2008). Being principle-based standards, the inconsistent applications and interpretations of IFRS and the lack of IASB enforceability authority lead many countries to adopt some version of IFRS, not necessarily IFRS originally issued by the IASB. Many countries declare that their national rules converge to IFRS but they rarely (if at all) reach full compliance. Depending on the local political, cultural, legal and economic environments, countries may implement IFRS differently. As such, although the main promise of IFRS is to allow users to better compare financial statements across industries and countries, the inconsistency of implementation and interpretation may jeopardize the comparability of financial statements issued under IFRS (Nobes, 2008). If comparability is not attained, compounded by political influences on the IASB standard-setting process and its funding system, reliability and credibility of IFRS is most likely compromised. This study contributes to the existing debate over the U.S. as a “potential” major adopter of IFRS and thus lending credibility to IFRS. The U.S. SEC has slowed down the IFRS roadmap originally set for limited U.S. issuers by extending the comment period to April 20, 2009 from February 20, 2009 (Financial Accounting Foundation (FAF), 2009). Currently, many reports question IASB's independence and the quality of IFRS (Reason, 2009). Our study presents anecdotal evidence that the due process used by IASB to adopt certain international standards and how the due process may have been circumvented in some cases. The study also sheds some light on whether principle-based standards and the IASB's funding system may have affected IFRS quality. The discussion is important because the reliability and credibility of accounting standards used to prepare the financial information makes this information useful.1 In 1999, the FASB issued a document titled International Accounting Standard Setting: A Vision for the Future, setting forth its views of “an ideal global financial reporting system that includes a single set of high-quality accounting standards set by an independent standard setter”. The FASB also indicated the following in a letter to the SEC in March 2009: The current global financial crisis has revealed a weakness in an international system composed of multiple sets of accounting standards — the presence of real or perceived differences between these standards enable the pursuit of accounting arbitrage that, if unchecked, could result in a “race to the bottom” in financial reporting. We are, therefore, encouraged by the fact that many countries around the world also see the benefits of a common financial reporting language. We believe that the U.S. must be an active participant in the international effort to achieve a common global financial reporting language. (FAF, 2009, File number S7-27-08). Moreover, prior studies show that IFRS is value-relevant when compared to other sets of accounting principles (e.g. Liu and Liu, 2007, Armstrong et al., 2010 and Barth et al., 2008). The study attempts to present the opposing views on how IFRS may not be of high quality and therefore, adopting IFRS may not improve the quality of financial reporting but rather may distort it. The different versions of IFRS adopted in different countries may also raise questions if the convergence project should work and whether the U.S. would indeed use IFRS or rather a U.S version of IFRS. Looking through the comments letters from different groups (posted on the U.S. SEC's website and SEC, 2009), users' interests fall into three main categories: the first category indicates a preference of convergence rather than adoption; a second category indicates a preference of picking a date of convergence for the major accounting issues such as consolidation, leases and pension accounting; a third category indicates a preference of picking a date for the adoption of IFRS. Whichever the case might be, reliability and relevance of financial information are not only a function of the reliability and credibility of the standards used. It is also a function of the applicability of these accounting standards in a given economic, legal, cultural and political system where the actual implementation of the standards should indeed capture the essence of the standard intended. We suggest in this overview, that some of these objectives may not be achieved because of the political influence over IFRS, and simply because what suits one country, may not suit another country, and the interpretability choices of the principle-based standards.
نتیجه گیری انگلیسی
From the review of the development of the IASB and its due process, it is evident that IASB is vulnerable to political influence in one form or another. Nobes (2008) notes that influential political participates lobby through politics to oppose any accounting requirements that may hurt their earnings and/or financial position. Such lobbied changes, if rejected by the IASB, may result in national versions of IFRS, such as EU-version of IAS 39. Otherwise, if the lobbied changes are accepted by the IASB, IFRS quality is diminished and surely it raises concerns about IASB independence. Adoption and amendments due process of IAS 39, IAS 24, IAS 19 and IFRS 8 are discussed in the study. In addition, IFRS are adopted with the goal of making financial statements comparable across the board, improve the usefulness of financial statements, and help the expansion of the global economy. As a global set of uniform accounting standards, however, it may not be appropriate to all countries. Countries have different cultures, financial and legislative/legal systems and tend to apply and interpret IFRS based on their national interests and biases. This is especially true for IFRS, a set of principle-based standards. Moreover, the lack of enforceability authority of the IASB and openness of IFRS to multiple interpretations further potentially reduce the international standards reliability and credibility. Moreover, the IASB's new funding system provides opportunities to large-fund-contributing countries to have a stronger present influence on the standard-setting process than other countries. Although the IASB's independence may have been negatively affected by the incidences discussed in this study, one thing for sure is that as more and more countries are adopt IFRS, the IASB will have to face more pressure from these countries and became more open to changes. By no means may this openness lead to lower quality reporting standards; a goal of transparency must be kept in mind when issuing new standards or amending existing ones. A system of regulatory oversight can be needed to maintain IASB's independence. Moreover, IFRS can be regarded as a high-quality standard only when the marketplace believes so. Empirical and analytical studies on the value-relevant of accounting information reported under IFRS must continue. Investors are the main users of financial statements, and thus far quite a few studies indeed document evidence of value-relevant of financial information issued under IFRS. Opponents of IFRS in U.S. argue that financial statements prepared under the U.S. GAAP have earned investor's confidence, and that U.S. GAAP have led to more transparent reporting and thus to lower cost of capital. The U.S. GAAP is older and has been used in the past. The opposing view is that by not converging/adopting IFRS, U.S. firms are at a competitive disadvantage especially those firms that trade on foreign markets. Regulators, market participants, auditors and other parties must weigh the costs and benefits of IFRS adoption or convergence in the U.S. against the ultimate goal of transparent-comparable financial information, i.e. value-relevant information. As principle-based standards, IFRS allow much more discretion in financial accounting and reporting choices which is yet potentially another cost.14 However, whichever route the U.S. decides to take, quality of financial reporting is based not only on the accounting standards but also the company's own business model, structure, including the cultural, economic, legal and political systems in which it operates.