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Robert answered on Dec 23 2021
CONVERGENCE OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
ABSTRACT
The write-up provides a critical review on the arguments for and against potential adaption of
the Global Convergence of International Financial Reporting Standard (IFRS). An analysis
has also been done of two listed companies – one from the New York Stock Exchange
(NYSE) and the other from the Australian Securities Exchange (ASX). The Analysis
includes the discussion over the accounting policies statement as provided in the annual
reports of the concerned companies.
The companies selected are Cobalt International Energy Inc. listed in New York Stock
Exchange (NYSE) and Samson Oil and Gas Limited listed in Australian Securities Exchange
(ASX). Both the companies are Energy Sector Companies.
INTRODUCTION
The Convergence of International Financial Reporting Standards (IFRS) is established to
achieve the goal of setting up such Accounting Standards that are high in quality and
standards and would be internationally accepted. Since 2002, IASB and FASB have been
working together in order to converge IFRS and US GAAP.
Such convergence is required so that the various entities from different countries can be
compared in accounting numbers. Such comparability will benefit the stakeholders and will
also contribute to the flow of International Investment.
Because of the increased economic globalisation, their came a demand for adaption of single
set of Accounting Standards. By the end of 2011, more than 120 nations and reporting
jurisdictions have either permitted the domestic-listed companies to adopt IFRS or have
provided their requirement as to adoption of IFRS. Some of these nations include, European
Union, Israel, Australia, Turkey, Taiwan, New Zealand, Singapore, Canada, Brazil, etc. In
some countries the convergence will be adopted in the next one or two years. Such countries
includes, China, India and Japan.
[1]
In 1988, Unites States were the first to opt for the worldwide accounting standards, and it was
then that the Securities and Exchange Commission (SEC) had issued a policy statement
providing for the establishment of mutually acceptable accounting standards.
[2]
A joint statement on convergence was issued in the year 2006, by the IASB and FASB in the
form of MOU (Memorandum of Undertaking), that proposed for a joint committee that will
be responsible for the establishment and development of a compatible and high quality set of
standards. In November 2010, the third progress report was issued which provided that the
following points needs priority:
Insurance Contracts
Revenue Recognition
Fair Value Measurement
Consolidation of Investment Companies
Leasing
Financial Instruments
Presentation of Other Comprehensive Income
In April 2011, the Fourth Progress report was released that provided that the almost the
project is nearing completion, but still the most significant and most technical points remains
namely, Financial Instruments, Lease Accounting and Revenue Recognition.
[3]
PART A – ARGUMENTS FOR AND AGAINST GLOBAL CONVERGENCE OF
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
The adoption of IFRS worldwide has many pros and cons and the same are enumerated as
under:
Comparability:
Comparability is the first and the foremost benefit of IFRS. Since, adoption of IFRS will
allow the people to see the various companies in the same frame, following same accounting
standards and policies. It will lead to more trade and cross border investment. Cross Border
investment will become easier due to integration and assimilation of the capital markets of
various nations. This will be possible because of higher market liquidity and low cost of
capital.
However, Comparability is a very difficult goal when we are talking international, views are
offered being all the entities follow the same standards, comparability is not 100%
guaranteed. Though the standards are same but their practice and application may vary from
country to country and entity to entity. As discussed above more than 120 countries have
opted for IFRS and out of which 29 countries have defeated the purpose of this setting up a
global standard by making their own exceptions. Comparability is also difficult because of
the nature of IFRS. For Instance, if we talk about IFRS and US GAAP, IFRS is required to
have more discretion and on the...