Advantages of IFRS compared to GAAP reporting standards
1.1 Focus on investors
One of the significant advantages of IFRS compared to GAAP is its focus on investors in the following ways:
1. The first factor is that IFRS promise more accurate, timely and comprehensive financial statement information that is relevant to the national standards. And the information provided by financial statements prepared under IFRS tends to be more understandable for investors as they can understand the financial statement without the necessity of other sources which makes investors more informed
2. This also helps new or small investors by making the reporting standards simpler and better ...view middle of the document...
Moreover, the following points mark additional advantages of IFRS compared to GAAP
1.2 Loss recognition timeliness
Recognising the loss immediately is one of the key features of IFRS as it is not only the benefit for the investors, but also for the lender and other stakeholders within the company.
The increased transparency and loss recognition of IFRS, usually increases the efficiency of contracting between companies and their management, which also enhances the corporate governance.
With increased transparency as promised by IFRS, the lenders also benefit from IFRS as it makes it compulsory for the companies recognize the loss immediately.
This timelier loss recognition of IFRS, triggers the issues as when the companies face economic losses, it will be known to the stakeholders of other potential investors. Timelier loss recognition also enables the company review its book values of assets and liabilities, earnings, equity.
The convergence to IFRS has improved the comparability of financial statements in the EU. This has been achieved through having the same reporting standard under a single market, the EU.
As all companies, preparing their consolidated financial statements, have been reporting underone reporting standard have improved the comparability not only for investors, but also all stakeholders who use the financial statements.
Another reason that has contributed to the overall success of the IFRS adoption has been due to the transition period, as more than 8000 listed companies in the EU adopted it in the same year.
However, there has been an argument about the lack of efficiency and comparability of IFRS. The following is the arguments against the lack of comparability and consistency of IFRS:
Due to the strong national identity of IFRS reports, as the main effects of IFRS has been on how companies recognize, measure and disclose items. And the companies have adopted an approach which minimized the changes from previous national standards which reduced the ability to compare the financial statements across an industry.
The extensive judgement has been required under IFRS due to the absence of industry related guidance which created gaps and inconsistencies in the IFRS reporting standards. And this is another reason for the lack of comparability and inconsistency
And companies are not confident that the IFRS is adequate for the purposes of communicating their performance to the financial markets, as GAAP reporting standards tended to be more detailed which could provide more detailed information
Another factor that shows the lack of comparability and inconsistency is because the IFRS reporting standards are more complicated than the national accounting standards (UK), therefore, it may become a process of following the complex mechanism but does not necessarily promote the performance of the companies.
1.4 Standardization of accounting and financial reporting
The most mentioned factor about the...