Advantages and disadvantages; group accounting under IFRS

Although the global standardization of accounting standards has many advantages for international
trade, it also has some disadvantages, especially for countries that have well-established GAAPs.

The IFRS standards (or international financial reporting standards) were put in place in 2005. They
thus replaced the IAS standards (international accounting standards), which have existed since 1973.
These accounting standards were prepared by the international accounting standards office.

International Financial Reporting Standards (IFRS) is an accounting policy for the preparation of the
financial reports. IFRS accounting standards lay down principles rather than rules, which leaves
companies room for maneuver in their financial statement.

These principles are as follows:

 the balance sheet approach (priority of the balance sheet over the income statement),
 the primacy of substance over form,
 the priority given to the investor's vision,
 the important place given to interpretation,
 the precautionary form.
I. IFRS: Advantages of international accounting standards: the transition to IFRS standards
has had many advantages.
1. A globally harmonized system

The purpose of standardization is to establish common rules with the dual aim of standardization and
rationalizing the presentation of accounting information, contributing to the harmonization and
improvement of accounting practices and also promotes spatiotemporal comparisons in terms of
financial information. These IFRS will help investors make informed financial decisions and make
forecasts of future business performance.

Most stock exchanges (such as London, Frankfurt, Zurich, Hong Kong, Amsterdam, and Rome) have
accepted the preparation of financial statements of foreign listed businesses under IFRS.

2. Easy comparison of company ratings

Because they are using the global accounting standard, it is easier to compare the economic results
of two companies by verifying their financial statement, although they come from different
countries. For example, if you compare a US company that used US GAAP and a Chinese company
that uses Chinese accounting regulations, the result can not be impartial because it is not based on
the same code. With the international accounting standard, every company in the world would be
required to evaluate their income and accounting results in the same way.

3. Greater transparency of information and better communication

The publication of accounting standards responds to a need for cross-sectoral harmonization and
contributes to providing greater transparency in financial communication.

Its mission is to regulate financial communication but also to increase transparency and
comparability of information intended for investors, firms, financial markets, and supervisory
authorities.

International accounting standards have to meet three main values:

Completeness: The financial statements must transcribe the activity of the company and promote
the disappearance of off-balance-sheet information.

Comparability: Financial statements are standardized and identical to all companies.

Neutrality: The standards must not leave any leeway to companies in managing the accounts.

II. IFRS: Disadvantages of international accounting standards

Disadvantages of IFRS include a lack of detail, significant adoption costs, and the perception that IFRS
is a less stringent standard than what is already in place in some countries.

1. Lack of detail

Investors, regulators, employees, and the general public rely on the financial reporting system which
requires companies to disclose details of their financial condition annually. This information should
be presented in a consistent manner to allow reviewers to compare it to industry standards. To
ensure standardization of financial reporting, the accounting industry in each country adopts GAAP
which determines the appropriate way for accountants to present financial information on behalf of
businesses.

IFRS is less detailed than GAAP. In an effort to achieve global standards that are acceptable to all, the
IASB has had to give up a level of detail that national standards currently enjoy due to the process of
developing these standards over time. In addition, GAAP is considered the gold standard for financial
reporting. In the United States and countries such as Canada, there is little incentive to adopt what
some consider a lower standard for the sake of overall consistency.

2. Significant adoption costs

Other significant disadvantages of IFRS relate to implementation costs. The accountancy profession
in each country adopting the new standards would have to bear the costs of re-education and
training. Businesses should also invest time and resources in the rehabilitation process. Another
problem is the cost for businesses that operate only at the national level. The transition to IFRS for
these businesses far outweighs the benefits.

3. Capital markets and the standards are not the same in different countries

One of the disadvantages of adopting a single standard is that capital markets are not the same in
different countries. Businesses in a country may depend primarily on bank financing to raise capital;
their financial statements may want to emphasize prudence and a strong balance sheet, as banks
only want repayment with interest; they do not speculate. In other countries, the main source of
capital is the sale of shares. A company in such a country may want to maximize its financial
profitability relative to its balance sheet.