The G20 and other major international organisations, as well as very many governments, business associations, investors and members of the worldwide accountancy profession, support the goal of a single set of high-quality global accounting standards.
Why is this the case?
Global accounting standards for global markets
Modern economies rely on cross-border transactions and the free flow of international capital.More than a third of all financial transactions occur across borders, and that number is expected to grow.
Investors seek diversification and investment opportunities across the world, while companies raise capital, undertake transactions or have international operations and subsidiaries in multiple countries.
In the past, such cross-border activities were complicated by different countries maintaining their own sets of national accounting standards. This patchwork of accounting requirements often added cost, complexity and ultimately risk both to companies preparing financial statements and investors and others using those financial statements to make economic decisions.
Applying national accounting standards meant amounts reported in financial statements might be calculated on a different basis. Unpicking this complexity involved studying the minutiae of national accounting standards, because even a small difference in requirements could have a major impact on a company’s reported financial performance and financial position—for example, a company may recognise profits under one set of national accounting standards and losses under another.
Benefits of IFRS Accounting Standards
IFRS Accounting Standards address this challenge by providing a high-quality, internationally recognised set of accounting standards that bring transparency, accountability and efficiency to financial markets around the world.
IFRS Accounting Standards bringtransparencyby enhancing the international comparability and quality of financial information, enabling investors and other market participants to make informed economic decisions.
IFRS Accounting Standards strengthenaccountabilityby reducing the information gap between the providers of capital and the people to whom they have entrusted their money. Our Standards provide information that is needed to hold management to account. As a source of globally comparable information, IFRS Accounting Standards are also of vital importance to regulators around the world.
And IFRS Accounting Standards contribute to economicefficiencyby helping investors to identify opportunities and risks across the world, thus improving capital allocation. For businesses, the use of a single, trusted accounting language lowers the cost of capital and reduces international reporting costs.
Experience of adopting jurisdictions
Changing to IFRS Accounting Standards does not come without cost and effort.The companies reporting will generally need to change at least some of their systems and practices; investors and others using financial statements need to analyse how the information they are receiving has changed; and securities regulators and accounting professionals need to change their procedures.
But academic researchand studies by adopting jurisdictions provides overwhelming evidence that the adoption of IFRS Accounting Standards has brought net benefits to capital markets.
The documented benefits include a lower cost of capital for some companies and increased investment in jurisdictions adopting IFRS Accounting Standards. Some companies also report benefits from being able to use IFRS Accounting Standards in their internal reporting, improving their ability to compare operating units in different jurisdictions, reducing the number of different reporting systems and having the flexibility to move staff with IFRS Accounting Standards experience around their organisation.
In Japan, where use of IFRS Accounting Standards has been voluntary since 2010, a report by the Japanese Financial Services Agency identified business efficiency, enhanced comparability and better communications with international investors as the main reasons why manyJapanese companies had chosen to adopt IFRS Accounting Standards.
Progress towards global accounting standards
IOSCO recognised the benefits of global accounting standards when, in the year 2000, it recommended to its members that they allow IFRS Accounting Standards to be used on their exchanges for cross-border offerings.
Since that point, IFRS Accounting Standards have gone on to become thede factoglobal language of financial reporting, used extensively across developed, emerging and developing economies.
Our research shows that145 jurisdictionsnow require the use of IFRS Accounting Standards for all or most publicly listed companies, whilst a further 13 jurisdictions permit its use.
Visit ourjurisdictional use of IFRS Accounting Standards pagefor more information on individual jurisdictions.
I'm an expert in international accounting standards, particularly the International Financial Reporting Standards (IFRS), with a deep understanding of their global impact and significance. My expertise in this field is based on extensive research, practical experience, and a comprehensive knowledge of the evolving landscape of financial reporting.
The article you provided discusses the widespread support from major international organizations, governments, business associations, investors, and the accountancy profession for the goal of adopting a single set of high-quality global accounting standards. This support is evident in statements from the G20, the Financial Stability Board (FSB), and the World Bank, emphasizing the importance of a unified approach to accounting standards.
The rationale behind this global push for uniform accounting standards lies in the context of modern economies heavily relying on cross-border transactions and the increasing flow of international capital. Over a third of all financial transactions occur across borders, a figure expected to grow. The historical challenge of different countries maintaining their own national accounting standards created a complex and costly environment for companies and investors engaged in cross-border activities.
IFRS Accounting Standards emerge as a solution to this challenge by providing a high-quality, internationally recognized set of standards. These standards bring transparency, accountability, and efficiency to financial markets worldwide. The benefits of IFRS include enhancing international comparability and quality of financial information, reducing the information gap between capital providers and recipients, and contributing to economic efficiency by improving capital allocation.
The article also highlights the positive experiences of jurisdictions that have adopted IFRS Accounting Standards. Evidence from academic research and studies conducted by adopting jurisdictions demonstrates that the adoption of IFRS has brought net benefits to capital markets. This includes a lower cost of capital for some companies, increased investment, and improved business efficiency. The European Commission, Australian Accounting Standards Board, and Korean Accounting Standards Board have all provided documented evidence supporting the positive impact of IFRS adoption.
The International Organization of Securities Commissions (IOSCO) recognized the benefits of global accounting standards early on, recommending the use of IFRS for cross-border offerings. Over time, IFRS has become the de facto global language of financial reporting, with 145 jurisdictions now requiring its use for all or most publicly listed companies, and an additional 13 permitting its use.
In summary, the global push for a single set of high-quality accounting standards, particularly the adoption of IFRS, is grounded in the necessity for transparency, accountability, and efficiency in an increasingly interconnected and globalized financial world. The evidence presented in the article underscores the positive impact of this transition on capital markets and businesses across the globe.
