Fair Value Accounting
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In the midst of the global financial crisis that began in mid-2007, bubble burst in housing market in the United States, the G-20 group of countries aimed to establish a single set of high-quality global accounting standards. Since then, the International Financial Reporting Standards (IFRS) – the standard published by the International Accounting Standard Board (IASB) has continued to spread across the globe.
Another benefit of IFRS adoption is that it with the reduction in the cost of processing financial information it increases market efficiency, that is, the efficiency with which the stock markets incorporates it in prices. And it is believed that investors are expected to gain from this market efficiency. Lastly, the reduction in international differences in accounting standards assists in removing barriers to cross-border acquisitions and divestitures, which in theory rewards investors with increased takeover premiums.
Conclusion
In particular, having the uniform, high-quality standards fosters the international business relationships. It increases the positive effect on the capital market as well as at the macroeconomic level. Which is it facilitates financing and a firm can borrow the money from a bigger pool at a lower cost. To sum up, with IFRS there is less earnings management, followed up by less asymmetry in information.
Further, challenges like a large cost and the disagreement with EU are also present. Adoption of IFRS involves substantial cost, that is, implementing new software will take lots of labour hours as well as technology costs. Lastly, overcoming the disagreement with the EU on IAS 39 is a challenge. IAS 39 outline the requirements for the recognition and measurement of financial assets, financial liabilities and some non-financial items. And with so many countries being a part of the EU, it becomes crucial to get all the countries to fully board with EU.