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The Choice between Formulation of Accounting Framework and Adoption of International Financial Reporting Standards: A Case of Developing Countries - Essay Example

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The Choice between Formulation of Accounting Framework and Adoption of International Financial Reporting Standards: A Case of Developing Countries

With the adoption of accounting standards and frameworks, businesses are able to reduce their costs relating to financial reporting, particularly those countries where generally acceptable accounting principles are either nonexistent or are not effective enough to be relied upon or adopted. The adoption of international accounting frameworks not only benefits business entities adopting them but also benefits the users of financial statements prepared by those entities. As for instance, International Financial Reporting Standards, which is a renowned accounting framework, is being followed by a number of business entities operating in different parts of the world. By way of following similar accounting frameworks such entities are able to report their operations on similar patterns and analysts, investors and other stakeholders are able to comprehend them easily (Adekoye, 2011). The wider impact of adoption of internationally recognized financial reporting framework is that users of financial statements are more confident and certain about efficiency, effectiveness and reliability of the financial reporting process (Ahmed, 2011). On the other hand, implementing locally developed accounting standards can have its own distinct benefits for developing countries. Whatever may be the case or choice of businesses operating in developing countries, the fact is that accounting is influenced by a number of factors which are prevalent all over the globe. The factors which determine the applicability and implementation of International Financial Reporting Standards include variations in culture, economic and taxation systems and other related variables (Nobes & Parker, 2004). Differences in Economic, Legislative and Taxation Systems Having regard to the potential benefits of adopting internationally recognized financial reporting frameworks, developing countries are bound to face certain challenges related to the differences in their economic, legislative and taxation systems (Nobes & Parker, 2004). This in turn implies that the adoption of International Financial Reporting Standards shall be based on logical and convincing grounds. The attraction and appeal in following IFRS, which are internationally acceptable, and ensure comparable and reliable financial reporting, has influenced the financial reporting choices of many in developing countries. However, the fact that whether the framework provided by IFRS is in line with the prevailing accounting and financial reporting systems of the countries and whether there are cushions available in the legal frameworks for adopting IFRS have lead to significant confusions regarding its implementation (Nobes & Parker, 2004). The Role of Cultural Differences in Adopting Accounting Frameworks Gray’s (1988) work of relating accounting values with the cultural differences is significant for resolving the case of adopting International Financial Reporting Standards by developing countries. In his work, Gray (1988) took into consideration the work of Hofsteded (1980) on different cultural dimensions. The main finding of the work of Gray (1988) is that culture has a significant influence in the accounting practices of business entities operating in a particular country or region. According to Gray (1988), the fact that there is a significant influence of culture on the accounting p ...Show more

Summary

Businesses and organizations have gained significant benefits with the increase in globalization all over the world. Among many benefits, one key advantage associated with globalization is that it has enabled business entities…
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The Choice between Formulation of Accounting Framework and Adoption of International Financial Reporting Standards: A Case of Developing Countries essay example
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