Literature Review
Financial Reporting Standards:
Financial Reporting Standard is mainly designed to deal with the problem of inadequate information. Accounting Standard are set to tackle different problem and shows the boundary within which you how to perform and transform all types of financial information into reports that are read and command action. They are set by Accounting Standard Board (ASB).
International Financial Reporting Standards:
IFRS are the guiding principle and rules set by the International Accounting Standards Board (IASB) those companies and organizations have to follow when compiling financial statements. The creation of international standards allows investors, organizations and governments to compare the IFRS-supported financial statements with greater ease. Over 100 countries currently require or permit companies to comply with IFRS standards. It is useful for the international companies which are trading internationally as it ensures that information on overseas competitors is available on a comparable basis, as there result and position may be fairly assessed. The International Financial Reporting Standards were previously called the International Accounting Standards (IAS). IFRS are sometimes confused with International Accounting Standards (IAS), which are the older standards that IFRS replaced. (IAS were issued from 1973 to 2000.) The goal with IFRS is to make international comparisons as easy as possible. This is difficult because, to a large extent, each country has its own set of rules. For example, U.S. GAAP is different from Canadian GAAP. Synchronizing accounting standards across the globe is an ongoing process in the international accounting community.
Globalisation of IFRS:
IFRS (International Financial reporting Standards) are issued by the International Accounting Standards Board (IASB). IFRS are increasingly becoming the globally adopted accounting framework. For example, In European Union the application of IFRS is mandatory for listed companies and in Australia and Russia since 2005 while other countries are in the process of adopting these standards.
The IASB's currently is trying to harmonize these standards with US GAAP and achieve recognition of the IFRS by the US Securities and Exchange Commission (SEC). It seems possible soon and is expected to take place by the end of this decade. This would greatly ease the access to the New York Stock Exchange (NYSE) or the NASDAQ for non-US companies, as considerable costs are incurred when converting from IFRS to US GAAP as they have to report using US GAAP.
Today, more than 100 countries on all five continents use International Financial Reporting Standards (IFRS), and over the next few years they will be joined by many more. The number of countries using IFRS is increasing rapidly and it is expected to rise substantially within a relatively short timeframe. Canada, India, South Korea and Japan are planning to adopt IFRS by 2011.The globalization of IFRS has resulted in a vast improvement in the comparability of consolidated financial statements. This was absolutely necessary given the increasing importance of cross border rising of capital. Adaptation of IFRS globally will result in minimising the national and cultural differences on the application of IFRS. Audit firms and the supervisory authorities of the relevant stock exchanges are looking forward to these developments. However, there is still much to do and much to consider, as the views expressed in this report reflect. The introduction of IFRS has provided increased transparency in several areas such as derivative instruments, off-balance sheet items more generally, securitisation, pension obligations, stock options, segment reporting. In all these respects, the richness of the information provided under IFRS is generally very positively appreciated, even if certain users deplore the sometimes awkward nature of the resulting financial statement developments.
This report focuses on the experiences and thoughts of those involved in this historic transformation. The views expressed in this report come from the main players in the changes which have happened. The views have come from CEOs, from regulators, from standard-setters, from analysts and auditors. They reveal the depth of change experienced. They reveal the opening up of global markets as a result of having, at last, a truly global accounting language. They reveal how companies have coped with the challenges of what, at least at first, appears to be a much more complex financial reporting process than before. They show quite how worried people within the business are about those complexities. But it also documents the way in which narrative reporting is developing as a means of showing strategic corporate change and making performance measurement clear. They also emphasise the scale of feeling between those who would like to see a more principles-based process and those who see a rules-based system as inevitable.
While IFRS has brought greater comparability and reliability in company accounts across borders, this is only in relative terms. Reporting in each country still bears the hallmarks of its previous national GAAP.
Beyond this, a common observation is that IFRS has brought a considerable amount of complexity to financial accounts. Some of this complexity is predictable as the transactions that the business world undertakes have themselves become more complex. Much of the change has been the far greater degree and complexity of disclosures that companies are now required making. As a result, many annual reports have become almost unmanageably large and this vast amount of information in many cases needs a highly trained user to understand it.
International Financial Reporting Standards or IFRS are proposed first and foremost to serve the needs of investors – such at least is the objective proclaimed by their theoretical framework. But is this the case in practice?
The standard setting process continues to be regularly criticised in particular for its failure to pay due attention to the point of view of investors. IFRS implementation remains lacking in consistency and the anticipated comparability of financial statements has not yet materialised. Several contributors have suggested that direct public intervention on the part of the European Union will be required if use of the standards is to become more effective and more robust. The relevance of the information provided is, on the other hand, disputed and also gives rise to conflicting perceptions. Many users remain attached to the analysis of operating flows, an approach that is not necessarily facilitated under IFRS in comparison with the standards previously applicable. The financial instrument of some categories are criticised for their rigidity. Several users remain doubtful as to the prescribed bases for testing goodwill for impairment. The rules applying to capitalisation of research and development expenditure are also criticised. Several observers feel that the IASB’s approach is too often one of abstract formalism far removed from economic reality. Others express worries in respect of the temptation of certain entities to focus their communication on pro forma data, not subject to the requirements of IFRS, as a means of countering the perceived deficiencies in terms of relevance of the IFRS framework.
This study examines functioning of International Financial Reporting Standards (IFRS) by global organizations. It is essential for these global companies to prepare their combine financial statements in harmony with IFRS for years beginning on or after January 1, 2005 (Regulation (EC) 1606/2002). This renders near to the IFRS implementation procedure based on a questionnaire. The responses received indicate: (1) a mainstream blameable have adopted IFRS for more than just unifying purposes; (2) the process is expensive, multifaceted, and troublesome; (3) by implementing IFRS companies do not expect to lower their cost of capital (4) the more broad the approach to renovation, the more answerable tend to agree with the profit and costs of the evolution; (5) organization expect improved instability in economic results; (6) the difficulty of IFRS as well as the need of execution supervision and consistent understanding are main challenges in meeting; (7) a mainstream respondents would not accept IFRS if not required by the instruction.
Research Methodology
This section presents the research philosophy, approach, design and methods used to address the research problem as outlined. It will be shown that within the terms as defined by Hussey and Hussey (1997), this research project sought to analyse and explain (the purpose of the research), through mainly qualitative methods (the process of the research) using deductive logic based on existing theories, knowledge sharing practices (the logic of the research) and the outcome is one of applied research (applying the research to a particular organisation). This is in line with the overall research problem as identified.
There are three main sections. These are the research philosophy, research approaches and research design or strategy. Each will deal in turn with a brief explanation of the overall research paradigm being presented and the reason for the selection of the particular paradigm for this research project.
These are the necessary steps to be required in the entire Research process.
Research Question:
Whether IFRS is best allocation the needs of shareholders and the analyst community, who after all should be the ultimate beneficiaries of any improvements to financial reporting?
ii) Research Objectives: Research Objectives operationlise research questions and should lead to observable outcomes (Saunders et. al, 2007: 32).
To examine the effects and reaction of investor towards the implementation of IFRS as global Standards.
To investigate about the stress level of the investors those who operate their business at international level.
iii) Research Hypothesis:
According to Robson( 1993 cited by Saunders et al,2000: p87),the deductive approach involve a series of five steps in which the hypothesis is realised through theory, where it is expressed in operational terms, where it can be tested, examined and modified in light of new findings.
The major elements of the Research Methodology are:
a) Research Philosophy
b) Research Approach
c) Research Strategy
The above discussed elements can be described with the help of graphic presentation in Research Process1
a) Research Philosophy: Research Philosophy means the development of knowledge and nature of knowledge. The adopted research philosophy is influenced by relationship with knowledge and process by which it is developed (Saunders et al, 2007: 101).
b) Research Approach: Research can have elements which are based upon a non-empirical approach, an empirical approach, or a combination of the two. For the empirical approach, there are three primary dimensions which can be evaluated for use:
· Qualitative/quantitative
· Deductive/inductive
· Subjective/objective.
These do not necessarily represent a simple either/or choice, but should rather be seen as the extent to which elements of the approach apply. Each of these will be explored in turn
The research approach adopted to conduct the research project is
“Deductive”. The Deduction entails the following process:
Theory Observation/Findings (Bryman, 2003:
Deductive approach is about using the literature to develop a hypothesis and design a research strategy to test the hypothesis (Saunders et. al, 2007: 117).
“Research topic undertaken evolved through extensive study of the marketing literature and the sources of primary data such as thesis, reports etc. and some previous knowledge obtained in marketing area during previous semester”.
Robson (2002) (as cited by Saunders et al, 2007: 117) mentions five sequential stages through which the deductive research progress:
deducing a hypothesis
expressing the hypothesis in operational terms
testing this hypothesis
examining the specific outcome of the inquiry
modifying the theory in the light of the findings, if necessary
c) Research Strategy:
In the previous two sections the research philosophies and research approach employed to conduct research lead to adopt “Survey” as the Research Strategy. The survey strategy allows collecting quantitative data. In this strategy, the data will be collected by Structured Questionnaire.
In addition to the Quantitative data collection methods, the Pluralistic research (combination of Quantitative and Qualitative data collection techniques) will also be utilised in order to gain advantages of both techniques. Data will be collected by Qualitative techniques such as observation and interviews with the Indian Students pursuing Masters at Dublin Business School (with the permission obtained from the institution).
The purpose of this section is to indicate what type of study was undertaken to provide acceptable answers to the research problem and sub-problems.
Ethnography
Action research
Experimental
Survey Case study
Grounded theory
Modelling
Operational research Etc
d) Time Horizon:
While choosing the Research Topic, Time Horizon was considered a crucial factor in order to attain the desired results with in a specified period of time as the research project undertaken for this programme is time constrained. So, the research is cross sectional: the study of particular phenomena at a particular time (Saunders et. al, 2007: 148).
6. Population and Sample:
In most situations the time, cost and manageability factors make it impractical to access the opinion of all members of the population, thereby conducting a census. To overcome this “careful chosen representative sample of the whole population (usually the focused market) will be enough to give researcher confidence that they are getting a true picture that can be generalised”. (Brassington and Pettitt, 2000:p236)
“Population” is the group that researcher is trying to represent (all financial institutions in Dublin). Due to time and budget constraints and as it will be impracticable to collect data from the entire population (Saunders et. al, 2007: 206) (as there is a huge no. of institutions in Dublin), the research analysis will be confined to select a subset of the population known as “Sample” (by obtaining permission to collect data from institution: in Dublin Business School or from any other cities if possible).
Sampling Techniques
Probability sampling is most associated with my selected deductive approach. With this type of sampling, “the chance or probability, of each case being selected from the population is known and is equal for all cases” (Saunders et al, 2000: p 152).
I have considered that my sampling frame would be all the investors and accounting firms. Obviously this frame is too large for conducting census. As a suitable time frame I therefore propose to sample Irish firm operating with more than 2000 employees. This size element was chosen, as I believe that organisation operating with less than 200 employees will not have sufficient capability to go internationalize.
Sampling Frame is an important factor of the process as Sample elements to be studied will be drawn from it. In this research problem, various financial institutions in Dublin define the Sampling Frame.
Then, the next step is to devise the Sample Plan which includes defining the sample size and sampling method to be adopted.
Sample size includes no. of sample elements to be studied. For the research undertaken it may vary because of uncertainty in obtaining the permission from financial institutions to conduct research.
Sampling Method: Selection of a truly representative sample (which accurately represents the larger population) is a crucial factor in determining the effectiveness of the process.
The sampling technique that will be adopted for the analysis is “Probability Sampling”.
A sample will be selected by using Random approach so the each unit of the population has a known chance of being selected (Bryman, 2003:93). Furthermore, Stratified random sampling will allow dividing the sampling frame into two or more relevant strata and a random sample is drawn from each of the strata (Saunders et. al, 2007: 221).
7. Data Collection, Editing and Coding
The all important data and information required to start the research process was collected from the range of secondary and primary data sources such as books, journals, reports, thesis, some government publications, emails etc and these sources will also be used to complete the research process.
As the research approach used is deductive one, the emphasis will be on collecting and analysing Quantitative data. However, as the research philosophy also uses intrepretivism, therefore Qualitative data analysis tools will also be utilised.
Data collection and analysis techniques to be utilised are of crucial importance as the essence of these collection techniques employed will determine the validity of data. The main functions are preparing, inputting and checking data.
Quantitative analysis: Quantitative data refers to the numerical data that have been quantified.
Questionnaire Survey
Qualitative analysis: It refers to the non numerical data or the data that have not been quantified.
Observing
Interview
Data Coding: After completing the collection of data, it will be coded. All data types with few exceptions, be recorded using numerical codes (Saunders et. al, 2007: 415). Data coding can be used for both quantifiable and non quantifiable data.
“From data, look for pertinent things required to answer the question”. It facilitates to enter data quickly.
Excel as data analysis Tool: Descriptive statistics - Bar graphs, Line graphs, Pie charts.
SPSS for Windows
The questions for data collection from sample elements will include basic questions such as:
Do IFRS provide investors with relevant information?
Have all the accounting options chosen at the time of transition to IFRS been taken into account by the marketplace?
Has the community of financial analysts taken IFRS on board?
Are there any fears as regards financial statement comparability?
Has financial reporting been improved?
What risks would materialised or is liable to materialise in the near future?
Do you feel that IFRS implementation has been sufficiently rational?
Is the choice of a principles-based approach sustainable?
Has the accounting volatility engendered by IFRS encouraged company directors to adopt a short-term focus?
Is international consistency in the application of IFRS a cause for concern?
Are you satisfied with the degree of involvement of investors in the standard-setting process?
What would be the risks that the market associated with the transitional period?
Has the scope for financial statement manipulation been affected by the change of accounting standards?
What will be the next hurdles to overcome?
.
Data collection
A wide variety of possible data collection methods are available under the case study approach. These include the use of the questionnaire; interviews, observation; gathering of documentation and artefacts. Saunders et al. (2000) also included in their multi-layer approach to research a variety of data collection methods: secondary data (e.g. documentation); observation; interviews, and questionnaires. Powell (1997) also discussed data collection techniques, specifically identifying three methods: questionnaire, interview and observation.
Interviews
During the development of the methodology to be used for the field research the interview was selected as the primary data gathering technique
Organisation of data about the case
Both primary data and secondary data provided a wealth of data which could be reduced through the process of selecting (through the judgment of the researcher), simplifying (using a variety of classification methods, for example, relating to the research instrument topics) and transforming the data (through a variety of techniques, for example, the transcription of digital recordings).
