ACC471 Accounting Principles- Relevance of Liabilities Tends

Answer

Article overview

The main argument in the article “IFRS adoption and accounting quality” is on the issue of financial reporting standards. Hence, the author of the article was trying to study the effects of IFRS adaptation in accounting quality, taking into consideration firms that exist in South Africa. In regards to the methods used in the attainment of data, the author developed two hypothesis which worked effectively in ensuring the desired results are achieved. From the results attained in the hypothesis, the author was able to make tremendous findings such as after adaptation of IFRS the value of relevance of liabilities increased in a significant manner (Ames, 2013). From the results attained, it’s evident from the conclusion that South Africa relative early adaptation of IFRS is unique among its peers. Hence, components of balance sheet tend to change in value relevance after post IFRS adoption.

Analysis implication

From the article, we observe that the decrease in value relevance of liabilities tends to be more challenging. Thus, after adoption of IFRS the value relevance of liabilities tends to increase in a significant manner. Hence, this means that the fair value estimates in management approach tend to improve through exceptions exist in the case of an asset during financial crisis (Christensen, 2015). Additionally, there is the implication that the new standards tends to provide some form of flexibility in reporting of assets, thus in regards to business proceedings investors tend to have adequate information.

Research limitations

The limitation that exists in the research is the use of common archival methods. For instance, data isn’t collected in a critical controlled environment. Hence, it is impossible to proficiently control the influence of data. Such a limitation makes it not qualify to be considered effective in business management because the levels of studies done is South Africa are minimal compared to a country like United States. Hence, these results only serve regulators and potential stakeholders only in South Africa and not the global environment making it weak and flawed.

Personal perspective

I tends to believe that the adoption of IFRS in most businesses tends to be a two strategy, this is because after the adoption of IFRS in a balance may create more or less relevance to investors. While in the income statement tends to capture value which is relevant to investors after adoption of IFRS (Chua et al, 2012). Hence, I would perceive that when firms decide to adopt IFRS strategy there is need of making an effective analysis on the advantages it has on their business. By doing this they tend to ease the limitations that may emerge when reporting financial statements (Ahmed et al, 2013).

Conclusion

The paper provides an in-depth analysis of the effect IFRS has on financial statements. Hence, its adaptation tends to have some form of relevance to the financial recording as others are undermined. Still, the adoption of IFRS tends to provide some flexibility on how financial recordings are being reported. Hence, this means that investors and lenders can effectively make decisions of a firm because there is adequate information provided. 

References

Ames, D. (2013). IFRS adoption and accounting quality: The case of South Africa. Journal of Applied Economics and Business Research, 3(3), 154-165.

Christensen, H. B., Lee, E., Walker, M., & Zeng, C. (2015). Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), 31-61.

Ahmed, A. S., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), 1344-1372.

Chua, Y. L., Cheong, C. S., & Gould, G. (2012). The impact of mandatory IFRS adoption on accounting quality: Evidence from Australia. Journal of International Accounting Research, 11(1), 119-146.