International Accounting and Finance

Résumé du document

Since 2005, companies listed in the European stock exchange have to present their financial statements in accordance with the International Accounting Standards (IAS), rather than comply with their national reporting standards. According to the European Parliament, the creation of such standards ‘facilitate the movement of capital; remove barriers to cross-border trading; permit comparison of company results; and assist the evaluation of managerial and corporate performance.' (Stittle J, (2004) page 1)
Indeed, the adoption of IAS was supposed to bring a large number of benefits, but the experience has proven so far that listed companies have also faced confusion and challenges.
The comparison of financial statements between various countries before 2005 was not an easy task for investors, due to many differences in individual national reporting standards.

Extraits

[...] In the long term, complying with IFRS will surely become an easier task for auditors. That is why auditors' effective trainings and education to the new IFRS norms are primordial to keep an effective functioning of the capital markets. By focusing on the practices within the accounting department of organisations, internal controls of accounting will protect them against fraud and inaccurate data reporting. Thus, this is an important element for companies and investors as it will ensure that all the company rules and government regulations are correctly followed. [...]

[...] The notion that uniform standards alone will produce uniform financial reporting seems naive [ . ] It ignores deep-rooted political and economic factors that influence the incentives of financial statement preparers and that inevitably shapes the actual financial reporting practice.” (Ball, R (2005) page Moreover, the IFRS norms remain a strategic advantage for investors and listed companies, but are still considered as unnecessary, long and complex to establish in small and medium-sized companies, as most of them do not possess public accountability. [...]

[...] That is why a reduction in investors' concerns about national differences in accounting practices is essential. Even if a large number of listed companies have to use the IAS as their reporting regimes, many challenges still need to be settled. Four main concerns encountered by investors can be highlighted: - There is an issue of understanding: mainly concerning the language or the accounting regulations between different countries. - The aspect of comparability: the comparison of different companies can be hard to perform, because of their previous corporate standards. [...]

[...] - There is a matter of reliability: investors are not sure about the reliability of the statements. Some countries may play with the tax regulations. Before the establishment of the IFRS norms, countries under the common law had to consider taxes in their financial reports, contrary to countries under the code law. And there is no proof that companies are correctly respecting the current international reporting standards. Enron scandal could be an example illustrating the lack of reliability in company's financial statements. - And finally there is a concern about transparency. [...]

[...] Hence, we will explain and analyse throughout this essay in what extent the good quality of financial reporting practices are necessary for the effective functioning of capital markets, and we will analyse how the use of the IAS and how the role of corporate governance combined with strong internal controls will contribute to a continued effective functioning of the capital markets. The International Accounting Standards Committee (IASC) was created in 1973, by accounting representatives of nine countries (France, UK, USA, Australia, West Germany . The main objective of the IASC was to create common accounting standards in order to promote a worldwide acceptance and observance. Year after year, the European Community implemented several directives standardising the layout and content of companies' financial statements, and creating even more harmonisation by the insertion of consolidated statements. [...]