The Effect Of International Financial Reporting Standards On Current Tax Planning Strategy

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The international financial reporting standards (IFRS) refers to an arrangement of global accounting guidelines outlining how specific sorts of transitions and different events has to be accounted for in the financial statements (Houqe et al.2012). These are provided by the international accounting standards board (IASB), and they are mandated to indicate how a basic accounting language, accounts and business community from one organization to another and from one country to another. This essay provides a brief analysis on the effects on IFRS on the current tax planning strategy.
Houqe et al. (2012) investigated the impacts of compulsory adoption of IFRS on the income quality in nations which show greater financial secrecy. The study discovered that compulsory adoption of IFRS enhances profit quality by lowering abnormal accumulation and earning conservatism. There are further indirect impacts of IFRS adoption on the current tax planning strategy. Indeed, IFRS enhances the mechanisms that firms employ internally to enhance the financial reporting quality. For instance, Mirra et al. (2011) assessed the effects of having an audit committee and board independence on income management, and the findings indicated that IFRS fundamentally led to effectiveness of the two corporate administration mechanisms. This plays an essential role in the reduction of earning management.
The adoption of IFRS leads to faster revenue recognition, hence greater flexibility. This is because the system is less detailed as compared to other strategies like the U. S. GAAD. It impacts greatly in provisions of directions around the accounting for multiple component designs. IFRS is more often based on the principles giving detailed rules and directions in the accounting for this kind of components. According to Blaylock, Gaertner and Shevlin (2015), when organizations adopt IFRS, they have to re-assess their current income recognition strategies to decide if they are indeed in line with fundamental stands in IFRS. Furthermore, changes in income recognition have to be investigated to decide the imp...