Pros and Cons of International Financial Reporting Standards (IFRS)

PROS AND CONS OF ADOPTING IFRS
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Pros and Cons of Adopting IFRS
Introduction
Regions such as Europe have embraced the International Financial Reporting Standards (IFRS), whereas the U.S. emphasizes the Generally Accepted Accounting Principles (GAAP). The International Accounting Standards Board (IASB) has been mandated to ensure that the IFRSs have been adopted in Europe to promote standardization and harmonization of financial reporting practice in the region. This objective has crossed Europe's borders, requiring other countries and regions to either adopt or converge to the standards. Various studies, such as Atu et al. (2016), have studied the effect of adopting and converging on companies and countries. However, this objective has not been fully realized due to various challenges.
Literature Review
Whether adopting and converging to IFRS positively or negatively impacts countries has been a hot debate among regulatory authorities, professionals, and academicians. Various studies have explored both arguments and most of them are limited in scope. For instance, some research is limited to certain regions, such as Europe and Asia, while others focus on developing countries (Zaidi & Huerta, 2014). This limitation makes the generalization of results difficult.
Pros of Adopting IFRS
Previous studies have suggested that businesses following the IFRS framework are better than those using local GAAP. The reason is that the accounting quality for firms that follow the IFRS framework is higher than those that use local GAAP. Fortunately, the accounting standards' developers assess quality through the reliability and relevance of the reported information. This increase in quality has enhanced the comparability of financial information with other markets (Choi & Meek, 2008; Owolabi & Iyoha, 2012). Investors tend to have confidence and trust in businesses if the financial reports are prepared according to a framework they understand; and are easy to compare with other markets, unlike when they are prepared to local standards (Abdul-Baki et al., 2014). Standardizing financial reporting increases a nation's access to foreign capital (Chand & Patel, 2011). Moreover, a study by DeFond et al. (2019) demonstrates that not only investors who benefit from IFRS but also local entrepreneurs who believe that adopting IFRSs has opened their access to international funding. According to Laurent (2006), IFRS reduces the costs of processing financial data for foreign investors and provides comparable, comprehensive, accurate, and timely reports.
Adopting IFRS improves a region or country's financial and accounting procedures. The framework replaces certain accounting standards with new ones and generally accepted international standards that facilitate economic and accounting transactions in the global market. This harmonization and standardization of accounting standards and procedures result in a single accounting language which enhances how comparable and reliable the financial reports are globally (Pacter, 2017).
Cons of Adopting IFRS
While acknowledging the benefits of adopting and converging IFRSs, opponents have a...