Dr. El-Gazzar
INTERNATIONAL FINANCIAL
REPPORTING STANDARDS
International Financial Reporting
Standards (IFRS): The Necessary
Conditions for Globally Homogenous
Information
Samir M. El-Gazzar, PhD
KPMG Professor of Accounting
Lubin School of Business
Pace University, USA
Emerging Need for International
Accounting Standards
A. International Business Operations
B. Cross-Boarder Listings of Securities
A. International Business Operations
► Foreign Operations:
Buy or Sell (from and to foreign entities)
▼
- Translation into National Currency
- Hedging for Currency Fluctuations
► Foreign Division
▼
Consolidation Accounting
Emerging Needs……………
B.
Cross-Boarder Listings of Securities
▼
● Costs and Benefits
Benefits:
- Access to Capital Markets
Guest company’s ability to raise capital in foreign markets,
probably at lower cost of capital
- Local Investors: Expanded opportunity for
investing in foreign companies, leading to better allocation
of resources
Costs
- Host Country Investors’ Information Risk
- Guest Company’s Cost of Complying with Foreign Laws
Approaches for Solving the Financial
Reporting Problems
1 Company Issues One Set of Financial
Statements to All Users: the market is
efficient in converting and evaluating
reporting differences (e.g., HKSE).
2 Reconciliation to Host Country Reporting
Standards (e.g., USSEs prior to 2007).
3 Two Sets of FS: one for the local market
and one for the foreign market.
4 Develop and Adopt World-Wide reporting
system (IFRS). Most likely. But:
QUIZ
Assume these countries adopted IFRS.

 EPS
China
$ 3.00
France India
3.00
3.00
USA KSA
3.00 3.00
 Do these numbers convey the same information
content/ risk?

Yes
What
No
Not Sure
Uniform Accounting Rules Don't
Guarantee Same Quality Information
 Accounting Information is an output of a
system that is influenced by many indigenous
and exogenous drivers:
► Accounting Recognition and Measurement
Standards (e.g., IFRS)
► Preparer’s Education and Competencies
► Attester’s Qualifications and Licensing
► Presence and Level of Governance
► Legal Enforcement of Rules
► Economic System and Information Needs
Preparer’s Education and Competencies
►Curriculum: Broad knowledge versus
Specialization.
Economics, sociology, psychology, financial markets, languages,
and Accounting.
International Accounting Education Standards Board: (e.g., IES
No. 8: Competencies for Audit Professionals.
►Mode of Teaching:
Case Study with interdisciplinary Approach:
- Financial Acc Augmented with Corporate Finance and Capital
Markets.
- Managerial/Cost Acc augmented with Chain Supply or Production
Management.
Attester’s Qualifications and Licensing
 USA

► 150 Credits and National (CPA)
Exam.
 UK
► Exams and Focus is on Training
 Turkey ► 3-Levels of Accountants:
a. Independent Accountant.
b. Certified Public Accountant
c. Sworn-in CPA
 China ► ……. ?!
Enforcement and National Sovereignty
 Monitoring Execution, Performance and
Behavior of IFRS, Auditing, Educational, and
Governance Standards.
 In Cases of Conflict and Litigation: Who is in
charge? National Authorities or International
Board of Governors (IBG).
▼
Member Countries must respect the
Decisions of the IBG. Is that Feasible?
National Information Needs
 Different Countries Require Their National
Firms and Foreign Subsidiaries to Provide
Certain types of information necessary for:
- National Planning and Investment Policy
- Tax Incentives/ Structure and Regulation
- Employment Opportunities
- Social Accountability
Annual Report
▼
▼
IFRS
National Needs
Additional Concerns
I.
II.
Principles Based Standards and Litigation
Role of Existing National Standard Setting
Bodies
III. Adoption Costs and Small Firms
IV. Reciprocal Treatment
V. Uniformity works against Innovation and
Advancement.
Principles Based Standards and
Litigation
IFRS
▼
Principles Based
Emphasis
● Economic Substance
● More Judgment
Litigation
● Easy to prove not guilty
National Standards
▼
Rules Bases
● Satisfying the Steps
● Less Judgment
● Hard to prove not guilty
(Donelson et al., 2009)
Role of National Standard Setting
Bodies
I : Eliminate: Redundant / No Need
II : Liaison with IASB:
- Enforcement Agency
- Advisory for Emerging Local Issues
III : Some New Function ?!
Adoption Costs
● System Change Costs.. Redesign the accounting and
information system to impound IFRS standards.
● Training Existing Accountants and other information
personnel… in house training and education…more
formal back school programs.
Solution:
IFRS for Small and Medium size companies.
► Against the comparability objective of IFRS.
► Discriminates in resource allocation.
Reciprocal Treatment
 Professional Accountants from small
countries..
Dominance by large firms, e.g., Big-4
 Dominance of the IAS Committee Foundation
by Large countries.....
Another UN veto…….
CONCLUTION
 GLOBAL ADOPTION OF IFRS IS A
NECESSARY CONDITION BUT
INSUFFIENT FOR PRODUCING Globally
Comparable / Homogeneous Accounting
Information.
QUESTIONS
THANK YOU
KEY:
New Structure
Appoints
Reports To
Advises
IASC Foundation
19 Trustees Appoint, Oversee, Raise Funds
Board: 12 Full time & 2 Part Time
Set Technical Agenda
Approve Standards, Exposure Drafts, &
Interpretations
Standards
Advisory Council
49 members
Advisory Groups
For Major Agenda Projects
International Financial
Reporting
Interpretations
Committee
(12 members)