Discuss the below:
STEVEN RIDDLE
Established in 1966, The International Accounting Standards Board (IASB) is comprised of policies and guidelines for companies to follow (Hill, 2013). The general theory behind its creation was that by implementing a standard set of rules for all publicly traded companies to follow, companies and their shareholders would get a more accurate understanding of a company's financials (Hill, 2013). For example, a typical problem that two companies have, of whom operate by a different set of principles, is that they each report different cost, incomes, amortized rates, and taxes on their financial statements (Hill, 2013). This representation, for each company, gives unreliable and inaccurate depictions of what their true value is. However, if these two companies followed the same set of guidelines and principles then at the very least they would have a reliable representation of their true market values. In addition to the benefits that businesses would receive from adopting the IASB, investors would also benefit in the same way. For example, investors can better judge good investments if all of their options are following the same set of principles.
With every benefit there is a risk and this is no different when discussing the IASB (Hill, 2013). For example, upon considering a move towards accepting the IASB guidelines, the large oil company Shell reported that "adopting international accounting standards would reduce the value of assets on its balance sheet by $4.9 billion" (Hill, 2013) Although our text does not describe why Shell would lose this much value un their assets, one might speculate that this is due to the amortized rate changes from the GAAP to the IASB. With this said, an individual could imagine the negative impact on Shell's stock the change would have (Hill, 2013). This problem seems to be the same for most U.S. publicly traded companies which make the idea of having the entire country change over scary to say the least.
References
Hill, C. W. (2013). International Business. New York: McGraw-Hill Irwin.
LISA BOURN
One of the benefits, to both investors and business enterprises, of adopting international accounting standards amongst countries is the increased ability to more accurately analyze and compare the financial statistics of both foreign and domestic firms. If both foreign and domestic firms operate using similar accounting styles, then investors and business enterprises will be able to make better business decisions. This is because with international accounting standards in place, recording keeping guidelines amongst international firms will be very similar, making the comparison of them more accurate. This analogy is similar to comparing apples to apples, which is generally wiser than comparing apples to oranges.
Without a more standardized accounting system in place, the global economy will likely see more misfortune, as it did in Asia in the late twentieth century. As Hill explains, "For example, after the 1997 Asian crisis, a UN analysis concluded that before the crisis two-thirds of the 73 largest East Asian banks hadn't disclosed problem loans and debt from related parties, such as loans between parent and subsidiary. About 85 percent of the banks didn't disclose their gains or losses from foreign currency translations or their net foreign currency exposures, and two-thirds failed to disclose the amounts they had invested in derivatives" (p. 669).
In some cases, the adoption of international accounting standards could cause a firm's value to decrease, but in other cases a firm may look better on paper after adopting international accounting standards. But, several firms who applied IASB standards saw the value of their firm drop, which makes the implementation of international accounting standards less appealing to some investors and business enterprises. In November 2004, for example, Shell, the large oil company, announced that adopting international accounting standards would reduce the value of assets on its balance sheet by $4.9 billion. The reduction primarily came from a change in the way Shell must account for employee benefits, such as pensions (Hill, 2013, p. 669). For an organization such as Shell, a major shift in the balance sheet could negatively impact the stock prices, which goes against what business managers are expected to do. Therefore, there has been some resistance to implementing international accounting standards to all global enterprises.
Reference
Hill, C. (2013). International Business: Competing in the Global Marketplace (9th ed.). New York: McGraw-Hill Irwin.