You will review your classmates’ initial postings and choose one classmate to complete the following for your reply:
Write a 250 to 300-word response to your classmate. Your reply must make a recommendation to your classmate of a peer reviewed journal article that provides additional information on their topic. In your response, you should give a summary of the article in your own words and discuss why it is relevant to their forum topic. It must be different than articles they reference in their forum. Include an APA formatted citation at the bottom of the reply.
International Differences in Financial Reporting and The Role of Reporting Standards in International Capital Markets
International Financial Reporting Standards (IFRS) is a global market mandate to provide a general reporting structure that is understandable across reporting companies and those that invest in these entities. The IFRS assures an accepted method or format for financial statements. There are over 100 countries that follow the IFRS mandate; the United States to Saudi Arabia and everything in between. These rules and standards are to create harmonization among global trading practices. International trading and investment are on the rise and making informed comparable decisions is paramount to the world economies. The Accounting and Business research journal (ABR) highlights financial reporting and studies around this topic. It is reported that the majority of the top ten most read articles from the journal over the last decade, have been focused on the topic of international reporting specifically. The IFRS has the best of intentions but has created confusion in some financial scenarios, additional costs firms must bear, and potential issues for private firms that desire to go public and open their stock up for all investors to buy shares. There are also questions surrounding enforcement of these standards.
The importance of international reporting standards being adopted globally is undisputed in the research reviewed. (Hajiyev, Stolyarova, Kalacheva, Malitskaya, Ivanova, & Malysheva, 2021; Jamaani, Alidarous, & Alharasis, 2022; Nguyen, Chen, & Nguyen, 2021; Nobes, 2020; Prather-Kinsey, De Luca, & Phan, 2022) As global economies grow and develop the need to further research the impact of these standards is of the upmost importance. The adoption and enforcement of these standards hold several concerns. Amendments to these standards are continuously being added, this is negatively affecting global accounting practices. (Nguyen, Chen, & Nguyen, 2021; Nobes, 2020; Prather-Kinsey, De Luca, & Phan, 2022) The cost associated with the required enhancements cannot be casually absorbed in firms from underdeveloped countries. Employee training, new or updated software, and technical support are costly and will lead to delayed adoption in some markets. (Nguyen, Chen, & Nguyen, 2021; Prather-Kinsey, De Luca, & Phan, 2022) Non-current asset handling has also posed a serious gap in the IFRS, non-current assets are physical assets that are held for sale or disposal. The regulations surrounding this topic are confusing due to the lack of documentation and overall coverage within the IFRS regulations and standards. (Hajiyev, Stolyarova, Kalacheva, Malitskaya, Ivanova, & Malysheva, 2021) The Initial Public Offering (IPO) process is also lacking documentation and guidance. The issue of underpricing an IPO is of consequence due to the risk and uncertainty in the various markets. Underpricing takes place when the share price of a new IPO increases significantly at the time the company debuts on the market. Due to the privatization of the firm prior to the IPO, IFRS data is lacking. The implementation of IFRS prior to going public needs to be examined. Prior adoption of the regulations would increase validity and act as certification to the integrity of the financial statements of the IPO. (Jamaani, Alidarous, & Alharasis, 2022) The above issues can all be attributed to the application, adoption, and enforcement of the IFRS worldwide. (Hajiyev, Stolyarova, Kalacheva, Malitskaya, Ivanova, & Malysheva, 2021; Jamaani, Alidarous, & Alharasis, 2022; Prather-Kinsey, De Luca, & Phan, 2022) An option to assist with regulation and enforcement is for the International Organization of Securities Commission (IOSCO) to take on this task. The IOSCO could review a firm’s financial statements once every three years and provide a comment letter regarding the findings. This letter could bridge the gap when IFRS amendments are lagging in a firm’s financial reporting; these letters can then be used by creditors and investors alike to make comparables easier. This overseeing of the IFRS and documentation would relieve some of the burden to delineate and address assets, potential underpricing, and lag issues. (Hajiyev, Stolyarova, Kalacheva, Malitskaya, Ivanova, & Malysheva, 2021; Jamaani, Alidarous, & Alharasis, 2022; Prather-Kinsey, De Luca, & Phan, 2022)
The future state of the IFRS needs to be examined on many fronts. The method in which the IFRS addresses valuation of non-current assets, the disparities in institutional quality on the underpricing of IPOs, and the amendment process must be scrutinized so the markets are accurately informed. The additional regulations also need to be assessed to determine the underlaying cost and exposure to firms in order for them to stay compliant and the data relevant. As previously discussed, the proposal for IOSCO to create comment letters for creditors and investors must be further examined for cost and viability. The need to study, research, and publicize international variants is critical as the global markets become easier to access for investors.
Hajiyev, H. A. o., Stolyarova, M., Kalacheva, O., Malitskaya, V., Ivanova, Y., & Malysheva, L. (2021). International financial reporting standards’ (IFRS) application peculiarities: A case study.
Entrepreneurship and Sustainability Issues, 9(2), 255-267.
https://10.9770/jesi.2021.9.2(17)Links to an external site.
Jamaani, F., Alidarous, M., & Alharasis, E. (2022). The combined impact of IFRS mandatory adoption and institutional quality on the IPO companies’ underpricing.
Journal of Financial Reporting & Accounting,
https://10.1108/JFRA-07-2021-0199Links to an external site.
Nguyen, T., Chen, J. V., & Nguyen, T. P. H. (2021). Appropriation of accounting information system use under the new IFRS: Impacts on accounting process performance.
Information & Management, 58(8), 103534.
https://10.1016/j.im.2021.103534Links to an external site.
Nobes, C. (2020). A half-century of accounting and business research: The impact on the study of international financial reporting.
Accounting and Business Research, 50(7), 693-701.
https://10.1080/00014788.2020.1742446Links to an external site.
Prather-Kinsey, J., De Luca, F., & Phan, H. (2022). Improving the global comparability of IFRS-based financial reporting through global enforcement: A proposed organizational dynamic.
International Journal of Disclosure and Governance, 19(3), 330-351.
https://10.1057/s41310-022-00145-5Links to an external site.
The Role of Transparency in Markets and Society
Transparency within the business spectrum can be a tricky subject for leaders to navigate. It’s very easy to say a company will always do the right thing but it’s another thing to do it. Being transparent, as discussed by Tahir et al (2022), means disclosing pertinent information to those with an interest in the company. This information can be both helpful and harmful to the organization which requires analysis to determine its potential effects upon disclosure. Society seemingly always wants full disclosure of everything a business is doing and why it is doing it. This is true in other areas as well such as politics and the military.
Being upfront about one’s ambitions or intent can have the effect of forcing decision-makers to make more informed decisions as the future of their position may depend on it (Tahir et al, 2022). The level of transparency that some markets or businesses require seems to also influence how decisions are made regarding trading (Danbolt et al, 2022). This can force the hand of those who may otherwise not feel obligated to provide accurate information. This paper will talk about how transparency affects many aspects of the world including the economy, stock market and trading, politics, and corporate policies while also providing context for why transparency may not always be in the best interest of the stakeholders.
The world economy is influenced by a wide variety of issues, circumstances, and decisions, each having second and third-order effects that may or may not have been anticipated. There is research that shows that the age of the person making those decisions adversely affects the outcome of it (DeBoskey et al, 2021). This is just one of the factors that go into the possible reasons for not being as transparent with shareholders. Another is discussed by Meftah Gerged et al (2023) stating that transparency regarding other non-financial issues such as corporate social responsibility, can affect the profitability of a company. This shows that transparency is not just relegated to the financial aspect but rather it governs the entirety of a business’s C-suite.
Another study finds that transparency about the course of supporting data also has positive results with future technological innovation (Chen et al., 2023). This, combined with the research conducted about the disposition effect in stock trading (Danbolt et al, 2022), show that transparency with information sources is vital to the overall trust and professionalism associated with any number of companies.
Although there is a great deal of information available regarding transparency, there is still a significant amount that must be done. Tahir et al (2021) strongly advocate for continuous research involving a variety of sources from newsletters to annual financial reports. This is a fair analysis as one would assume data that has support from a variety of different types of sources would be more reliable than one without. The frequency and volume of financial information published for stakeholders is also something that needs to be explored with a more nuanced and deliberate approach (Danbolt et al, 2022).
There is a consensus that future research in the area of risk aversion should be tailored to each profile as proposed by Berkhouch et al (2022), and Dichtl (2020). Chen et al (2023) support ongoing analysis of reports such as the 10-K while Meftah Gerged et al (2023) suggest a more thorough understanding of the makeup of those in positions of influence. This includes the demographic makeup, education level, as well as a wide variety of other statistics of said organizational leader as a possible indicator of the success they will have (Meftah Gerged et al, 2023). Businesses that are transparent about their undertakings do seem to be perceived more favorably than those that are not, which may lead to prolonged success.
Chen, J. Z., Kim, Y., Yang, L. L., & Zhang, J. H. (2023). Information transparency and investment in follow‐on innovation. Contemporary Accounting Research, 40(2), 1176-1209.
Links to an external site.
Danbolt, J., Eshraghi, A., & Lukas, M. (2022). Investment transparency and the disposition effect. European financial management: The Journal of the European Financial Management Association, 28(3), 834-865.
Links to an external site.
DeBoskey, D. G., Li, Y., Lobo, G. J., & Luo, Y. (2021). Corporate political transparency and the cost of debt. Review of Quantitative Finance and Accounting, 57(1), 111-145.
Links to an external site.
Meftah Gerged, A., Kuzey, C., Uyar, A., & Karaman, A. S. (2023). Does investment stimulate or inhibit CSR transparency? The moderating role of the CSR committee, board monitoring and CEO duality. Journal of Business Research, 159, 113762.
Links to an external site.
Tahir, S., Nazir, M. S., Qamar, M. A. J., & Boyer, M. M. (2022). Ineffective implementation of corporate governance? A call for greater transparency to reduce agency cost. Managerial and Decision Economics, 43(5), 1528-1547.
Links to an external site.