Essay Sample on Adoption of the IFRS

Introduction

Background of Study

IFRS has recently gained dominance as an accounting standard and found its use in many countries such as Brazil, South Africa, Canada and Australia among others. The old accounting methods are prone to challenges, challenges and various issues that impede proper execution of finances. Hence, the adoption of the IFRS allows the user to enjoy the benefits of generally accepted accounting principles to IFRS. In Canada, the implementation of the standards has led to improvement the availability as well as quick access to foreign currency. Besides, various companies in the region adopted the standards so as to reduce the risks associated with trading in the market. In addition, IFRS has been found to be protective to the small investors from suffering the financial vulnerability which has plagued the sector for many decades. The benefit to the small investors would also lead to improvement in the rates in the stock market and trigger the investors to accept the financial professionals and further reduce the involved risk in, market trading. However, to integrate the IFRS a company or a country involved has to pass through a transition process during the year the standard is to be adopted. The challenges with the transition process is that it s fairly disruptive to the financial statement users and also cause impairment to the comparability and trend analysis.

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Statement of the Problem

Cross-border trading in securities is encompassed by various barriers that reduce the efficiency of trading in the markets. The hindrance to the efficiency of trading affects the availability of the accessible foreign currency. Besides, financial statements are faced with increased cases of quality, compatibility and transparency. Transparency is central issue whenever organizations are dealing with finances; hence, lack of transparency when handling them raises tough questions. The rising cases of lack of transparency can be highly detrimental to the organization leading to huge losses. Lack of transparency also hinders transfer of information to the customers. It has also be argued by the opponents of accounting convergence that differences existing in the environmental influences in countries are serious obstacles to the accounting language and the implementation of the IFRS. Conversely, some of the empirical evidence casts doubt on the convergence of accounting.

Another problem that majorly affects the telecommunication industry and other institutions in Canada and over the world is the lack of protection of the small investors from the financial vulnerability. The financial vulnerability problem has existed for many years and requires an urgent solution. The existing risks involved in the trading highly affect the small investors and the financial professionals who contend with the investors. Basically, the problems inherently facing the finances in the telecommunication uduustry and other industries are due to the underlying accounting standards. In this regard, for the accounting and financials to run smoothly, there is the need to overcome the challenges and problems being encountered.

Purpose and Significance of the Study

The adoption and consequently implementation of the IFRS is significant for the organizations. The standards allow the financial institutions to effectively account for the losses in loans by providing essential information regarding the changes in credit risk exposure. Moreover, the adoption is the standards are significant in the institution of a comprehensive framework that necessitates determination of the appropriate time to recognize revenue and the amount to be recognized. Hence a study about the adoption of such a system is of paramount importance since it contributes knowledge on how the standards have been incorporated and through data analysis identifies areas that require improvement. Therefore, the study intends to enrich the existing literature on adoption of IFRS in Telecommunication industry in light of IFRS 9 Financial instruments and IFRS 15 Revenue from contracts with customers becoming mandatory as from Jan 2018.

Aims

This research study was mainly conducted to investigate:

• The impact of IFRS adoption on publicly listed Canadian Telecommunication companies' key financial ratios, in light of IFRS 9 Financial instruments and IFRS 15 Revenue from contracts with customers becoming mandatory as from Jan 2018.
• Issues arising as a result of the adoption and implementation of the new standards in the Telecommunication industry financial disclosures.

Research Questions

The following are the research questions that guided the research study:

1. What are the supposed benefits and challenges of adopting IFRS in Canada?
2. What are the IFRS standards that have had the most impact on Telecom companies?
3. What is the effect of IFRS adoption on the key performance indicators of listed Canadian Telecommunication Companies?

Objectives of the Study

To add to the limited research on IFRS adoption

1. To explore the supposed benefits and challenges of adopting IFRS in Canada
2. To identify the IFRS standards that has had the most impact on Telecom companies
3. To critically evaluate the effect of IFRS adoption on the key performance indicators of listed Canadian Telecommunication Companies

Significance of the Study

Scope of the Study

The scope of this study was the IFRS adopted in Canada. This implies that the adoption of IFRS in other countries was not considered during the study. Moreover, the study only covered the adoption of the IFRS in telecommunication companies only and specifically Telus Communications Inc. Other companies not in the telecommunication industry were not included in the study.

Limitations of the Study

The study was only limited to Telus Communications Inc., a company in the telecommunication company in Canada. Hence the study was confined into only one company and county.

LITERATURE REVIEW

Benefits of IFRS

The adoption of IFRS in Canada reveals the commitment of the Canadian government on the side with worldwide accounting principles (Kasznik, 1999). IFRS implementation would significantly reduce the volumes of trade and reduce the cost of capitalization (Leuz and Verrechia, 2000). The basic standards of IRFS would not only bring positive capital value but also increase the quality of information reported in Canada since transparency would be improved (Aharrony et al., 2010). A study that was done in the USA, showed that the implementation of IRFS brought about transparency in the firms that handled reporting (Ahmed et al., 1999). Similarly, a study that was conducted in the United Arab Emirates on the appropriateness of IRFS indicated that it would improve comparison of financial reports, build a positive resume on accounting as a career and provide a guide on monetary planning (Ali and Hwang, 2000). According to Jermakowicz, et al, 200) in a study that was conducted in Bahrain, suggested that professional dealing with finances would improve in their handling of finances and improved financial performance. In addition, the implementation of IFRS in Canada would improve the availability and quick access to foreign currency. Most of the firms implemented IFRS to obtain a coverage to financial promotions (Joos, 2013).

According to Karamanou and Nishiotis, (2009), the application of IRFS would protect the small investors from financial vulnerability, a problem that has existed for years. They also pointed out that a hedge to small investors would improve stock market rates and enable the investors to contend with financial professionals thereby reducing the risks involved in trading. The implementation of IFRS in Canada would fully provide information to its users (Kaya and Pillhofer, 2013). In Korea, firms that have applied these accounting principles have experienced greater expansion and also global market recognition. The conformity of Canadian accounting standards to IFRS means that...