International Financial Accounting Standard ( IFRS ) is a set of accounting standard issue by International Accounting Standard Board ( IASB ) in twelvemonth 2003 ( MatthiasKirchner 2007 ) . Harmonizing to Choi and Meek ( 2008 ) , IASB was antecedently known as IASC ( International Accounting Standard Committee ) which formed in twelvemonth 1973 and restructured to IASB in twelvemonth 2001. Their chief aim is to develop a individual set of high quality, apprehensible and enforceable accounting criterions, to help users of the statement in capital markets to do suited economic determination based on the state of affairs they face ( IASB 2009 ) . The procedure of puting accounting criterion had started long clip ago, early they aim to make a criterions which can be used by developing and for those states which do n’t hold ability to organize their accounting criterion. However, due to the globalized of concern universe nowadays, people start recognize that holding a same accounting criterions can profit them in several countries, raising fund internationally, scrutinizing, and besides comparable ( AICPA 2009 ) .
Capital Market
However, IFRS is traveling toward the demand of capital market. Harmonizing to Tatum ( 2009 ) , capital market refers to a market where organisation can raise fund to finance their concern operation. Capital market provide merchandises and services that related with fundss and investing, concern organisation able to merchandising securities with loaners and investors in the market. Generally capital market can be distinguished into debt funding and equity funding ( U.S. Chamber of Commerce 2009 ) . Debt funding can be explained as borrowing money from an entity but return in a period of clip with involvement charge. The chief difference between debt finance with equity finance is loaners do non keep any ownership or right of control for the concern. Nevertheless, equity finance refers to raise fund by interchanging portion of concern with money. Investors do keep the ownership and right of the company depend on the sum of portion keeping. Company will pay stockholder specific sum of dividend based on the public presentation of concern ( U.S. Chamber of Commerce 2009 ) .
Code Law and Common Law
Both of these funding methods are suited under different economic state of affairss and background. Choi and Meek ( 2009 ) mentioned that accounting criterion in the universe can be classified by legal system of each states. Harmonizing to Ma ( 1997 ) , there are two types of major legal system in the universe, codification jurisprudence legal system and common jurisprudence legal system.
Most of the Europe states are under codification jurisprudence legal system, other than that Asia states for illustration China, Japan, Korea, and Taiwan are besides using codification jurisprudence legal system in their state ( Ma 1997 ) . Ma ( 1997 ) concluded that in codification jurisprudence states, regulations and Torahs are set by legal bookmans based on the construct of justness and morality. All legal issues will be mentioning to the model which formed earlier. Harmonizing to Choi and Meek ( 2009 ) , debt funding is more favourable in codification jurisprudence states. This is because the accounting criterion in codification jurisprudence states is incorporated into national jurisprudence with high prescriptive and procedural. Furthermore bank and authorities are the chief loaner in capital market of the state, hence creditor protection is a major concern of puting accounting criterion. Accounting criterion in codification jurisprudence states tend to be low revelation and combine between fiscal and revenue enhancement accounting.
By contrast, base on the surveies of Choi and meek ( 2009 ) , common jurisprudence develops on a individual footing, every instances will be mention back to yesteryear instances and experience on similar state of affairs. Therefore, common jurisprudence is much more flexible than codification jurisprudence. States under British Commonwealth and US are using common jurisprudence. Accounting criterion in common jurisprudence states is aim for transparence and full revelation, and besides less connexion between accounting criterion and national jurisprudence. Puting of accounting standard seems to be a private professional sector activities, hence stock market become a major funding method in common jurisprudence states. Professional sector will organize accounting standard base on the public involvement, strong investor protection and stockholder right are cardinal factors of puting the criterion.
User of Financial Statement in Capital Market
Alexander and Britton ( 2004 ) stated that user of fiscal statement under debt finance can be classified into short-run, mid-term and long-run loaner. Short-run and mid-term loaner will be concern about the hard currency return of the concern in short period, therefore the tendency hard currency flow is their major concern. Net realizable value of plus keeping besides can demo the ability of company to pay back short-run loan. Longer-term loaner will concentrate on the farther hard currency flow place in future. Longer-term loaner will besides gauge the hereafter hard currency place of the concern based on the information of statement to safeguard of their debt, which is rather similar with equity user.
For equity funding, chief user group under this method is really stockholder ( Alexander and Britton 2004 ) . The manner of stockholder addition income from their investing is under two ways, dividend income and capital addition. Dividend income is consider as involvement wage by company depend on shareholding, capital income refer to the income when stockholder sell their portion above the cost monetary value. Obviously these two incomes will be depending on the public presentation of the concern, accordingly stockholders or investors will concern about future net income and growing of the concern subdivision for illustration net income or gross revenues instead than hard currency flow statement. Although information provide in fiscal statement is about all on base on balls consequence, nevertheless investors and stockholders can make their appraisal based on past consequence.
