Harmonizing to Cairns D. ( 2007 ) he said that International Financial Report Standards are implementing to measurement to do accounting just and true by corporate with the European Union. They try to do value-based criterions by IASB ( International Accounting Standards Board ) . IASB is keep develop IFRS to be more full carnival value accounting. Another significance from Dr. Epstein ( 2010 ) , IFRS are a set of accounting criterions developed by the IASB that is going the planetary criterion for the readying of public company around the universe about a fiscal statements. The IASB is an independent organisation based in London, United Kingdom.
Now a twenty-four hours, more than 120 states have required public companies to follow IFRS for present a study because European Union ( EU ) was proclamation a require to utilize IFRS at the beginning in January 2005. Therefore, many companies are trade securities or make some concern with EU, they need to follow this regulates by prepare their unification fiscal statement in pursue IFRS and integrate with European. It send a straight affect excessively many states have imperative to accept IFRS and follow with their national criterions to fit with EU has demand.
The intent of IFRS
In a present, when we do the concern, we will make as a globalisation. It means that we need to reach with people around the universe. Therefore, it is hard to understand fiscal statement of difference states because they will hold their ain accounting rules. The chief intent of IFRS would wish to show the true and just position of accounting information because if information of accounting is true and just so that the fiscal study will hold to supply a good quality and dependable. Another intent is IFRS would wish to do international criterion as a planetary criterion, it will assist for trade cross-border investors. IFRS is provide information to investors for determination devising, better apprehension of accounting, easier for comparings and present fiscal statement in the same basic as its foreign rivals.
Why we need the IFRS?
Before we have IFRS, we was used GAAP ( Generally Accepted Accounting Principles ) . GAAP was responsible for set a criterions, processs and accounting regulations for entering in fiscal study and statement by the United States. GAAP was helped for better fiscal determinations and the economic system run more expeditiously. The United States has really assurance in GAAP that is the best standard accounting and fiscal study in the universe. Therefore, United Stated demand every states would be follow their ordinances and criterion. However, GAAP is non complete to cover all statement because it will hold chance to rip off. Thus, some company has used an chance to derive more net income by adjust the accounting to show that a company has a good liquidness of fiscal so that many investors will involvement to investing at this company and besides high hazard for investors.
In the existent state of affairs of Enron Corporation, that is a large company about the energy in Downtown Houston, Texas in United States. This company was established in 1985 by Mr. Kenneth Lay. Enron Corporation has an chance from Fortune magazine in top 10 companies have employees more than 20,000 peoples. Unfortunately, in late 2001 Enron Corporation was bankruptcy because the company has adjust the figure of accounting and fiscal statement to show for populaces in bogus information ‘s because the company has snatch to happen out do more net income. Therefore, the stock monetary value and value of Enron Corporation will lift so that many investors are investing in this company. Many investors are buys a batch of stock because they believes that the accounting statement and fiscal study of company have transparence and dependable. It shows that it will maintain traveling up in the positive manner. In existent, the company has adjust the accounting statement and fiscal study to do its good and attractive investors to investing within this company. Harmonizing to Batson ( 2002 ) said that Enron Corporation do non follow by and large accepted accounting rules ( GAAP ) because he got information from other Bankss. He believe the bank besides know that Enron Corporation is non stand for the existent information within one-year study. The dealing of the off-balance sheet has something incorrect after Enron corporation has joint-venture spouse with other company because the named “ Fishtail ” and “ Bacchus ” were plan merely to cover a mistake in grosss of Enron Corporation. After this is state of affairs, it make affect to economic of United States because employees were lose a occupation, the United States stock market was drop down and current monetary value was depreciation. It means that value of belongings is decrease and duty is addition. You can happen more information as appendix A.
Harmonizing to the New York Times ( 1984 ) in 1976, Frigitemp Corporation is grant to construct a ship. This company was responsible for decorate and physique in the ship and other. Frigitemp was used Capital history is means that the company has conveying a one-fourth of the sum for payment to show that money as a income of company before the undertaking is really completed but it will set on the status as contract in the long-run. Many contractors ever use capital history for making statement by required a 25 per centum of the fund of undertaking to do at gross before start to make the undertaking. This money is non utilize for the undertaking at all but it will state that this money will convey for utilizing in the undertaking and do a bogus reception to bear down client to convey the money out foremost.
This procedure will assist to increase the income of company by told the client that would wish to convey some money for purchase more equipment but company was non utilize it as told the client. Furthermore, It will add up value of company to demo that company keeps turning up in the positive. However, the Capital history to the capital as per centum of work completed made a job because in 1974 the company got a large undertaking to construct a ship by utilizing this contract. The company has setup the status in contract that client demand to give money in progress to order a wooden deck. After that company made a bogus dealing that was payment for provider but the existent is supplier do non take the wood from forest. Many contractors were rip offing the Firgitemap besides they request to retreat a half of fund from Firgitemap. The jobs will be the money is non plenty for concept so that the company needs to utilize a fund of anther undertaking to back up the old undertaking. The company ever do the same thing to maintain the accounting statement of each twelvemonth is non lose by utilizing the future income to demo in the present clip. The company is make a slush fund and do non hold a transparence for public. You can happen more information as appendix A.
Another state of affairs of the company was Long Distance Discount Services, Inc. ( LDDS ) by Hattiesburg Mississippi in 1983. It was altering the company name to LDDS WorldCom and last name was WorldCom. This company was making about the telecommunication and Communications in Ashburn, unincorporated Loudoun County, Virginia in United States.
In 2003, WorldCom was bankruptcy, it was the company give money to CEO for borrow in a batch of money during the stock monetary value of WorldCom was travel down and made up a dealing of accounting statement to look good and it was affect to employees in company because in 1997, Salomon Smith Barney was Financial Analysis Professor. He was direction about dividend to employees ( Employee Stock Option Plan ) by give a good monetary value for influence employees to buy a stock and unfastened chances for employees to borrow money from company to buy a stock. It shows that employees have a high hazard because if the stock monetary value was traveling down, it mean that employees will be debitors of Salomon. Therefore, Salomon will acquire a benefit from here. On 26 June 2002, SEC was faulting WorldCom to feign papers for lead oning invertors because WorldCom ever adjust the debt to gain for company and influence to mobilise of fund after that WorldCom was bankruptcy. In the yesteryear, WorldCom was a large company in United Stated therefore the large company was bankruptcy about the fiscal transparence and revelation so that many investors were non confidence in criterion ( New York Daily News, 25 March 2002 ) .
It was some existent state of affairs in a yesteryear of utilizing GAAP, it show that GAAP has non complete criterion to manage, it will show that GAAP has a issue about to do companies show a true and just value of accounting statement and fiscal study for investors. Furthermore, there are much intelligence that it present about the fail of the large companies in the universe such as TYCO, IMCLONE, GLOBAL CROSSING and other because of the large companies were non present a true and just information about accounting statement and fiscal study. They were adjust the figure of history and put an imitate dealing in statement to demo that their companies have a good liquidness and add value of stock monetary value to do investors confidence in their companies and buy their stock or investing within their companies. In the fact, the companies were non holding a good liquidness at all. It was affect really straight to the economic sciences cross the universe and many investors were non believed in fiscal study by corporate administration and company. It shows that there are several jobs of utilizing GAAP but I would wish to show about the benefits of IFRS can supply more efficiency than GAAP in measurement transparence and revelation of fiscal study criterion.
Therefore, International Accounting Standards Board would wish to make an International Financial Report Standard to do investors and populaces to confidence in the new criterion, more efficiency than GAAP, and suited format with the mill in present and force every company that would wish to merchandise within European Union to utilize this criterion for present in true and just information of accounting and fiscal study to investors. I think that if new criterions ( IFRS ) are suited format for accounting statement so that fiscal study will hold a good quality because fiscal study demands to convey figure from accounting statement to cipher with their expression and reading to do investors or reader understand the mean of that. Based on, Business Week Online ( 2008 ) about “ How to Fix Financial Report ” Finance curate from the 20 wealthiest states have discuss about the consequence from the toxic of recognition crisis. Thence, investors are non trust in the fiscal study information that is show in market because they think that the information is non complete and accurate.
Therefore, IFRS must to concern more about the transparence and revelation within a chief point to do fiscal study expression more efficient and assurance from investors and populaces. So I would wish to compare between the GAAP and IFRS about that point transparence and revelation. After that I would wish to present advantages of IFRS to work out many jobs about transparence and revelation. Furthermore, I would wish to show about the advantages of IFRS for investors and just value.
The good fiscal statement figures informations would be completeness and explain information to delicate within high quality informations of fiscal study. There was affect to transparence and dependability of fiscal study of concern. Although today many companies find to derive the benefit to them by utilizing spread of criterion to rip off and present bogus information to populaces that they can make in many manner.
First, I would wish to choose about off balance sheet, before they have a criterion in the past the company will put up their ain ordinance to make the accounting and fiscal statement after that United States was set up standard and announced to planetary to used GAAP. However, this criterion has more spreads to rip off at balance sheet, before to explicate about off balance sheet, as this study will explicate the mean of balance sheet is a statement show among entire plus adequate liabilities plus capital and supply full revelation in the context of fiscal. Harmonizing to, Elliott and Elliott ( 2008 ) they said that off balance sheet is the descriptive stage for all finance agreement: where rigorous acknowledgment of legal facet of the single contract consequences in the exclusion of liabilities and associate plus from balance sheet. The company has used off balance sheet for make income statement of company expression better than world, do non enter liabilities that may anticipate and originate, make dealing to deduct the debt from the history, conceal duty in current such as leasing, take or pay contract, provident financess, pension fund and other.
There are many instances in past to derive chances to rip off on balance sheet by utilizing GAAP to show bogus information. One instance of off balance sheet is an accounting dirt of Enron ‘s company was usage of fraud in the fiscal statement deceitful fiscal study. Therefore, this company was bankruptcy in past because this company used off balance sheet to conceal losingss and debt caused hearers, investors and analysts to demand more information on off balance sheet ( Kahn 2002 ; Henry 2002 ) . It made income statement of company extremely than world by adjust figure and adorn their statement to demo that their company has a good net income and good direction, increasing fiscal flexibleness, diminishing the cost of adoption, cut downing revenue enhancements, increasing profitableness, and bettering fiscal statement ration ( Angbazo 1997 ; James 1989 ; Shevlin 1987 ) .