Benefits of IFRS over GAAP

By John Dudovskiy

Benefits of IFRSGlobalisation has been one of the factors that has played great role in accelerating the harmonization of IFRS to improve the transparency and comparability. As more and more countries are opening their domestic markets to join international trade, the access to international financial markets has also been very crucial. Therefore, the implementation of IFRS as a single set of reporting standards has been fast tracked with the help of globalisation.

Moreover, the improved information and communication technologies have changed the way financial statements are reported and at the same time, removed the barriers of physical distance and making information available globally. This has brought new investors into the capital markets who needed more than usual information so that they can base their decision on. The GAAP reporting standards produced financial statements which were complicated to understand by investors, therefore, they had to hire a financial analyst to interpret the financial statements which was both time consuming and cost more. Moreover, investors had to make decisions based on the interpretation of financial analysts.

However, the new International Financial Reporting Standards focused on investors more, unlike GAAP by making it easy to understand. Under IFRS, investors can understand the financial statements rather than hiring a third party.   Therefore, investors can save both time and money due to simplistic nature of financial statements under IFRS. ). The demand for international financial reporting standards that cross national borders is set to fulfil this role.

Adopting a financial reporting language will enable the company to be better understood in the international marketplace. If a single set of reporting standard is achieved, this helps the companies to access world market. New IFRS also helps to reduce the costs.

Moreover, adopting IFRS lets its people apply common accounting across their subsidiaries which in turn can improve internal communications, the quality and timeliness of management reporting.


Category: Finance