International Accounting Standards Essay Example | Topics and Well Written Essays - 1000 words

International Accounting Standards - Essay Example (Salter et al, 1996). The main goal of the International set of Accounting Standards is to standardise the financial and accounting method disclosures of firms in different nations. That is, if firms follow the same set of accounting standards, their external financial reports will provide more uniform disclosures and thus investors would make more use of the variables inherent in the financial statements. (Asbaugh, 2001). Also, firms and investors would benefit from financial statements prepared following an international set of accounting standards. (Asbaugh, 2001). In meeting with the afore-mentioned objectives, the European Union issued regulation 1606/2002 of July 19, 2002 requiring that all companies listed in the European Union and European listed companies in other countries to adopt international accounting standards in their Financial statements from 1st January 2005 onwards the regulation also gave member states the option to or permit the use of IAS and IFRS in the corporate annual accounts. A single set of standards including IAS 2 inventories had to be adopted by firms in the region and firms in other regions that are listed in the E.U. Non-E.U listed firms in other areas that permit or require the adoption of IAS/IFRS also adopted International accounting standards. The International Accounting Standards Board recently revised IAS 2. In accordance to this revision, the LIFO method of valuing inventories was completely faced out and only the First in First out (FIFO) and weighted average methods of inventories are to be used as from now henceforth. Following this revision, I predict significant effects on costs, profitability, taxes and firm value for firms adopting international accounting standards who previously applied the LIFO method of accounting considering that they are now required to use only the FIFO or weighted average methods of inventory valuation. I also predict significant difficulties in convergence with the U.S GAAP considering the fact that the LIFO method remains the method applied in the United States. Thus the International Accounting Standards Board will hardly achieve its goals of converging International Accounting Standards with U.S GAAP. One would expect a series of effects from changing from the old standards to the new standards either positive or negative. Most research on this topic has centred on different aspects of international accounting standards. For example Taylor and Jones (1999) studied how firms that claim to be using accounting standards refer to international accounting standards in their financial statements. This study provides evidence that almost all the firms in the study referred to international accounting standards in the footnotes to the financial statements but referred to international accounting standards in their audit reports only 50% of the time. Ashbaugh (2001) investigated the factors associated with non-US firms that voluntarily disclose their financial statements following either U.S GAAP or IAS. Examining the annual reports of 211 non-US firms listed in the London Stock exchange