c) In 2007, Ghana adopted the International Financial Reporting Standards (IFRS). This move has been applauded by many who suggest that Ghana’s adoption of IFRS will offer many advantages to Ghanaian companies.
Required:
Discuss the advantages that Ghana’s adoption of IFRS as National Accounting Standards offers to Ghanaian companies. (5 marks)
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(i) A Ghanaian company can present its financial statements on the same basis as its foreign competitors, making comparison easier.
(ii) Cross-border listing is facilitated, making it easier to raise capital abroad
(iii) Companies with foreign subsidiaries have a common, company-wide accounting language.
(iv) Foreign companies which are targets for takeovers or mergers are more easily appraised.
(v) Staff working with multinational firms can easily be redeployed to other jurisdictions.
(vi) Access to and mobility of quality accounting staff.
(vii) Efficient and cost-effective audit engagements for multinational firms.
(viii) Firm-level IFRS adoption can lead to earnings quality.
d) To be useful, information presented in financial statements must be relevant to the decision-making needs of users and also faithfully represent the phenomena that it purports to represent. However, it is generally accepted that standard-setters and preparers are constrained in the extent to which these characteristics are achievable.
Required:
Explain TWO constraints on relevance and faithful representation of financial statements. (5 marks)
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Timeliness:
If there is undue delay in the reporting of information it may lose its relevance. However, to provide information on timely basis it may often be necessary to report before all aspects of a transaction or other event is known, thus impairing reliability. In achieving a balance between relevance and reliability, the overriding consideration is how best to satisfy the economic decision-making needs of users.
Balance between benefit and cost:
The benefits derived from information should exceed the cost of providing it. Thus, relevant information may be excluded where the cost of providing it far outweiGHȻ the benefits to be derived from the information. The evaluation of benefits and costs is, however, substantially a judgmental and complex process.
Balance between qualitative characteristics:
In practice, a balancing, or trade-off, between qualitative characteristics is often necessary. Generally the aim is to achieve an appropriate balance among the characteristics in order to meet the objective of financial statements. The relative importance of the characteristics in different cases is a matter of professional judgment.