The Importance Of International Financial Reporting Standards

Shareholders as an external user are relying heavily on financial statements to aid them in making judgment. Information contains in financial statements must be reliable and relevance in order to have a useful accounting information as well as to strengthen the decision-making. The essay will examine several criteria in the financial statements that are needed in improving decision-making for shareholders in the scope of International Financial Reporting Standards (IFRS).

Standard-setting process is designed to produce high quality financial reporting that is valuable to the users. In order to obtain high quality of financial report, AASB has produced standard that guides accountant when choosing accounting treatment and it is referred to

There are two categories of information that consist of fundamental qualitative characteristics and enhancing characteristics. The fundamental qualitative characteristics include relevance and faithful representation, whereas the enhancing characteristics are comparability, verifiability, understandability, and timeliness (Rankin, Stanton, and McGowan 2012, 29). Information is relevant if it has ‘an ability to influences and making a difference’ in economic decisions of users by helping them assess past, present, and future events. The relevance of information is affected by the nature and materiality. It is material if the misstatement or omission in the financial statements can influence the users’ economic decision (Cheung, Evans, and Wright 2010). IFRS requires financial instruments to be measured at fair value when measuring assets and liabilities that aim to increase the estimation. Past and present financial statements play a significant role in identifying the past of transactions that contribute to the identification of expected inflow and outflow of future economic benefits. If the company could reliable predict the future, then assets and liabilities measured today would be reflected in the predictions (Barth 2006). Thereupon, shareholders are benefit from obtaining some information presented in current period earning and as a result it increases shareholders’ confidence

Two methods of verifying transactions and events are direct and indirect. Observing the value of cash is called direct method; checking the stock’s entries and recalculating the closing balance using the same methods such as FIFO is called indirect method (Man and GĂDĂU 2012). Those methods have to be done to check the accuracy of the economic phenomenon whether the transactions and events recorded have been recorded and pertain to the company. Some information may not be able to be verified, but the more verifiable the information presented in financial statements, the more it convinces shareholders that the information faithfully represents the economic phenomenon. Adversely, it is costly to verify information and to be worth providing; the benefits of information must exceed its cost of producing it (FASB 2008). Shareholders will not obtain any benefit from this if they could not obtain much useful information that will aid them in strengthening the