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ACCA Applied Knowledge · Financial Accounting · The regulatory framework

A country has not adopted IFRS Accounting Standards, but its listed companies follow local standards. Which of the following is the most likely consequence for a multinational investor comparing these companies with IFRS reporters?

The likely consequence is reduced comparability. Local standards may treat items differently from IFRS, so investors find it harder to compare results across countries. This is the main argument for adopting a single set of global standards; exchanges do not restate accounts automatically and audit requirements remain.

  1. AReduced comparability of financial statements across the companiesCorrect
  2. BHigher consistency in recognition and measurement across jurisdictions
  3. CAutomatic restatement of the local accounts to IFRS by the stock exchange
  4. DRemoval of the requirement for the accounts to be audited

Explanation

Different national standards can produce different recognition, measurement and disclosure, so comparison with IFRS reporters is harder. This is a key argument for international harmonisation. Stock exchanges do not automatically restate accounts, and audit requirements are unaffected.

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