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What Are the Pros and Cons of an IFRS Conversion?

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  • Written By: Alex Newth
  • Edited By: Angela B.
  • Last Modified Date: 04 September 2016
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International financial reporting standards (IFRS) conversion can be a difficult endeavor for countries and regions that use other accounting standards, and there are both pros and cons to IFRS conversion. One pro to IFRS conversion is that comparing a company to other international companies will be easier, because the statements will be the same. If a company owns another international company, then the accountants also will be able to use the same standards. A problem is that the earnings statements usually are higher, artificially inflating what a company is making. It also may be difficult to learn the IFRS for countries and regions using other accounting standards, especially if there are few schools teaching it.

Comparing two companies can be difficult if one uses IFRS and the other does not. This is because IFRS and other accounting standards tend to create different figures, and one has to be converted to the other for a fair comparison. With an IFRS conversion, this would not be needed and the two companies could be easily compared without hours of work beforehand.

Many domestic companies own international companies that use IFRS, while the domestic companies use another set of standards for their accounting. This can make accounting conversations between the companies difficult, because one will not understand how the other does accounting. If the domestic company initiates an IFRS conversion, then the international and domestic accountants can easily understand one another, making the overall accounting department easier to maintain.

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IFRS rules handle accounting differently than other standards, so the earnings statements also will come out different. When compared to other standards, IFRS tends to increase the earnings statements. While this may not seem like a problem, it can create an artificial boost in the company’s income, which may have wide-sweeping effects in terms of taxes and investor loyalty.

Another problem with IFRS conversion is that it might be difficult for accountants to learn it, especially if there are few schools or institutions teaching it. IFRS has completely different rules and metrics, too, so it can take a long time for accountants to learn and perfect this system. This means the conversation may be difficult, expensive and take years to accurately achieve. Even if there are many schools teaching this accounting method, experienced accountants will have to forget everything they know about other accounting methods, which can be difficult.

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