De La Salle Professional Schools, Inc.
Graduate School of Business
COMMENTARY: GLOBAL COMPARABILITY IN FINANCIAL REPORTING: WHAT, WHY, HOW AND WHEN?
The commentary paper mainly deals with the evolution and convergence of accounting standards. In response to comparability & convergence issues that have arisen to date, the commentary has discussed what comprises global comparability in financial reporting, why it has arises and how they could make it into reality and its timeline for estimated actuality. With the activities and interests of investors, lenders and companies becoming progressively more global, there was a growing participation and awareness in a number of discussion to increase a worldwide accepted, high quality financial reporting framework which is also the effect of development in global markets, the aspiration of multinational companies for one set of financial statements, and the command for one general global reporting language. It was mentioned in the paper that “comparability results in like things looking alike and different things looking different” which could be deciphered as same transaction but can be accounted differently. ‘Comparability’ is a very difficult notion to understand and believe even within a country, let alone globally, but we have not really had much basic literature or education that helps us understand what is meant by comparability when we have it, and when we do not. But in accounting what are ‘things’? And how do we perceive and identify ‘like’ and ‘unlike’ things? Accounting is an artifact, not articles of furniture or material. Indeed, comparability is very significant and important to investors. Comparability across financial statements within, and across jurisdictions, is very essential for the financial analyses investors perform during their capital allocation process. And, as we know, such capital allocation decisions are increasingly more global as investors look across jurisdictions for investment opportunities. With global comparability in financial reporting taking place, the use of common global reporting language is needed and expected.
It seems that there is the presence of consent in comparability for the total over all financial markets regardless of country of origin. Investors and other potential stakeholders or appropriate users could be equipped with better judgment for their business decisions. Business organizations could possibly have more flexibility for applying relevant accounting principles. Transactions will be required to be reported and transparency will most likely happen. More professional judgment will be exercised which will lead to better disclosure to support those decisions. There is also the potential for reduced financial reporting complexity, especially for large, multinational companies that currently prepare many different sets of financial statements in many different forms. All levels of management, including the audit committee, will have to be more involved in financial reporting and be aware of transactions. In the end, companies should be more efficient and have the advantage of cost-savings. However, with this convergence, possibilities with small companies or entities that have no dealings or transactions other than their own country may have no reason to adopt IFRS unless it is really required and mandated. Incompatibility may still arise as companies claim to have converted to IFRS but in reality have only selected the portions that best fit their needs. Nevertheless, there could be possibility of big cost implications in realizing this venture as it would take amount of money. I would also like to strike a note of warning that upcoming progress in enhancing comparability may be complicated to achieve and that one needs to be concerned about the future course of convergence across international borders. In spite of the anticipation...
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