First initiated by the International Accounting Standards Board (IASB) in 1975, IFRS began as an alternative to GAAP, Generally Accepted Accounting Principles, used in the United States. Today, more than 100 countries around the world use IFRS, most of which were introduced during the 1980s and 1990s (Larry). To fully understand all the pros and cons of IFRS, one must see what a country was like before implementing it. In 1981, HP Holzer and JS Chandler investigated accounting problems in the developing countries of Tunisia, Tanzania, Fiji, Thailand, and Pakistan in the business sector, local accounting professions, accounting in the government sector, and accounting education. What they discovered was horrible by comparison with the American accounting; late closing of accounts (sometimes years overdue), shortage of adequate accounting manuals and deficiencies of qualified personnel. Specifically, in the corporate sector, developing countries saw problems of lack of accountants, bookkeepers and even auditors because companies could not pay salaries as high as the private sector. The staff members they found were highly unskilled, and a lack of on-the-job training made matters worse. The accounting systems of the companies were outdated without manuals or accounting forms. Due to poor accounting systems, there was absolutely no internal control, which of course can lead to fraud and abuse. The financial statements that were made were three years old.

Without proper financial statements, management cannot make proper decisions for the organization and the actual financial situation of the company is questionable. This led to a lack of international investors interested in the business. To help improve the financial statement situation, the auditors had to intervene. Because so many companies needed the help of auditors just to complete monthly and annual statements, this created an even worse staffing situation. The government sector in these developing countries was just as horrendous, if not worse. Government agencies can only pay lower salaries than those mentioned in the business sector, so staffing is an even bigger problem. The accounting basis is generally cash based rather than a modified or full accrual basis. This base is very outdated for accounting needs in governments. As with the corporate sector, the financial statements that were made were inaccurate or not made at all, requiring more help from the external auditors. With incomplete declarations, the government’s finances were uncertain, including foreign debt that negatively impacted foreign trade. As for professional accountants from developing countries, there was still a shortage of staff, although it was not as worrying as in previous sectors. The reasons for this were different; many accountants who were trained for this sector more often ended up in the wealthier developing areas of countries, leaving poorer developing areas without adequate staff. The staff that did exist were used inefficiently; As noted above, auditors from accounting firms were forced to reconcile inadequate financial statements. The problems of the business and government sectors negatively impacted the professional sector with a lack of adequate records and without internal control. Finally, the education sector was where all the problems started. In developing countries in the 1980s, there were few universities that actually offered an accounting program. The programs that were taught educated the students more about accounting procedures in developing countries. When these students were ready to enter the workforce, they found that they could not fully understand the differences of developing country accounting. The poor education of the students was due to the lack of educated teachers, textbooks and properly educated students in high school (Holzer). The four accounting sectors in developing countries affect each other with their problems and shortcomings. Solutions to these problems can be worked out over time through improved education in these countries, as well as through stricter accounting standards. International Financial Reporting Standards would ultimately enable these countries to address these issues. At present, only three out of five of the developing countries mentioned have now implemented IFRS. Fiji and Tanzania have already fully adopted IFRS, while Pakistan is still in the process of converting to IFRS. Thailand and Tunisia still use their systems in a GAAP-like manner, however, both countries’ accounting systems are currently converting to GAAP systems closer to IFRS (“IFRS”). Although not all of these countries have fully adopted IFRS as their financial reporting standards, they are well on their way to doing so. This means that the problems in your previous accounting systems are being reduced. However, the adoption of IFRS is not an easy process for a country. Next, we will discover the challenges of conversion to IFRS.

There are a number of reasons why countries decide to convert to IFRS, including the desire for foreign investment, lower costs, and the listing of companies on other countries’ stock exchanges. Challenges a country may face in the adoption process include awareness, reporting standards, compliance, and training. In the case of Nigeria, university student Abdulkadir Madawaki considers these implementation challenges. Knowledge of IFRS is the most important step in conversion. As Madawaki states, “the implementation of IFRS requires considerable preparation at both the country and entity level to ensure consistency and provide clarity about the authority that IFRS will have relative to other existing national laws” (156). Auditors, accountants, regulators, and educators need to be aware of the country’s new accounting standards and what it means for them. In order to fully convert to IFRS, countries must be able to make changes to their current tax reporting laws. According to Madawaki, “accounting issues that can present a significant tax burden in IFRS adoption include determination of impairment, provision for credit losses, and investment in securities/financial instruments” (157). These adjustments to current tax laws are complex and can be very confusing, but with a proper regulatory system, they can improve accountability in the country. Some of the existing laws in these countries are also modified or repealed by the adoption of IFRS. While it can be a difficult process to reverse some of these laws, IFRS implementation requires that this be done. Training and education are of paramount importance when a country is converting to IFRS. Education in developing countries on IFRS can cause a problem, as there may be a lack of professionally trained educators. This means that there will be a lack of competent people in the accounting profession. Accountants who were already trained in old accounting practices will need to relearn financial reporting under IFRS. Another problem with training is that the costs of accounting manuals are too high for many companies. (Madawaki 156). Fully trained and trained accountants can ensure the proper implementation of IFRS to receive its full benefits. Finally, the last challenge of implementing IFRS is compliance. Full compliance with IFRS results in more benefits from the standards. Writing in the Journal of International Accounting Research, Francesco Bova and Raynolde Pereira investigate levels of IFRS compliance in Kenya. What they found is that there are better levels of compliance in publicly traded companies compared to private companies. His reasoning for this is that shareholders of public companies demand better and more concise financial statements than shareholders of private companies. This is probably true because public shareholders have a greater tendency to keep up with the company’s financial statements, while private shareholders are less practical and only request financial statements when necessary (Bova 89). Greater business communication to shareholders will create a greater need for IFRS compliance. Weaker IFRS compliance will generally damage the company’s financial structure. Proper compliance with IFRS is needed to reap its full benefits. In the next section, solutions to adoption and implementation issues will be discussed.

Although the implementation of IFRS can cause problems in a country, there are some solutions that could improve this. With regard to awareness, a country’s government, its accounting associations, as well as the IASB should work together to make accountants and others who work with financial statements aware of new IFRS standards and laws. Awareness in turn will create a more successful compliance rate. In the process of conversion to IFRS, new laws and adjustments to previous laws are established. A proper governing body should be established to ensure that accountants correctly institute these laws. Regulatory compliance with new and changed laws will lead to greater overall compliance with IFRS. IFRS training and education is the best way to prepare individual accountants to use the new standards. Universities in countries implementing IFRS must provide adequate education on the new reporting standards. IFRS workplace training can be enhanced by having affordable accounting manuals and software. Governments should find ways that they can attract accounting students and professionals to stay in the developing country for accounting work, instead of going to a more developed country. Perhaps a monetary incentive given to people who stay in their educated home country to do bookkeeping would encourage more professionals to stay there. Ultimately, this will address the understaffing problem seen in countries prior to IFRS implementation. Proper training and education will also in turn improve compliance levels. Finally, IFRS compliance levels can be improved if auditors and accounting associations ensure proper compliance. As noted above, higher compliance is generally seen with public companies compared to private companies. One solution to this would be for private company shareholders to be more practical and request financial statements more frequently. Solutions to other IFRS problems will also result in increased compliance. With all solutions for IFRS implementation, the higher level of compliance will make IFRS more beneficial to the country. Increased awareness, better regulatory bodies, more education and training on IFRS will result in a higher level of compliance leading to cheaper operating costs, more investment from foreign countries by having higher quality financial statements and a better reputation for companies. companies that can be listed on the stock exchanges of other countries.