Urgent Paraphrasing needed

STUDENT NAME: Anas Alzadjali

ID: ST10299

Evaluation of the financial reporting standards

Introduction:

The aim of this report is to analyze the implementation of the International Financial Reporting Standards (IFRS) to the various countries including Oman, Singapore and India and the variation in the financial reporting on the basis of the investment strategies of Gulf International Chemicals SAOG (GIC) and its market operation. Gulf International Chemicals SAOG (GIC) has been set up in Oman since 1996 and is a construction chemical firm. With headquarters in Oman, the company operates as publicly owned firm and is a part of MSM. Gulf International Chemicals SAOG (GIC) deals with the production and sale of the premium quality construction chemicals including adhesive and bonding agents, concrete and mortar admixtures, concrete and repairs admixtures, grouts and anchors, industrial flooring etc. Gulf International Chemicals SAOG (GIC) drafts the financial statement which is compliant to the International Financial Reporting Standards (IFRS) as well as suitable requirements of the disclosure as laid down by Capital Market Authority (CMA) and the pertinent necessities of the Commercial Companies Law of 2019.

Discussion:

L03: Evaluation of the financial reporting standards and theoretical models and concepts:

The financial reporting standards refer to the set of principles and standards which defines the financial accounting policies and practices guidelines and serves as its basis. The incorporation of financial reporting standards helps to boost the financial reporting transparency across the world. The adoption of the global financial reporting standards are essential for facilitating cross border transactions and to ensure international capital free flow. The lack of the globally acceptable financial reporting standard can make it challenging to carry out the cross border activities leading to rise in costs, risks and sophistication in the creation of the financial statements. This also affects the decision making for the investors and raises the risk level. This can impact the investors from seeking investment opportunities globally and can make it difficult to conduct international operations. The basis of the calculation will differ if different financial reporting standards are used and this can impact the financial performance and the financial position. For instance, the firm may identify the profits using one set of financial reporting standards of the country and loss using another (IFRS, 2020)
There are several different financial reporting standards which is used for the preparation of the financial statement in different countries. While International Financial Reporting Standards (IFRS) is used is over 120 countries encompassing of European Union, Asia and South America, US makes use of Generally Accepted Accounting Principles (GAAP). IFRS serves as the common global language and helps to conduct business over international boundaries by developing accounts which are understandable and comparable. It is an outcome of the rise in the international shareholding and is crucial for companies like GIC which operate in various countries.
i.
Benefits of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS):

International Accounting Standards are beneficial since it helps to ensure higher transparency, more accountability and effectiveness of the financial market around the globe. This allows the investors and business owners to take wise economic decisions regarding the investment and risks. It also enhances the allocation of the capital. The usage of IAS at GIC will be very helpful in enhancing the performance and in increasing the accountability. The adoption of the IFRS standards is useful since it offers a premium quality, internationally accepted set of accounting standards which helps to raise the transparency, accountability and effectiveness of the financial market. The adoption of the IFRS standards at GIC will lead to more transparency by boosting the international comparability and financial information quality and this benefits the investors and permits them to take good economic decisions (Amidu, 2017).

The incorporation of the IFRS standards benefits in improvising the level of accountability by lowering the gap of information among the capital providers and the individuals who have given the amount. This standard offers the information which is necessary for keeping the management accountable for their actions. This standard is crucial for the regulators globally. These standards lead to economic efficiency by allowing to recognize the opportunities as well as risks existing globally, which helps in proper capital allocation. The usage of the single, trusted accounting language reduces the capital cost and the costs of international costs.

ii.
Evaluate the models of financial reporting and auditing:

Some of the models and theories of financial reporting are:
· Equity theory:
The equity theory comprises of the give main theories and these are Proprietary Theory, Entity Theory, Fund Theory, Residual Equity Theory and Enterprise Theory.
· The Proprietary Theory emphasized on the process of accounting in the firms which is centered on the perspective of the shareholders. The calculation of the theory is as follows:
Assets – Liabilities = Proprietor’s Equity

· As per the residual equity theory, it is necessary to carry out the accounting as per the residual equity holders’ perspective. This is aligned with the common shareholders for the going concern.

· The entity theory keeps the business unit as the center of accounting process instead of proprietor. The accounting equation as per this theory is
Asset = Equities or
Assets = Liabilities + Shareholders’ Equity

· The fund theory basis the accounting process on the group of assets and associated obligations and restriction of asses as the fund. As per this, the funds/ resources and restrictions of its usage are inclusive in the business unit. Its accounting equation is as follows:
Assets = Restriction of Assets

· Legitimacy theory: Legitimacy refers to the perception that the entity’s action is anticipated, effective and suitable in socially developed system, of values, beliefs, norms and definitions. The policies of the corporate disclosure could affect the external perceptions regarding the firm. The firms would attain strategy legitimacy and vary the condition of legitimacy and the perceptions held by the external world. This theory is usually utilized for the purpose of giving comprehension regarding the social, environmental report disclosure as well as corporate report. This theory is suitable as the framework for the disclosure of the financial reporting and interacting with stakeholders (Manukriti, 2014)

L04: Evaluate international differences in financial reporting:

iii.
Analysis of the differences an importance of financial reporting across different countries (Oman, Singapore and India):

As mentioned in the given case, GIC has plans of expanding to India and Singapore and thus the comparison between the financial reporting standards of the three countries i.e. Oman, India and Singapore is essential. All the three countries utilize the accounting standards which utilizes International Financial Reporting Standards (IFRS) as its basis. There are factors such as accounting clusters modes etc. which impact the financial reporting practices. The accounting model which is used in countries including US, India, Canada, Netherlands and Australia is Anglo American model while countries like France, Germany, Italy makes use of Continental European model. While the Anglo Saxon model is characterized by high management power, over investment, issue of control and short term problem, the Continental European model has high shareholder power, conflicts of interest, has limited resources in terms of finance and facilitates movement of cash flow.

Singapore:
The accounting standards used in Singapore is the Singapore Financial Reporting Standard (SFRS) and the basis of this financial reporting standard is International Financial Reporting Standards (IFRS). The adoption of this SFRS was made mandatory for the firms since 2003. The main principles on which the SFRS is based is Accrual Based accounting. The Singapore Financial Reporting Standard (SFRS) varies from the International Financial Reporting Standards (IFRS) in few aspects. The SFRS varies of IFRS regarding the accounting for unremitted foreign income. While IAS 12 states that accounting of the deferred tax is needed for temporary variation occurring from unremitted foreign income, the SFRS does not require accounting for unremitted foreign income if the entity is capable of managing the reversal timing of the slight variation. The Singapore Financial Reporting Standard (SFRS) FRS 16 permits the one off reevaluation of the assets which occurred in the time span of 1984 to 1996 without needing the ongoing usage of the reevaluation model. One off reevaluation implies the instance in which the PPE item is reevaluated just once from 1984 to 1996. But this exemption is not present under IFRS. FRS 17 is different from IAS in the sense that the words of para 14 and 15 are eliminated and this implies that the land has unlimited economic life and when the title is anticipated to pass to the lessee by the lease term, then the lessee does not attain the risks or rewards of the ownership. There is variation in FRS than IAS 27, IAS 28 and IAS 31 is the needs for presenting the consolidated financial statement and accounting for the associates and joint ventures (GMS, 2018)

India
: The financial reporting standard used in India is Indian Accounting Standards (Ind AS) and is converged with the IFRS standards as per the board. The IFRS Standards are not needed for the financial reporting by the local companies of India and has not formally committed to IFRS standards. Ind AS and IFRS differ in various aspects. The components of the Ind AS include balance sheet, profit and loss statement, cash flow statement, statement of variation in equity, notes of the financial statement and disclosure of accounting policies. In contrast to this, the components of the financial statement for IFRS includes financial position statement, profit and loss statement, variation of equity statement for a particular time span and cash flow statement for a span of time. While Ind AS does not have any specific format of balance sheet and only includes guidelines, IFRS has proper guidance regarding the balance sheet format and needs the entity to represent the liabilities and assets and to categorize them as current or non – current items (ICAI, 2020)
While Ind AS does not have any specific format for the income or profit and loss statement and only includes guidelines, IFRS includes two kinds of presentation: single statement format or dual statement format. The single statement only comprises of the profit and loss but the dual statement includes segregation of the different elements of the income statement like operating and non – operating expenses, profit and loss etc. Ind AS also varies from IFRS in terms of accounting policies and variation in the accounting estimates. Ind AS permits the variation in the accounting policy in case of usage of varying accounting policy as needed by statute, for adherence to the standard of accounting, if it is suitable for the change which would lead to financial statement. IAS 8 of IFRS states that the variation in the accounting policy can be done in two circumstances i.e. is mandatory for IFRS, outcome in increased relevant financial statement pertaining to entity’s current financial position. The Ind AS needs the currency reported is similar to that encompassed in financial statements. IFRS needs the entity to analyze the functional currency i.e. the currency of the economy in which it will operate and the financial position will be measures on the basis of that (IFRS, 2020)

Oman
: All the firms in Oman are required to apply and use International Financial Reporting Standards (IFRS) as per the instructions of the Capital Market Authority of Oman, Central Bank of Oman and the Tax Authority of Oman. The application of IFRS is done in Oman as per the International Accounting Standards Board without any modification. There are several articles which indicate this. According to Article 30 of Law Organizing the Accountancy and Auditing Profession, it is necessary for the accountants to adhere to the international standards in developing the financial reports as long as the Ministry of Commerce and Finance has not specified otherwise. As per Article 5 of Capital Market Law, the firms which have securities in public subscription must create financial reports in yearly, half yearly or quarterly basis. Even the banking law mandates the banks to create financial report based on this international standard (IAS Plus, 2020).
Thus, GIC has to take these variations into consideration while expanding to the international market of Singapore and India. This will help to create the financial statement accordingly and to have a proper comparison in the financial performance.

Conclusion:

The incorporation of financial reporting standards helps to boost the financial reporting transparency across the world. The adoption of the global financial reporting standards are essential for facilitating cross border transactions and to ensure international capital free flow. IFRS acts as the common global language and helps to conduct business over international boundaries by developing accounts which are understandable and comparable. It is an outcome of the rise in the international shareholding and is crucial for companies like GIC which operate in various countries. The equity theory comprises of the give main theories and these are Proprietary Theory, Entity Theory, Fund Theory, Residual Equity Theory and Enterprise Theory.

References:

1. IFRS (2018) Conceptual framework for financial reporting [Online] Accessed from: https://www.ifrs.org/-/media/project/conceptual-framework/fact-sheet-project-summary-and-feedback-statement/conceptual-framework-project-summary.pdf [Accessed on: 4th November 2020]
2. Amidu (2017) 7 advantages of IFRS and IAS [Online] Accessed from: https://medium.com/@amiduedson/7-advantages-of-ifrs-and-ias-3f7118820183 [Accessed on: 4th November 2020]
3. GMS (2018) Singapore Accounting Standards [Online] Accessed from: https://www.guidemesingapore.com/business-guides/taxation-and-accounting/accounting-standards/singapore-accounting-standards#:~:text=In%20Singapore%2C%20accounting%20standards%20are,principals%20of%20Singapore%20accounting%20standards. [Accessed on: 4th November 2020]
4. IFRS (2020) India [Online] Accessed from: https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/india/ [Accessed on: 5th November 2020]
5. IAS Plus (2020) Financial reporting framework in the Sultanate of Oman [Online] Accessed from: https://www.iasplus.com/en/jurisdictions/asia/oman [Accessed on: 6th November 2020]
6. Manukriti (2014) Top 5 theories of equity [Online] Accessed from: https://www.accountingnotes.net/equity/top-5-theories-of-equity/5352 [Accessed on: 7th November 2020]
7. Maria (2009) Legitimacy theory and financial reporting [Online] Accessed from: https://www.fep.up.pt/conferencias/10seminariogrudis/D%C3%A2maso,%20Goreti%20(Santar%C3%A9m);%20Louren%C3%A7o,%20Isabel%20(ISCTE),%20Legitimacy%20Theory%20and%20Internet%20Financial%20Reporting.pdf [Accessed on: 7th November 2020]
8. PwC (2016) Comparison between Singapore Financial Reporting Standards and International Financial Reporting Standards [Online] Accessed from: https://www.pwc.com/sg/en/illustrative-annual-report-2006/assets/3-comparison.pdf [Accessed on: 7th November 2020]
9. ICAI (2020) Conceptual Framework for Financial Reporting under Indian Accounting Standards (Ind AS) [Online] Accessed from: https://resource.cdn.icai.org/60915asb49580.pdf [Accessed on: 7th November 2020]
10. IFRS (2020) Why global accounting standards? [Online] Accessed from: https://www.ifrs.org/use-around-the-world/why-global-accounting-standards/ [Accessed on: 4th November 2020]
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