Impact of IFRS on Quality of Financial Reporting, Profitability, And Foreign Direct Investment: A Review

Abstract

The introduction of International Accounting Standards is the most significant development in the field of global harmonization process in accounting. To assist users and participants in the global capital market in making financial decisions, the International Accounting Standard Committee (IASC) set out to create a single set of high-quality, understandable, and enforceable accounting standards. The IFRS Foundation developed the International Financial Reporting Standards (IFRS). The International Accounting Standards Board (IASB) and the recently established International Sustainability Standards Board (ISSB) operate under the IFRS Foundation with a major role of establishing standards. While the ISSB focuses on sustainability disclosure standards, the IASB oversees accounting standards. The IFRS Foundation, a non-profit organization, aims to create globally recognized accounting and sustainability standards that are high-quality, comprehensible, enforced, and globally accepted. These standards, known as International Financial Reporting Standards (IFRS), ensure transparent, consistent, and comparable financial statements across national borders, thereby, making it the common accounting language having global acceptance for the preparation of financial statements, allowing for easy international comparison, reading, understanding, and interpretation. These standards specify the processes and guidelines that organizations must adhere to keep and submit their books of accounts, defining various transaction kinds and other events that may affect finances, as well as rules for defining transactions and their implications on financial statements. The goal of IFRS  was to reduce the asymmetry in financial statements that were in existence before the adoption of IFRS to promote uniformity and transparency in financial reporting. Prior to the adoption of IFRS, stakeholders often lacked clarity regarding a company’s true financial status. The diverse national accounting standards led to contrasting data representations, making it challenging to assess financial health consistently across borders. IFRS aims to address this by providing a uniform framework for transparent and comparable financial reporting. Furthermore, because of the various policies adopted by the different countries, it was challenging to compare the financial statements of the businesses. IFRS facilitated investor decision-making, and high-quality financial information ensuring effective investment and economic decisions by varied users.