Origin

The accounting and finance have been incorporated and preceded with the multiple changes since the beginning, each country adopts the procedures of record-keeping maintaining the smooth process recording the informative data and using this data for further reporting and interpretation process. Since to make the process standard the several accounting standards have been introduced to make the process similar globally, in this practice the IFRS (International financial reporting standards) was originated from the European Union to accommodate the world in the field of finance (Hidayatullah and Setyaningrum, 2019).

The main purpose of the originated country to bring the world with the accessibility of accounts related to the business affairs and this will help the continent to make the common practice as per defined policies and procedures. The IFRS was further affiliated with the IAS (international accounting standards) which includes the significant rules and standards to interpret data. The IFRS was first established in the year 2001 which later changes with the required modification in the standards to better assess the need of the business (Anggraita et al., 2020).

History

As mentioned in the above part that IFRS was originated by European Union, since the standards have been brought in to the attention of the user the project gets the popularity and gets the rapid spread across the globe. The standards mentioned in the IFRS were designed and mentioned in the common language so that it would become easy to implement by any country of the world, even though the U.S have their standards as they are not using the IFRS, but still many countries have incorporated this an important part of their business practices(Ernawati and Aryani, 2019).

In the modern world, the IFRS is now being considered as the common practice used by almost all organizations. The international accounting standard boards (IASB) have presented some of their requirements before the launch of IFRS. The requirement includes the research program to be conducted before the launch of new standards. In research, the financial problems related to the business of that time were supposed to be account for in which the process of collecting the evidence from the business was required by which the appropriate solution will be proposed to resolve the problems with the designed structure of IFRS (Anggraita et al., 2020).

After the research, the proposals were required to issue the publication of IFRS. The requirement after proposals will be followed by the finalizations and the review was required to be conducted after the implementation of the system. The IFRS was issued publicly with the objectives to a business that they are bound to provide the true and fair view of their financial statement and there must not be any sort of material misstatement available in the presentation of the data which will misguide the users (shareholders and investors) of the information(Hidayatullah and Setyaningrum, 2019).

Expansion

The plan was to make ease in the international comparison by IFRS increases the popularity of the project.Although the plan of comparison was not fully achieved by IFRS due to the availability of multiple systems in the world like GAAP and many countries at that time were using various system which were different from one another. In the current era, more than 80% of authorities are required to adopt/implement the IFRS which is supposed to be incorporated by the public companies of that country (Ernawati and Aryani, 2019).

The acceleration of IFRS took place in the last few years where its usage and application have been implemented by most of the business globally. IFRS is not only helpful for the business but many audit firms in the world get the useful direction to make their significant observance and procedures during their interim or annual audit of companies financial statement to find out either the information provided by the company reflect the true and fair view(Suryanto and Komalasari, 2019).

Current position of IFRS

As mentioned above the expansion of IFRS globally the current status of the system fulfills the needs related to finance and accounting matters for the business. Currently, IFRS provides methods to reduce the cost of finance in the capital markets of Europe and the rest of the world where this standard has been used. It also opens the gates for utilizing the money in the investment options of cross borders. Businesses are availing the efficiency in their investment decisions by practicing the provided principles of IFRS (Joshi et al., 2016).

The platform has been provided by IFRS to the business where they can avail of the information related to the initial adoption of the system. Businesses can also measure the impact before and after the adoption of the system to identify the significant changes in their business process. IFRS provides possibilities for businesses where they can view the amendments in the system which is due to continuous research by the bodies that are responsible to handle the standards of IFRS (Suryanto and Komalasari, 2019).

In the current era, the information related to the changes in IFRS is easily transferred to the users and these changes are made based on the common approach to eliminate the challenges which are faced by the business. The main approach on which the principles of IFRS have been designed is the accounting standards and their liaison with the company laws. The regulatory framework for each country has been held responsible to incorporate certain implementation which is required by the companies (Ernawati and Aryani, 2019).

The IFRS was supporting the business finance matters of giants companies also provides the assessment for small and medium-sized enterprises. The reporting related to the financial matters of SMEs is also designed in the separate model under IFRS which shows that the coverage of IFRS has been rapidly expanding to most of the business sectors in the world (Hidayatullah and Setyaningrum, 2019).

Future position of IFRS

Every other day along with the technological advancement the style and approach to work by the business is also changing with the innovative and creative approach to save the time and to make the standard and productive approach though which productive results could be achieved. For this reason, IFRS keeps updating their standards according to the needs of the business. The regulatory framework of IFRS has the scope of providing an effective measurement for the valuation of liabilities and assets so that the impairment can be done significantly (Anggraita et al., 2020).

IFRS will also provide the disclosure which will make the understanding more clear while preparing the financial statement and to present the true and fair view. The accounting related to the combination of business where one business overtakes the other or two business make the joint venture to accommodate their operational activities required the more streamlines guideline to complete the process. These challenges are in front which will support the recognition and the position of IFRS in the future (Makhsun et al., 2018).

Although the IFRS has been spread to the majority of countries but still there are various complexities in the transactions that will decide the fate of IFRS in the future. The agenda and the vision of the framework operating the functions of IFRS has a clear approach for making the standards as fit as required by the business. There are some major prerequisites under the belt of IASB to deal with the challenges of IFRS in the future (Butar, 2017).

Since the start of 2012, the challenges were in increasing number for IFRS to make their position stable considering the other standards implemented by different counties, but the continuous improvement approach makes the position of IFRS better and in the current situation more than 100 countries have adopted IFRS. Further, the issues which are needed to be sorted by IFRS in the future are gathering of evidence, complexity in reporting standards and models, and scope of the accounting standards (Ernawati and Aryani, 2019).

Arguments for and against fully adopting IFRS by the Indonesian economy

The Indonesian economy has been considered as the largest economy of SouthEast Asia and the business is in the category of emerging position in the world; however, there are lots of industries operating under the country. Below mentioned is the discussion and recommendation based on the adoption of IFRS by Indonesia (Suryanto and Komalasari, 2019).

In favor of IFRS

The set of standards provided by IFRS is always being effective and beneficial for the business as it has been mentioned that more than 100 countries in the world are now using the prescribed procedures of IFRS as a part of their business process, therefore the adoption of IFRS will also be suitable for Indonesia based on their industrialized economic structure. There have been various advantages in terms of cost and reporting while Indonesia opts to adopt the system (Butar, 2017).

The benefit of IFRS captures the attention of the investors in the Indonesian market because the reporting standards of IFRS enhance the ability of the investors to make the prompt and suitable financial decisions related to the investment in particular company keeping in view the method by which the information has been provided to them. The decisions which could be affected by the availability of various methods used for the preparation of financial information would be eliminated using the IFRS in Indonesia (HELENA et al., 2018).

The cost of capital for the Indonesian economy will be reduced if they move to a single system (IFRS) in their country and by this, the risk associated with the investment made in the business will also be minimized. The majority of the time the cost of preparing the financial information of the companies is high due to the availability of the various operating system in the country, once the system will be standardized in Indonesia their cost will be reduced which they incurred in the preparation of their financial performance (Joshi et al., 2016).

Multiple sets of standards will be included in the financial statement of the company so that the process will be streamlined. Once the IFRS will be adopted by Indonesia the incentive received in terms of global investments will become higher. When the system will be synchronizing the business operating in the country would get the better opportunity to allocate their resources effectively and to manage their funds properly which is essential to expand the business operations and to achieve the growth (Koning et al., 2018).

Along with the mentioned benefits, IFRS will enhance the credibility of financial statement and the reporting standards which are used to compare the financial data of industry will also become effective and improved so that the better analyze will be achieved. The transparency of the country’s financial performance will also be improved with IFRS. Indonesia will get the opportunity related to the minimized cost of capital funding which will be done from capital markets. The financial statement which will be prepared to provide the information to the stakeholders, shareholders, and investors will become more effective. The important component of adopting the disclosures of IFRS is to bring consistency in the financial performance of businesses (Samaha and Khlif, 2016).

Against IFRS

Along with the advantages of adopting IFRS, there are many cons available as well which Indonesia should also account for while deciding to implement the system. Once the country decides to adopt the system the companies should have to incur various cost of applications which include the training of the employees, modification in the internal system to make it compatible with the IFRS reporting standards, moreover it is not an easy process to immediately swap from the previous system to IFRS but it would requires substantial time to adopt the system of IFRS in full(Koning et al., 2018).

There would have been more time required to convert the existing system/project with the new one, and if the company or the country is cost-oriented which means they need to reduce the cost they have to engage themselves in the prior preparation for changing the standard. Indonesia earlier doesn’t have any sort of plan related to the adoption of IFRS as the country was following its national standards but since they have no plan for the implementation of the system this will require more time and efforts to shift from existing system to the new method (Helaly et al., 2020).

The important part is the transparency of financial statements which many companies are not focusing on in Indonesia as they have to switch towards a single system and avoid mixing up with the new and existing system. There might be several consequences of adopting the IFRS on the economy of Indonesia as it has been observed that the companies in the country are facing several differences in their reporting standards. The economic consequences or the challenges of adopting IFRS include the liquidity position of the markets in Indonesia (Samaha and Khlif, 2016).

The market liquidity is important from the investor’s point of view as they would have to face the fluctuation in the price of stock while trading. The liquidity of the market will be higher if the stock is traded in the higher values. Another issue includes accounting for abnormal loss and gain which is a bit complex or not being allowed as per the new standards proposed by IFRS. It has been analyzed according to the existing system of Indonesia that the country will find the system of IFRS more complex and costly than its existing reporting standards (Capkun et al., 2016).

The transition cost will be higher in the case of the adoption of IFRS by small and medium-sized companies in Indonesia. Small companies don’t have much capacity to absorbed the higher cost of transition incurred during the adoption of the system. The certain standards of IFRS will also create the level of complexity for the audit firm of Indonesia as they will find it challenging to audit the financial statement of the companies using the new standards of IFRS (George et al., 2016).

Recommendation

Keeping in view the above-mentioned scenario Indonesia will have to systemize their reporting need with the use of advance accounting standards and for this, they need to switch towards the appropriate and effective system if IFRS which will assess them to increase the liquidity position of their capital markets and will also increase the rational decision-making approach of their investors because the information provided with using the IFRS will be true and fair and the decision making will be significant. The initial phase of adopting the system will be challenging as it will incur the higher cost for the county and there may be many consequences but as the things will be integrated and systemize the results will provide beneficial outcomes.

Adoption of IFRS by Indonesia

In favor of IFRS

The harmonization process has been made by Indonesia in liaison with the IAS. In terms of a beneficial point of view after fully adopting the system with more gradual convergence, Indonesia will have their key focus towards the communication standards of the country in which the communication between companies and the investors will become more effective. And the process of significant communication will be due to the better evaluation of financial reporting and financial statements which is possible due to the provided standards of IFRS (IFRS, 2018).

Many small and medium-sized businesses have the aim and purpose of expanding their business locally and globally, therefore, the effective communication with the investors is equally important for them to adopt which is possible when incorporating the proposed IFRS standards in preparation of financial statement for the country and to be listed in the stock exchange market of the country. Although in the starting year of adopting the IFRS and the initial reporting will show the lower profit using IFRS as compared to the other standards but it will change over time and once the system will be fully incorporated and become consistent the reporting profit will graduallyincrease(Wiley, 2017).

It is clear that the information disclosed using the IFRS is purely based on the financial performance of the company but the reporting concerning the corporate culture contains both financial and non-financial information which further belongs to the integrated set of reporting. The integrated reporting pursues the dissimilar sort yearly report which alongside financial information includes the information of incorporation of a business, the value of the business in the long term, and short term keeping in view the approach used by the business (IFRS, 2018).

The quality of the financial and non-financial reports using the IFRS will gradually improve in the country and the earning management will be minimized. The recognition of loss by the company is a timely basis and provides a higher value to the business. The flow of investments will be higher which will enter the markets of Indonesia through foreign channels. The contracting of private debt on the appropriate terms will increase in the country. The reliance of IFRS is based on the fair value of the stock (George et al., 2016).

Against IFRS

Although the efficiency and improvement would have been made in Indonesia after adopting the IFRS but there is always a missing surety that whether the standards will improve the quality of financial information and analysis made based on comparability. Whether the useful allocation of resources will take place after the implementation of the system or not, the main purpose is to disclose the information in the common language so that the local, as well as the international investors, will find it as an easy way to bring on their investment to accommodate the financial needs of the country (Capkun et al., 2016).

The microeconomic factors will also affect the adoption of IFRS in Indonesia as the procedure is not related to the regulatory objectives of the country. It is also important to notice the impact on the earning management and the earning quality of the company once they decide to adopt the IFRS because the main purpose of any business is to increase the value of their company and where the quality of earning will start to minimized the process of decision making will become weaker. The manager will also ensure that there must not be any sort of misleading information during the preparation of the financial statement of the company. These mentioned challenges and consequences are supposed to be encounter by Indonesia while deciding to switch their reporting standards to IFRS(Helaly et al., 2020).

Recommendation

Based on the above-mentioned part of the report the country should first analyze the reporting needs and requirements of their market. They have to make a suitable comparison of IFRS and their existing national standards by which the picture will be clear and the differences will be highlighted. The initial phase of IFRS adoption will be challenging for creating the understanding but gradually the factor of consistency will be developed the reporting standards and the liquidity of the market will improve and the investor will take the opportunity to invest more in the country.

References

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