Why Do You Need to Know International Accounting Standards?

Why Do You Need to Know International Accounting Standards?
Why Do You Need to Know International Accounting Standards?

Why Do You Need to Know International Accounting Standards?

As you position yourself for a senior role in the finance and accounting industry, it is vital to take a close look at the role international accounting standards (IAS) play in the global environment.

This accounting legislation changes on a regular basis and a good treasurer or accountant will keep an eye on changes in IAS and local regulatory amendments. Recruiters will require you to have more than an awareness of changes or a general knowledge of the standards and will often have follow-up questions.

Postgraduate courses, both full-time and those involving distance modules, offer the opportunity to learn international accounting standards and prepare individuals for the transition to the next phase of their career, including working across disciplines. Although no potential employer will expect you to know everything, they will require any applicant to show a knowledge of professional sources and where to find the relevant IAS or local rule.

International Accounting Rules

The World Bank has long been an advocate for the long-term approach to creating a single set of high-quality global accounting rules and supporting accounting legislation around the world. Similarly, the Financial Stability Board has continued to encourage work to achieve convergence to a single set of high-quality accounting standards. The G20 is another notable organisation throwing its weight behind this goal.

So, why is this the case, and why must those aiming to work in the higher echelons of the global finance and accounting businesses be aware of IAS?

The obvious reason is that modern economies rely upon cross-border transactions and the free flow of international capital in managing international trade. More than thirty percent of global financial transactions are cross-border and this number is likely to grow. In the wake of Brexit, a slew of new trade deals is anticipated to fuel ever more cross-regulatory transactions. This means that managing international trade is expected to become more complex and International Financial Reporting Standards (IFRS) will have to adapt to the new challenges.

Investors also continue to seek diversification using investment opportunities around the world, while companies raise capital in various international markets via cross-border transactions or through their own subsidiaries in multiple countries. IAS are consequently designed to smooth these operations while reducing costs, complexity and risk to companies and investors.

IAS and IFRS address the challenges, and senior accountants must be aware of any changes in these regulations. They will be expected to steer their companies or clients through the regulations that are aimed at bringing transparency, accountability and efficiency to the financial markets worldwide.

The standards enhance comparability and quality of financial information, helping informed decision-making. They also reduce the information gap between the providers of capital and the people who have been entrusted with the monies. Efficiency is also enhanced, as investors can recognise opportunities and risks across international markets with greater ease.

Company accountants and treasurers will need to change some systems and practices constantly, so a thorough knowledge of the standards and any imminent changes is essential. Keeping abreast of these modifications provides numerous positive results. Research suggests that these changes have brought net benefits to international trade, creating a common accounting language for capital markets.

A European Commission report has concluded that the adoption of these standards, particularly on reporting, has been positive for listed companies, while around the world regulatory bodies agree that risk has been reduced and the inward flow of capital has benefited markets. The International Organisation of Security Commissions has also recognised the benefits of global standards, especially across emerging markets and developing economies. All the evidence suggests that senior finance officers and those hoping to advance to this level need to have a firm working knowledge of IAS and accounting legislation.