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Increasingly, globalised markets and cross-border trade and capital flows have demonstrated the need for a widely accepted set of high-quality international accounting standards. Research suggests the benefits of IFRS adoption can vary between countries depending on a number of factors, but most notably what standards they are moving from. However, the advantages include lower accounting costs, greater comparability for investors, and cheaper capital.
Over the last decade, the IASB, and its counterpart in the US, the FASB, has made an effort to harmonise their respective accounting standards, encouraged by the G20 leaders. This has brought the two sets of standards much closer together. However, recently the two bodies have struggled to agree on how to deal with standards in some key areas, such as financial instruments. Momentum has slowed.
However, given the scale of the wider project - a global financial reporting language - some setbacks were inevitable. This does not mean the project has failed; far from it. Over two thirds of the G20 nations either allow or require listed companies to use IFRS or national standards based closely upon IFRS, a level of adoption nearly unthinkable a decade ago. It is worth reflecting on where the project should be heading and what this means for the Middle East.
While convergence was a laudable aim, for the IASB to devote more attention to it at the expense of the needs of its own "constituents" would be a mistake. Any further harmonisation should only happen if it would demonstrably improve IFRS reporting. The time is right for the IASB to go its own way where necessary to finalise some key accounting requirements that are in need of real improvement. Moreover, The ICAEW believes that all listed companies, anywhere in the world, should be allowed to opt to use IFRS. They should have the freedom to decide for themselves whether the benefits of transition are worth the costs, and choose accordingly. This would also bring benefits to the UAE, where IFRS is a requirement for companies within the Dubai International Financial Centre.