Investigation of the Significant Factors in Creative Accounting in Hong Kong Companies Term Paper

Pages: 24 (6571 words)  ·  Bibliography Sources: ≈ 10  ·  File: .docx  ·  Level: College Senior  ·  Topic: Accounting


The focus of this research is the IASB's International Financial Reporting Standards (IFRS) and the barriers and challenges that exist to adoption and implementation of these standards. This research works conducts an extensive review of relevant academic and professional literature in the intuitive to identify these challenges and barriers and as well identifies the steps that are necessary to overcome these challenges.


This research seeks to understand what the challenges are to simplifying global accounting. Presently, there are approximately 100 countries that require companies to use the IASB's International Financing Reporting Standards (IFRS). This work seeks to understand the challenges and barriers presented to countries in adopting these accounting standards.


The questions that this research seeks to answer are the questions as follows:

What barriers or challenges present to countries in adopting the IASB's International Financial Reporting Standards (IFRS)? And What supports are in place to assist countries in adopting these standards?


The methodology employed in this research is one of a qualitative nature conducted through the method of a review of relevant literature of an academic and professional nature.

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Term Paper on Investigation of the Significant Factors in Creative Accounting in Hong Kong Companies Assignment

Implementation of the IASB's International Finance and Reporting Standards (IFRS) faces barriers and challenges in many countries. Technical problems are known to exist in Pakistan, Turkey and South Africa which are reviewed in the United National Conference on Trade and Development Report published in August, 2007. Other barriers and challenges have been identified in other works that will be referenced herein. Compliance with the IASB's IFRS is greatly dependent upon the effectiveness of implementation of these standards on the local level throughout the countries that intend to comply with these standards.

In a recent report Allen Blewitt, Chief Executive of the Association of Chartered Certified Accountants (ACCA) warned that "implementation of, and compliance with, International Financial Reporting Standards would be adversely impacted unless the standards were made less complex." (ACCA, 2007) Blewitt specifically stated while speaking at a conference in London that: "What I believe the IASB most urgently needs to address are the barriers to implementation. From talking to our members working in business around the world, it is clear that the length of the standards and complexity of the concepts represent a very real problem in many countries. The standards have been described to me as a major turn-off and disincentive for accountants in commerce and industry. People who initially qualified as accountants and are now principals and managing directors resent that they can no longer understand the accounts of the business that they helped to build. I am concerned that, despite the name of the project, the focus of IASB's considerations are going to be large unlisted entities. The overwhelming need for a new set of standards is not for these few companies but for the much larger numbers of genuine SMEs. If the IASB fails to satisfy this real and urgent demand that exists around the world, then some other body must step in and deal with the real problem. What is needed is highly sophisticated translators with good knowledge of language as well as technical accounting concept. Such people are rare. This is compounded in the standard setting process when there is a short period of time between exposure draft and finalization. This does not give sufficient time for those countries where translation is required to first complete the translation, then disseminate the exposure drafts and finally synthesize a response. Global standard setting will have to grapple with these issues if it is to be ultimately credible, beyond the largest entities." (ACCA, 2007)


The work of Susan Thetford entitled: "Global Accounting Harmonization: A Challenging Change" published in the Trusted Professional Journal states that "The old adage 'with change comes challenge' is certainly proving true as many countries, including all 25 member of the European Union (EU), require adoption of international financing reporting standards (IFRS) - formerly known as international account standards (IAS) - for the first time in 2005." (2005) Thetford provides as an example the fact that "2,000 listed companies in the United Kingdom alone will need to convert from U.K. generally accepted accounting principles (GAAP) to IFRS..." through use of "special transition rules covering past transactions and opening balances." (Thetford, 2005) Thetford relates that ten percent of the New York Stock Exchange and NASDAQ listed companies are non-U.S. companies including some of the largest world corporations. These companies are required by the Securities and Exchange Commission to submit one of the following: (1) Financial statements that conform to U.S. GAAP; or (2) Financial statements prepared by using other GAAP (e.g. IFRS), accompanied by a reconciliation of earnings and net assets to U.S. GAAP figures." (Thetford, 2005) Thetford states the conclusion that "Cross-border accounting issues are here to stay." (2005) Identified challenges for U.S. companies is the fact that U.S. subsidiaries of foreign entitles are required to follow the same standards in accounting as the larger parent companies which means IFRS for many of these companies. As well, "U.S. multinational entities seeking to enter new markets or to expand operations abroad may need to provide IFRS financial statements in order to obtain an operating permit or to raise capital. They will find it increasingly easier to recruit local staff that is familiar with IFRS rather than with U.S. GAAP." (Thetford, 2005)

Thetford states that the challenges for 'standard-setters' include the following in the convergence of U.S. GAAP with IFRS: (1) SFAS 151 brings U.S. GAAP in line with IFRS in accounting for unused capacity and spoilage, as a result of the joint convergence project; (2) SFAS 153 brings U.S. GAAP in line with IFRS in accounting for nonmonetary exchanges; (3) SFAS 123R requires fair value accounting for employee stock options using comparable methods to IFRS 2; and (4) SFAS 146 on restructuring specifically refers to IAS 37 as justification for that standard." (Thetford, 2005)

Differences stated to be still under review are inclusive of "accounting policies, construction contracts, investments in joint ventures, interim financial reporting, and research and development costs." (Thetford, 2005) in 2005 all EU publicly traded companies, totally 7,000 were required to apply IFRS in preparing their financial statements. New and revised standards are inclusive of five new IFRSs and 17 amended IASs which resulted from the IASB's Improvement Project and Phase I of its Business Combinations Project. Thetford states that some of the more significant revisions to IFRS arising from these projects include: (1) the LIFO method for costing inventories is no longer allowed; (2) the concepts of "fundamental error" and "extraordinary items" are eliminated; (3) Trading securities are now included in a larger defined category of financial instruments "at fair value through profit or loss" and entities may designate any financial asset or liability into this category (commonly referred to as "the fair value option"); (4) Fair value hedge accounting may now be used more readily for a portfolio hedge of interest rate risk; (5) Guidelines for share-based payments have been added; (6) the pooling-of-interests method for business combinations is no longer allowed; (7) Goodwill is no longer amortized, and negative goodwill is not recorded in a business combination; and (8) New requirements for noncurrent assets held for sale and discontinuing operations have been provided. (Thetford, 2005) Additionally Thetford relates that the IASB has other accounting issues on the agenda including: (1) Insurance contracts: Phase II of the IASB project; (2) Financial reporting by small and medium-sized entities; (3) Business combinations: Phase II (purchase method procedures); (4) Disclosures for financial instruments; (5) Standards and guidance for management commentary; (6) Financial guarantees and credit insurance; (7) Cash flow hedge accounting of forecast intragroup transactions; and (8) Reconsideration of the "fair value option." (2005)

The work entitled: "Challenges and Successes in Implementing International Standards: Achieving Convergence to IFRSs and ISAs" relates that Peter Wong in coordination with senior IFAC staff members have identified the following potential challenges to adoption and implementation of the international standards: (1) Issues of incentives - the various factors which might encourage or discourage national decision makers from their adoption. (2) Issues of regulation - regulatory challenges in their adoption. (3) Issues of culture - challenges arising from cultural barriers in their adoption and implementation. (4) Issues of scale - implementation barriers associated with the relative costs of compliance for small- and medium-sized entities and accounting firms.(5) Issues of understandability - their complexity and structure; (6) Issues of translation - the ease of their translation and the resources available to undertake the translation; and (7) Issues of education - the education and training of students and professional accountants in the international standards. (2004) Stakeholders are stated to have identified actions that must be taken in addressing these challenges which include: (1) Successful adoption of the international standards is dependent on the development of high quality standards; (2) Integrity in the application… [END OF PREVIEW] . . . READ MORE

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APA Style

Investigation of the Significant Factors in Creative Accounting in Hong Kong Companies.  (2007, September 28).  Retrieved October 22, 2020, from

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"Investigation of the Significant Factors in Creative Accounting in Hong Kong Companies."  28 September 2007.  Web.  22 October 2020. <>.

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"Investigation of the Significant Factors in Creative Accounting in Hong Kong Companies."  September 28, 2007.  Accessed October 22, 2020.