IFRS Adoption Essay

Submitted By millR04
Words: 866
Pages: 4

Part A
As a result of increasing globalisation of world industry, the movement away from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS), is becoming ever more popular. Being the world’s largest IT provider and Japan’s market leader, Fujitsu is a company, which is considering adopting IFRS. Fujitsu has begun to expand its business across the world to regions such as America, Asia and Europe, and as the importance of its business grows the adoption of IFRS as a uniform accounting standard will provide major benefits both in and outside of Japan for stakeholders, potential investors and the company itself (Fujitsu Global 2013 & Fujitsu Global 2014).
Firstly, IFRS will enhance the comparability and consistency of Fujitsu’s financial information in global capital markets (Fujitsu Global 2014). This is particularly attractive to overseas investors due to the ease at which relevant financial information can be compared between foreign businesses, allowing investors to make better and more informed decisions. According to Takatsuhu Ochi, a Japanese IASB member, adopting IFRS “deepens the understanding of financial information and enhances the possibility of comparing such information, thereby increasing business choices (Ochi 2014, p.1). The movement towards IFRS for Fujitsu will allow for the pursuit of superior efficiency in the quest for global growth and will essentially allow Fujitsu to increase its corporate value.
Secondly, Japanese standards are unfortunately not easily and widely understood in many international markets compared with IFRS; essentially putting Japanese companies at a disadvantage, often left will lower than expected share prices, and hence Fujitsu would benefit from adopting IFRS (Ochi 2014). The switch to IFRS by Fujitsu would be a liberating move, in which they will become detached from restrictions such as having to explain Japanese accounting standards to potential investors and in the long run allow Fujitsu to avoid potential costs if financial reports have to be translated in several different languages, due to other nations being unable to comprehend them.
Part B
The adoption of IFRS or the “one size fits all” approach unfortunately can be challenging and indeed will present challenges for Fujitsu (Institute of Chartered Accountants Australia 2012). The movement away from Japanese Accounting Standards requires an adequate amount of planning and preparation time and can cost a substantial amount of money (Fujitsu Global 2010). During the first fiscal year of adoption of IFRS, Fujitsu is required to prepare financial statements using both Japanese Accounting Standards and IFRS. Due to this requirement, obligatory changes in relation to information systems and business processes, arising from the move to IFRS are regarded as being very costly and time-consuming (Fujitsu 2010). However, this process is usually just a one-off with the benefits proving to outweigh the initial cost outlay.
Secondly, for companies and individuals in Japan who are used to the familiar and efficient Japanese standards, shifting to IFRS might not present as such an easy task for some and may potentially leave Fujitsu feeling troubled and uncomfortable with such foreign systems (Ochi 2014).
Fujitsu will also bear other costs associated with the move from Japanese Accounting Standards to IFRS include training employees and outside stakeholders such as investors in preparing financial statements and how best to interpret and use the IFRS numbers. During the transition