Forensics Journal - Stevenson University 2014 | Page 41

STEVENSON UNIVERSITY

and Abdullatif ). Unlike the previous countries, Jordan is a less-developed country. Even though Jordan has an open economy and exports
phosphate, it has limited natural resources and scarce water supplies
(Siam and Abdullatif ).

years of IFRS adoption, but the companies stray from these methods
in later years.
The study of initial Germany IFRS adoption shows that a single set of
accounting standards may not always produce comparability. IFRS
allows multiple methods for valuation techniques, and choices may
differ across businesses and countries. When considering the benefits
of implementing IFRS, comparability is not as a guaranteed result.

Since 1998, Jordan has required its banks to report financial statements based upon IFRS principles (Siam and Abdullatif ). Therefore,
fair value accounting has been implemented on a larger scale than
U.S. standards allow. In 2005, many banks in Jordan saw a “boom”
in their stock values because their financial statements made the banks
appear very prosperous. This was due in part to a prosperous economy; new capital was entering Jordan’s economy at the time (Siam
and Abdullatif ). While the banks may have in fact been more prosperous at the time, fair value accounting increased the volatility in the
bank’s financial position (Siam and Abdullatif ). When the economy
stopped expanding, investors unexpectedly lost large amounts from
their bank investments.

IFRS IN CANADA
Despite its close ties with the United States, Canada decided to
adopt International Accounting Standards rather than U.S. standards
because of the growing international acceptance of IAS in the rest of
the world (“The Case for Interntional Accounting”). The Certified
General Accountants Association of Canada (CGA) recognizes that
U.S. standards are more rule-oriented and descriptive than international standards but felt international standards would give them an
opportunity to open more trade with the rest of the world (“The Case
fo Itnernational Accounting”).

After Jordan officials witnessed the volatility in the banks’ financial
figures, they required the cost alternative to be used for property,
plant, and equipment under IFRS 16 and the fair value option was
no longer allowed (Siam and Abdullatif ). While Canada and Europe
believed that the benefits of fair value accounting outweighed the
costs, Jordan disallowed fair value of fixed assets due to extreme
volatility. According to the survey Siam and Absullatiff conducted,
the three biggest concerns about fair value accounting in Jordan were:
1) fair value accounting fraud, 2) ambiguity of IFRS accounting
standards, and 3) reliability of valuations used to determine fair value
(Siam and Abdullatif ). In an unstable economy, fair value accounting is a concern because volatility in markets will further increase the
volatility of a corporation’s positions. Such accounting could lead to
improperly valued fixed assets and even worse, misreported earnings.

When IFRS was implemented, Canadian companies experienced
many changes in their financial statements. In particular, since IFRS
relies more heavily on fair value than the previous Canadian standards
did, many companies experienced changes in their income figures due
to changes in asset value. Fair value accounting led to more volatility
in financial ratios as well, such as current and quick ratios, and return
on assets (“The Effects of IFRS”).
While CGA recognized the concerns that many accountants raised
about Level 3 fair value measurements, the Association points out that
an insignificant amount of assets comprise Level 3 valuations (“The
Effects of IFRS”). Based on research, Level 3 valuations comprised
only 9% of assets and liabilities on the financial statements of the
Canadian Imperial Bank of Commerce, and only 1% of assets and
liabilities on the financial statements of other existing major Canadian banks (“The Effects of IFRS”). Instead, Canada favored Level
2 inputs (“The Effects of IFRS”). Even if some fair value concepts
raised concerns with investors, the overall amount of assets and liabilities valued at Level 3 was insignificant.

IFRS IN CHINA
China is one of the world’s largest emerging markets; therefore, it
plays a significant role in the global economy (He, Wong and Young
538). Financial reporting in China is tailored towards a contractual
role rather than an informational role; if firms report losses for three
consecutive years, they are delisted (He, Wong and Young). Therefore,
business managers in China receive more pressure to report profits
than businesses in most other economies. He et al. conducted a study
to determine if the pressure China businesses receive reduced the benefits intended from fair value accounting (He, Wong and Young).

Therefore, despite the increased volatility in the financial statements,
the CSA decided that IFRS would be the better choice for financial
reporting due to the benefits they would receive in the form of new
trade. While Level 3 valuations include assumptions and estimations,
the CSA is not concerned due to the fact that the assets valued at this
level reflect a low percentage of major companies’ assets and liabilities.

Before fair value concepts were implemented, Chinese businesses
were required to report trading securities at the lower of cost or
market value (He, Wong and Young). The change from lower of
cost or market to fair value accounting requires companies to report
fluctuations of asset values in earnings, which was not an allowed
practice under t