Date Posted: 8/6/2014 6:32:12 AM
Posted By: waruim Membership Level: Bronze Total Points: 82
A paradigm shift is a total revolution, or transformation, in a particular system, practice or belief to another, driven by agents of change. This term was developed and popularized by Thomas Kuhn, in his argument of scientific advancement.Most reporting entities in Kenya have adopted the international accounting standards, as is recommended by Icpak. The requirement for adopting IFRS has been legalized for both listed and non-listed companies in the Companies Act in the latest amendment in 2002.However, due to limited resources and the lack of supervision in Kenya, there are gaps between applicable accounting standards and the actual accounting practices. The need for a total change to these standards is essential for opening up of expansion opportunities for our enterprises.International accounting standards also enable for easy comparability of financial statements, reduced equity cost, expanded job opportunities in the accounting fields and increased market efficiency. These benefits are widely discussed below.International accounting standards present a unified ethical code in accounting globally. This minimizes conflict between cultural norms within countries by providing a fair basis of accounting ethics. It incorporates professional and legal authorities from diverse cultures when making the code of conduct.Investors can compare financial statements in different companies operating in distinct countries with less cost and more accuracy. Also, stock-trading exchange is possible and henceforth opening up a wide range of investment opportunities. This will also expand the fast-growing Kenyan economy.Accounting for multinational companies set in the country e.g. Coca-Cola, Google, and G4S is simplified due to adoption of similar accounting procedures. Different plants streamline their training, auditing, reporting standards and operation standards as well as development standards. Whether global or domestic, their offices could possibly adapt the same reporting techniques and standards providing consistent and precise reporting and company records. This reduces costs, simplifies comparability and avoids confusion in between the different plants financial statements. The central management can therefore measure the performance of each plant individually and invest resources wisely. International Accounting standards also provide a common accounting language and understanding, making it easier for different nations to do business together. This also enables domestic firms to display their financials statements on similar levels as their foreign competitors. Entrepreneurial opportunities are created in Kenya by opening it up for foreign investment. International trade is henceforth accelerated.To improve career opportunities for professionally qualified accountants and their mobility. Adoption of International standards will increase the job opportunities of local accountants since they can work in other countries with the same standards.Improved quality of financial statements-International standards presents an inclusive and comprehensive framework. Analysts EPS forecasts are more accurate. A sample drawn from 21 countries showed that there was improvement in accounting quality after adoption of IFRS (Bart et al. 2008)Reduced cost of equity capital. According to Palea(2009),an industry specific sample survey of 35 banks, in 7 European countries reported a lower cost of capital after adopting IFRS.A much wider survey of more than 20000 firm drawn from 34 countries, over the period 1998-2004,found that the cost of capital was lower for IFRS adopters.(Shi and Kim,2007)Market efficiency. IFRS based disclosures appear to have improved the efficiency of stock prices by reducing the extent to which the market is surprised by future disclosures. Analysts can also process industry level information more accurately. There is also a reduction in private information held by institutional shareholders.Increased holdings in companies using international accounting standards. Since entities using International standards open up to more opportunities globally, they attract shareholders and financiers easily.The fact that the regulatory accounting body, Icpak has fully adopted the international standards should be reason enough for all accounting entities in Kenya to do so. These aids in uniformity among different businesses around the nation.
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