You are on page 1of 3

IFRS and its Impact on FDI’s in Emerging

Economies
Objective

The objective of this research is to understand & analyse the effect of


convergence of Accounting Standards (IFRS) on FDI’s of emerging
economies. The aim would be to examine how the pressure to adopt
International Financial Reporting Standards (IFRS) is affecting the ability of
emerging economies to exploit the potential offered by Foreign Direct
Investment (FDI). This will entail probing how FDI's are exploited in
emerging economies, their impact, and how FDI's are driving economic
developments.

Hypothesis

IFRS will lead to standardisation on Accounting Standards across the globe


& its implementation will make the country more attractive for FDI’s.

Background

India & other emerging markets are implementing IFRS in a phased


manner. The transition from the prevailing local accounting standards to
the international accounting standards will have both a negative & a
positive impact on the economy and the stream of FDI’s.

Convergence with IFRS contributes to investors understanding and


confidence in high quality financial statements, making it less time
consuming to compare across jurisdictions.

But it might also have a negative impact on the balance sheets like in the
case of India the convergence to IFRS will badly affect actuaries & thus
likely to effect FDI in this industry.

IFRS & FDI

IFRS (International Financial Reporting Standards) is a set of accounting


standards developed by an independent, not-for-profit organization called
the International Accounting Standards Board (IASB). The goal of IFRS is to
provide a global framework for how public companies prepare and
disclose their financial statements.

IFRS provides general guidance for the preparation of financial statements


rather than setting rules for industry-specific reporting.
Foreign direct investment (FDI) is the flow of capital across countries when
a firm owns a company in another country. We examine the impact of
convergence of accounting standards for a pair of countries in a bilateral
FDI relation on the volume of FDI flows between them.

Scope
The scope of this project would be to analyse 3-4 emerging economies in
different stages of IFRS implementation & its effect on FDIs.

Summary

In this study, we examine whether a systematic reduction in cross-country


difference in accounting standards increases the traffic of foreign direct
investment (FDI). As more countries adopt or converge to the International
Financial Reporting Standards (IFRS), researchers, regulators and users of
financial statements all become interested in knowing the consequence of
following a set of common financial reporting standards. One of the most
frequently cited benefits of switching from local reporting standards to
IFRS is that reducing or eliminating differences in accounting standards
can allay information processing cost and increase cross- economic
transactions. For example, European Commissioner McCreevy claims that
widespread adoption of IFRS “should lead to more efficient capital
allocation and greater cross-border investment, thereby promoting growth
and employment in Europe and elsewhwere”.
A large number of recent studies have examined the effect of IFRS
adoption on capital allocation or cost of capital mostly at firm level, but
macro-level evidence about cross-border exchange of direct investments
has been scant.

The primary goal is to examine:

1) whether the process of eliminating cross-border difference in


accounting standards leads to increased bilateral & multilateral FDI
activities;
2) whether the degree of conformity of pre-adoption national GAAP to
IAS/IFRS is systematically associated with changes in FDI activities

Methodology
Primary Research & Secondary Research:
Questionnaire based research on 3-4 countries & the practicality of
adaption of IFRS.
Internet Sites:

1. Ifrs.org
2. OECD (oecd.org)
3. HBR
4. ASTD online
5. Icwai.org
6. Sites of Consulting Agencies like PWC, E&Y etc

Research Journals and Articles:

1. Published Reports by consulting agencies


2. ICFAI Journals
3. ASSOCHAM Reports

Magazines and Periodicals:

1. Accounting World

TIMELINES

Particulars Date of Submission


Data Collection 3rd & 4th Week of Dec
Analysis 1st & 2nd Week of Jan
Review by Mentor 3rd Week of Jan
Report Generation 4th Week of Jan

You might also like