(a) The methods by which Accounting Standards are developed differ considerably throughout the world. It is often argued that there are two main systems of regulation that determine the nature of Accounting Standards: a rules-based system and a principles-based system.
Required:
Briefly explain the difference between the two systems and state which system you believe is most descriptive of International Financial Reporting Standards (IFRS). (4 marks)
(b) Baxen is a public listed company that currently uses local Accounting Standards for its financial reporting. The board of directors of Baxen is considering the adoption of International Financial Reporting Standards (IFRS) in the near future. The company has ambitious growth plans which involve extensive trading with many foreign companies and the possibility of acquiring at least one of its trading partners as a subsidiary in the near future.
Required:
Identify the advantages that Baxen could gain by adopting IFRS for its financial reporting purposes. (6 marks)