The IASB influences domestic financial reporting of individual countries by encouraging them (as it does not have any enforcing powers) to adopt, harmonize or converge towards International Financial Reporting Standards (IFRSs).
There are a number of theories (power theory, economic theory of networks, public interest and private interest theory, signalling theory) which explain why countries may choose to move towards IFRSs for Domestic Financial Reporting.
The main emphases used by the IASB include the perceived economic and political values of adopting IFRS over local standards.
The increasing demand to remove barriers to international trade and the globalization of capital markets has added pressures for improvement in the comparability of financial information presented by companies domiciled in different countries. A country is more likely to adopt IFRS if its trade partners or countries within in its geographical region are IFRS adopters.It is also argued that using global high quality financial reporting standards will reduce information costs.
IFRS standard setting can be influenced by political lobbying; therefore, more powerful countries are more likely to be able to shape IFRS. Thus, while the IASB may influence domestic financial reporting, the converse is also true in that powerful countries may influence the standard-setting of the IASB.
The IASB influences domestic financial reporting of those countries that have chosen to adopt IFRSs (such as Australia, New Zealand and the countries of the European Union (Germany, France, and so on)) whenever it issues a new standard or amends an existing one.
If IFRS standard setting can be influenced by political lobbying, more dominant countries are more likely to be able to shape IFRS. The existing position of the European Union in IFRS standard setting can override this argument. If countries wait for the EU to play a dominant role in IASB affairs, they have to cede some authority over standard setting to EU interests. Ceding authority over local standards is likely to be less palatable to more powerful countries, which leads to the prediction that more powerful countries are less likely to embrace IFRS.