This paper provides a critical review on whether the US should abandon the US GAAP and adopt the IFRS with immediate effect. This analysis describes both the pros and cons of this decision and explains the factors, which either encourage or inhibit the early convergence between the two standards…
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According to the research findings over the past 15 years, many accounting controversies and scandals have caused financial turmoil and resulted in the bankruptcy of several major firms. In response to these events, the IASB (International Accounting Standards Board) began developing the IFRS (International Financial Reporting Standards) to provide transparency and comparability for investors across the world. Today, more than 113 countries have adopted the IFRS or are in the process of converging to the standard. While countries such as Canada adopted the IFRS as early as 2011, the United States has maintained that transition from the US GAAP (Generally Accepted Accounting Principles) to the globally accepted IFRS will require more time. The US GAAP is the accounting standard followed by all companies registered in the United States. Doherty estimates that the US will not be able to adopt the IFRS completely before 2015. As a result, both the FASB (Federal Accounting Standards Board of the US) and the IASB have been working to achieve convergence between the two standards. However, this convergence exercise has been ongoing for several years as related agencies including the FASB, IASB, SEC and the general industry debate on the pros and cons of specific rules and regulations. The first step towards achieving convergence between the US GAAP and IFRS was initiated by the Norwalk Agreement in 2002, under which both governing bodies pledged their commitment towards the goal of convergence and agreed to realize it by the year 2008. The boards met once again in 2008 to discuss outstanding milestones and agreed to fulfill them by 2011. Both organizations planned to achieve this through joint projects that would help define and establish a set of principle-based standards (Nobes and Parker, 2010). Achieving these objectives, within the stipulated time period, has however not been possible, owing to a number of bottlenecks and shortcomings on the part of both the IASB and the FASB. For example, both parties realized during 2010 that they would be unable to resolve all outstanding issues by 2011 (Brands, 2011). In response, they decided to prioritize all such projects based on their relative importance. Despite ensuring quicker resolution of these urgent issues, many prioritized projects such as ‘Financial Instruments’ and ‘Revenue Recognition’ are yet to be resolved. As a result, other ‘low-priority’ projects like ‘Income Taxes’, ‘Financial Statement Presentation’ and ‘Liabilities’ are unlikely to be resolved in the near future (Bruce, 2010). Much of the delay can be attributed to the overwhelming and diverse nature of public feedback, received in the form of exposure drafts, which need to be thoroughly examined and analyzed to determine the most appropriate standard. The delay is further exacerbated, as the boards then have to prepare subsequent drafts after taking all public feedback into consideration and re-expose them for further public scrutiny. Most recently, the FASB and IASB announced that they would re-expose their latest drafts on revenue and leases. Based on their expected date of publication and comments from interested parties, the effective date for both standards is unlikely to be set any earlier than 2015 (Jamal, 2010). Thus, it is evident that despite considerable planning it has been impossible to prevent unavoidable delays in the early adoption of a common accounting standard. Hail, Leuz and Wysocki (2010a) blame the IASB and the FASB for ignoring due diligence and instead focusing their efforts towards meeting the deadline. He criticizes both rule-setting bodies for setting highly optimistic targets instead of
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(US GAAP IFRS Convergence Essay Example | Topics and Well Written Essays - 2250 Words)
“US GAAP IFRS Convergence Essay Example | Topics and Well Written Essays - 2250 Words”, n.d. https://studentshare.org/finance-accounting/1396137-us-gaap-ifrs-convergence.
With this rapid globalization, there has been a growing need towards convergence of accounting standards. Financial statements are becoming extremely important for investors and their comparison is becoming vital to the capital markets of the world. It is due to this reason that the financial accounting standards board (US) and International accounting standards board (UK) have taken the initiative to converge their accounting standards in order to eliminate the differences.
The adoption of the International Financial Reporting Standards by various companies in different countries has occurred in the recent past. The paper will talk about what is going on in the convergence from Generally Accepted Accounting Principles to International Financial Reporting Standards, with special reference to United States.
The financial reports contain several key projects to be addressed by both IASB and FASB such that the financial disclosures require further enhancement as well as alignment with the existing standards issued by IASB and FASB. Currently, the key projects which are required to be considered further, are revenue recognition, leasing and financial instruments.
The main objective of financial reporting is to communicate to investors, creditors, and other interested parties the financial outcomes of a business in a understandable and useful way. The basic responsibility for reporting those financial outcomes rests with the business’s management.
The information is of importance to management, investors, creditors, employees and other government organizations. Financial statements are written reports describing quantitatively the financial health of a company. An income summary shows the income and expenditure of a firm or a balance sheet shows the assets and liabilities and equity of a company are all examples of financial statements.
tates companies abide by the Generally Accepted Accounting Principles, while in Europe companies abide by the International Financial Reporting Standards. The utilisation of each of these frameworks affects the information contained within them. This proposal studies the effect
The two chief accounting standards FASB and IASB have debated and negated the move to pushthe USAtowards global rules. The SEC allows foreign companies that sell stock in the US to compile their monetary statements using IFRS. While the merging of IFRS and the US GAAP
The most outstanding difference between the two is that while the GAAP is based on rules, the IFRS is based on principles. Unlike a rule based system, the principle based system allows for different interpretations of similar
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