US GAAP IFRS Convergence - Essay Example

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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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US GAAP IFRS Convergence
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"US GAAP IFRS Convergence"

Download file to see previous pages 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 ...Download file to see next pagesRead More
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...the initiative to converge their accounting standards in order to eliminate the differences. GAAP stands for General accepted accounting principles and are the set of standards developed by US, keeping their needs in mind. On the other hand, IFRS stands for international financial reporting standards are standards developed by UK. In the past financial statements were relevant to these respective countries only but globalization has called for the need of one set of standards. Convergence of international accounting refers to the goal and the path taken to reach one set of standards that are followed throughout the world. The goal is to eliminate the differences...
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... would enable the senior management of this multinational company to compare the profitability of these businesses. References Bowden, A.B. (2010). GAAP and IFRS: The Convergence and Transition of International Accounting Standards. Retrieved from: Henson, J. (2012). FASB and IASB Agree on Leasing Accounting. Retrieved from: Kaiser, J.G., Kuykendall, K., Davis, T. Schmid, D. & Kaplan, D. (2012). US GAAP and IFRS Convergence. Retrieved from: Shamrock, S.E. (2012). IFRS and U.S. GAAP: A Comprehensive Comparison. New York: John Wiley & Sons.... ? Convergence from...
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Convergence between GAAP and IFRS
...of financial statement presentation and business combination is required significant convergence (Kaiser et al., 2012). Challenges and Benefits of Convergence As far as the convergence is concerned, it can be observed that US public listed companies will be benefitted more if they adopt IFRS as an obligation from SEC. There are various difficulties as well as benefits of adoption of IFRS as a means of convergence. The major difficulty that may arise due to such convergence is the transition of financial statements from US GAAP to IFRS. The transition will cause a...
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...? IFRS and GAAP Convergence Table of Contents Introduction 3 Accounting Convergence 3 Difference between U.S. GAAP and IFRS 4 Main Obstacle to Convergence 5 Impact on Balance Sheet and Income Statement Presentation Method 5 Most significant Affect of Convergence 6 Conclusion 6 Reference 7 Introduction In the corporate finance world, some events have shown the importance of accurate financial reporting by businesses. 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...
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...-regulated entities. Under the provisos of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation, (SFAS 71), a synchronized entity, which includes utilities, records a rigid asset through future revenues, the synchronized entity can get back that asset from customers and enters a regulative liability for decreases in future revenues for amounts which are due to customers. Reference 1. Annual Report 2007/08 National Grid Plc, 2. IFRS and US GAAP similarities and differences. September 2008. Price water house coopers. 3. IFRSs and US GAAP - A Pocket Comparison. An IAS Plus Guide. July 2008. Deloitte....
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What are the implications of differences between reporting by IFRS and US GAAP reporting by UK Investment banks and US GAAP reporting by US investment banks
...accounting standards. The main differences are illuminated in both measurement and disclosure aspects. Though the convergence efforts between US GAAP and IFRS are underway as per Norwalk agreement of 2002, but specialists believe that the US GAAP is superior to IFRS because of their industry specific specialities and other reasons. This belief of superiority for US GAAP is basically causing delays in convergence of both GAAPs. At the same time, it is also a big relief that SEC has eliminated the reconciliation requirements for foreign private issuers in 2007 and ...
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.... Conclusion The U. S. GAAP and IFRS have their similarities, from the basic framework to the concepts of materiality and consistency to the presentation of financial statements and finally, to some of the specific accounts. However, the specific guidance of these two principles really varies, mainly due to the fact that their approaches differ. With U. S. GAAP using a rule-based approach, it has lots of provisions and accounting options for different transactions. On the other hand, with the IFRS, its principle-based approach provides fewer guidelines that are, nevertheless, still all-encompassing. With the convergence between these two...
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IFRS and GAAP Convergence
...Convergence of GAAP and IFRS In order to cope up with the global reporting requirements, the companies have to follow certain approved accounting standards which are applicable in their region. Different countries across the world have adopted different accounting standards as per the applicability but these reporting standards are still not coherent with each other up to a great extent and whereby an investor living abroad seeks to invest in the company, he has to gain knowledge of the accounting and reporting standard followed in that particular country for better understanding. The most commonly followed standards are the IFRS and the US GAAP. GAAP is used as a reporting standard in the US while countries like UK follow the IFRS to meet... ...
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In this writing assignment you must discuss and compare the existing GAAP standards with the comparable IFRS standard for either IFRS IAS 17: Leases or IAS 18: Revenue. (By the way, these links go to the actual discussion of what makes up these categorie
..., it would be difficult because the IRC expects that a firm use a similar method of inventory accounting for monetary and tax reporting purposes (Toma, 2013). The SEC approach is a “condorsement” approach, which is essentially an endorsement model that shares traits of the incorporation approaches with other dispensations that have incorporated IFRS in their monetary-reporting frameworks. During the transitional time, the framework would portray aspects of a convergence approach to communicate the existent disparities between the US GAAP and the IFRS (Melcher & Erchinger, 2007). Under the convergence approach, jurisdictions maintain the use of their GAAP, but the dichotomy between IFRS and GAAPdecreases over time as GAAP aligns with IFRS... . The...
3 Pages(750 words)Essay
... in the statement of income (Van der Meulen, Sofie, and Marleen 121). The differences in the two accounting standards cause a disparity in the way businesses present their financial information. Convergence is aimed at establishing a single accounting standard in order to reduce the difference between the IFRS and the GAAP. Works cited Erchinger, Holger, and Winfried Melcher. "Convergence between US GAAP and IFRS: Acceptance of IFRS by the US Securities and Exchange Commission (SEC)." Accounting in Europe 4.2 (2007): 123-139. Van der Meulen, Sofie, Ann Gaeremynck, and Marleen Willekens. "Attribute differences between US GAAP and IFRS earnings: An exploratory study." The International Journal of Accounting 42.2 (2007): 123-142.... Difference between...
4 Pages(1000 words)Essay
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