Convergence from GAAP to IFRS - Essay Example

The paper will further discuss the benefits, which will accrue to United States firms, investors, and the economy as a whole, as a result of converging from United States Generally Accepted Accounting Principles to International Financial Reporting Standards. Convergence from Generally Accepted Accounting Principles to International Financial Reporting Standards Currently, International Financial Reporting Standards are used by more than 12,000 companies in the world and have been in use in over 100 countries around the globe.

According to Kaiser et al. (2012), there are various ongoing projects, which were initiated by the International Accounting Standards Board and the Financial Accounting Standards Board with an aim of enhancing the International Financial Reporting Standards and America Generally Accepted Accounting Principles, and eventually making the principles fully compatible. Majority of these projects covers the key components of the financial reports. Through these projects, the boards plan to enhance financial disclosure information for shareholders while also aligning U.S. GAAP and international bookkeeping standards.

Revenue recognition, financial instruments, and leases are deemed as the priority projects largely as a result of existing difference of IFRS and U.S. GAAP and the necessity for enhancements, especially in the principles they are intended to replace. The boards have also concentrated on financial reports presentation and consolidations projects due to considerable implications they might have (Kaiser et al., 2012). According to Henson (2012), in late 2011, SEC Chief Accountant, James Kroeker, indicated that considerable progress had taken place on numerous IASB and FASB Memorandum of Understanding convergence projects encompassing other comprehensive financial and income reporting fair value guidance.

In January 2012, the chairman of IASB, Hans Hoogervorst acknowledged that International Financial Reporting Standards pose several challenges for the SEC. U.S. uses a sophisticated, mature and time stated set of bookkeeping standards, and this makes it difficult to make the convergence decision. In June 2012, IASB and FASB agreed on lease bookkeeping model where all leases with a period of one year or more would be reported on the balance sheet. Hans Hoogervorst indicated that the two boards anticipate completing the convergence project by year 2013 (Henson, 2012).

The considerable progress in the convergence projects requires the United States companies, to start examining the implications of the convergence on their operations. This would enable companies to plan how to adopt the changes, which will arise from the convergence. This implies that, at the beginning of 2014, the U.S. public traded corporations might be obligated to file financial reports with the SEC using the International Financial Reporting Standards. In my opinion, it is beneficial for the United States to converge from America Generally Accepted Accounting Principles to International Financial Reporting Standards.

The convergence has various challenges and advantages. The challenges facing the transition may be addressed appropriately by all stakeholders involved in the convergenc