Accounting Convergence: Advantages and Disadvantages
Winston Churchill once said that “there is nothing wrong with change, if it is in the right direction” (Thinkexist.com) . Today, the accounting profession and standards in the United States is facing one of the biggest changes it has seen in a long time: the convergence of its Generally Accepted Accounting Principles (GAAP) to the International Financial Reporting Standards (IFRS). Is this a step in the right direction for the United States? The debate is still alive, although the change is happening now. In this paper I will explain the convergence and then describe some of the advantages and disadvantages to this change.
Convergence is a term that means “the coming together or elimination of differences” (Ernst & Young). This has been a big part of the business and financial field as globalization has spread around the world. To have the entire international business community using similar accounting principles would mean transaction fluidity. Why is this important? According to the textbook Intermediate Accounting, it is of importance because financial markets around the world will be able to trade with each other in an easier manner. Also, mergers between businesses in different countries will become more seamless (20). The Securities and Exchange Commission (SEC) along with the Financial Accounting Standards Board (FASB) have been working with the International Accounting Standards Board (IASB) to develop standards in which their differences will eventually be eliminated.
One advantage of moving in the direction of IFRS is that it is not as detailed as the U.S. GAAP. There are two types of standards when it comes to accounting and disclosure requirements: Rule-based standards and then principle-based standards. With rule-based standards there is a list of detailed rules to follow which results in more paperwork and more wasted time. With principle-based standards there are general...
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