Advantages of IFRS Adoption for the U.S. Investors
The adoption of IFRS would have many benefits to the United States investors for it would improve standardize the reporting formats, financial reporting quality, and provide more accurate, comprehensive and timely financial statement information. By far, many countries have already adopted IFRS, so the United States would benefit greatly by conforming to global IFRS network. In this paper, I will analyze reasons that the adoption of IFRS would benefit the U.S. investors in terms of improvement of reporting quality and comparability. Next section describes the history and background of IFRS. In the third section, I discuss the arguments among people of internationally uniform accounting standards. In the fourth section, I compare the accounting differences between U.S. GAAP and IFRS. In the fifth section, I explain the advantages of accounting convergence for U.S. investors in depth. In the sixth section, I discuss certain potential IFRS implementation issues and its effect on investors. At last, I conclude the whole paper.
2. The background of IFRS
International Financial Reporting Standards (IFRS) are accounting standards, interpretations and the framework adopted by the International Accounting Standards Board (IASB). Part of IFRS are known by International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). In April 2001, the new IASB took over from the IASC the responsibility for setting International Accounting Standards. The IASB has continued to develop standards calling the new standards IFRS. As of 2009, 100 countries around the world have adopted IFRS. In 2005, the European Union (EU) began requiring its member country companies incorporated whose securities are listed on an EU-regulated stock exchange to prepare their consolidated financial statements in accordance with IFRS. Australia, New Zealand and Israel have adopted IFRS as their national standards. Canada, which previously planned convergence with U.S. GAAP, now plans to require IFRS for publicly accountable entities in 2011. The Accounting Standards Board of Japan and the IASB plan convergence by 2011. In the United States, the Securities and Exchange Commission (SEC) has been taking steps to set a date to allow U.S. public companies to use IFRS, and perhaps make its adoption mandatory. In 2007, the SEC allows foreign private issuers to file financial statements prepared in accordance with IFRS without reconciliation to GAAP. In 2008, the IASB and the FASB state 2011 as the goal for completion of their major joint projects. The boards will work toward convergence of important accounting standards, such as revenue recognition, leases and consolidation.
3. Arguments of uniform accounting standards
Many market participants including firms, investors, auditors, regulators, and standard setters believe that it will be convenient to compare the results of financial reporting across different countries if they use the uniform standards. In my view, it will help investors to understand the value of companies better. Also it would help large companies with oversea subsidiaries to reduce the cost to prepare financial statements, and the parent and subsidiaries would be able to use same accounting language. However, “firms differ on myriad dimensions such as strategy, investment policy, financing policy, industry, technology, capital intensity, growth, size, political scrutiny, and geographical location. The types of transactions they enter into differ substantially. Countries differ in how they run their capital, labor and product markets, and in the extent and nature of governmental and political involvement in them.” (Ball, 2006) So accounting rules may vary across firms and locations in order to reach the goal of higher financial reporting quality....
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