Globalization: Gaap vs. Ifrs

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John McCormack
June 19, 2012

Globalization: The Game Changer for GAAP and IFRS

Globalization, from a business aspect, is the process by which businesses or other organizations develop international influence or start operating on an international scale. Countries have long been involved in business; however, there is a concern regarding the lack of consistency in standards that businesses are to follow. The rapid advancement of technology and conducting business from country to country has become common practice, creating the need to unify as many of the financial rules and regulations as possible. The purpose of this paper is to examine how the two types of financial reporting systems began, discuss combining the two systems or accepting one as the dominant system, and finally explore the major concerns with switching. The International Financial Reporting Standards (IFRS) started out as International Accounting Standards (IAS) and were started in the early 1970’s. These standards are fairly new when compared to the history of financial reports. The histories of standards for financial reports were always created by each individual nation. For example, America would make standards to be used in America and Canada would use standards they developed. But this system is quickly becoming outdated with globalization. It is tough to compare financial reports between two companies in two different countries due to the irregularities between two reporting systems. Now in the United States of America the accounting system used is the Generally Accepted Accounting Principles (GAAP). Unfortunately GAAP was the product of the 1929 depression, which was triggered by unethical practices of financial institutes that issued stocks and bonds. So Congress created the Securities Act of 1933 and the Securities and Exchange Act of 1934. Then Congress formed the Securities and Exchange Commission (SEC) to uphold these laws. These principles have taken decades to come to...
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