1. Describe IFRS and GAAP and what convergence means.
Generally Accepted Accounting Principles (GAAP). GAAP has a specific meaning for accountants and
auditors . As long as an accountant uses GAAP as his guide and does not stray far from its principles his/her work will stand up to an audit. FASAB is responsible for identifying the “GAAP hierarchy” for federal reporting entities. The sources of GAAP are listed below and categorized in descending order of authority as follows:
Officially established accounting principles consist of FASAB Statements of Federal Financial Accounting Standards (Standards) and Interpretations. FASAB Standards and Interpretations will be periodically incorporated in a publication by the FASAB. Technical Releases of the Accounting and Auditing Policy Committee of the FASAB. Implementation guides published by the FASAB staff, as well as practices that are widely recognized and prevalent in the federal government. (FASAB)
A new way of doing things that is coming to the U.S.. it is called the International Financial Reporting Standards, IFRS is used throughout the world except in the United States where U.S.GAAP is followed. The main reason is since financial statements report sum or combine two or three years of total amounts, following IFRS becomes imperative in order to be comparative. Endeavors are also under way to simplify IFRS to be utilized by small and medium sized privately held corporations.
2. Analyze how convergence will affect public companies, accounting firms, and small and medium companies.
The American Institute of Certified Professional Accountants (AICPA) is strongly encouraging U.S. adoption of a single set of high-quality, globally accepted accounting standards. Convergence will affect public companies, accounting firms, and small and medium companies in a positive way and will benefit U.S. financial markets and public companies by facilitating preparation of... [continues]
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