Effects of the Norwalk Agreement on US Corporations: Convergence of US GAAP and IFRS
The Norwalk Agreement refers to a Memorandum of Understanding (MOU) which was signed in September of 2002 in Norwalk, Connecticut between the United States Financial Accounting Standards Board (FASB) and the International Accounting Standard Boards (IASB) The MOU was an agreement between the two organization to, “use their best efforts to (a) make their existing financial reporting standards fully compatible as soon as is practicable and (b) to coordinate their future work programs to ensure that once achieved, compatibility is maintained.” The original agreement called for all differences between US GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting System to be eliminated by January 1, 2005, but problems quickly surfaced in this approach and according the US Securities and Exchange Commission (SEC) currently has a timeline of 2016 for all US corporations to adopt the IFRS. Before discussing what the effect of these changes are on US Corporations, one must first understand the history of both the FASB/US GAAP and the IASB/IFRS. The Financial Accounting Standards Board was established by the SEC in 1973 to take over the role of establishing standards for financial accounting from the American Institute of Certified Public Accountants (AICPA)’s Accounting Principles Board (APB). The US GAAP are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly-traded and privately-held companies, non-profit organizations, and governments. The US Government does not directly set accounting standards, instead believing that the private sector has a better ability to set these rules. The US GAAP is not formally written into law, but is instead codified into the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. The FASB has...
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