As a result to the 1988 policy statement that the Securities and Exchange Commission (SEC) issued, regarding the establishment of a common international accounting standards, there has been a growing acceptance of International Financial Reporting Standards (IFRS) for a basis of U.S. financial reporting. The number of countries adapting to this convergence has increased since its first suggestion. Within the United States, the SEC is taking its first steps as to whether or not the U.S. is to converge in to this universal approach to accounting.
The international standard-setting process began a few decades ago as an effort by industrialized nations to create standards that could be used by developing and smaller nations unable to establish their own accounting standards, states the author of International Financial Reporting Standards. However, as the business world became more global, regulators, investors, large companies, and auditing firms began to realize the importance of having common standards in all areas of the financial reporting chain, continued the author. At this time, there are approximately 120 different nations that are required to, or have the option to report under IFRS. A few examples that already use IFRS include Australia, New Zealand, and Israel. It has been confirmed that the European Union has virtually adopted all international standards. Canada is said to adapt to IFRS in 2011, with Mexico following in 2012.
The U.S. SEC has, in part, been the leader in developing this common international set of accounting standards. In 2007, the SEC voted to allow foreign private issuers to file financial statements prepared in accordance with IFRS as issued by the IASB without reconciliation to U.S. GAAP, mentions the author to International Financial Reporting Standards. In November 2008, the SEC issued a “roadmap” which unveiled the plan on how the U.S. will converge into IFRS. Thus, on February 24, 2010, the SEC held a meeting that issued a few releases that stated their strong belief that a single set of international accounting standards would benefit U.S. investors and expressed encouragement for the convergence of U.S. GAAP and IFRS. However, although the plans sound great on paper, the SEC called for more investigation on IFRS and in 2011, they will hold another meeting to decide if to move forward with IFRS. Hence, since 2002 the FASB and IASB have been working together towards the convergence. Additionally, as the convergence to IFRS has been widespread many multinational companies and national companies support the idea of having one set of accounting standards because they believe it will facilitate comparing companies all around the world. Consequently, large companies with subsidiaries in other countries would be able to report their financial statements with their parent company because it will all be the same. Nevertheless, some people believe that although we will have one global accounting standard many will never pull through 100% of the convergence. This is something that they have to take into consideration before they take any drastic measures.
Moreover, the FASB and IASB are working together on a project, called the Financial Statement Presentation, to establish a common standard for presenting information in the financial statements, including classifying and displaying line items and aggregating line items into subtotals and totals. This standard will have a dramatic impact on the balance sheet, the income statement, and the statement of cash flows. This will cause the mentioned financial statements to include classifications by operating, investing, and financing activities, providing a “cohesive” financial picture that stresses the relationships among the financial statements. But, under each of the statements, operating and investing activities will be classified under “business” activities. Each statement will also include three additional groupings: discontinued...