June 21, 2009
This research project will inform the reader of the difference between the United States accounting standards and International accounting standards. The United States uses the Financial Accounting Standards Board (FASB) to issue financial reporting procedures. The International Financial Reporting Standards (IFRS) are issued by the International Accounting Standards Board (IASB). There are proposals for the United States to adopt the International standards. Financial reporting procedures are debated about the United States using the Generally Accepted Accounting Procedures (GAAP) or following the global procedures. This project will also examine, compare, and contrast this debate.
Discussion of Topic
In an article by Heidi Tribunella (2009),
“U.S. GAAP is considered rules based. Rules-based accounting standards, on the other hand, give strict rules that must be adhered to in order to properly account for particular transactions. For example, lease accounting in the United States gives four criteria for determining if a lease is a capital lease. If a lease contains any of the following, then it is considered a capital lease and must be accounted for as such: 1 ) a bargain purchase option; 2) ownership transfers at the end of the lease; 3) minimum lease payments with a present value of at least 90% of the FMV of the asset; or 4) a lease length of atleast 75% of the economic life of the asset. This is an example of very specific rules for accounting for leases” (Tribunella, 2009).
Tribunella (2009) goes on to explain International accounting standards, “International Financial Reporting Standards (IFRS) are issued by the International Accounting Standards Board (IASB), which was created in 200l. Previously, the International Accounting Standards Committee (IASC), founded in 1973, issued International Accounting Standards (IAS). When the IASB was created, it adopted the IAS and continued the work of the IASC” (Tribunella, 2009). Gary K. Meek and Wayne B. Thomas (2004) explain the influence of the IASB on the global reporting standards including the U.S. GAAP. “In 2000, the International Organization of Securities Commissioners (IOSCO), of which the SEC is a member, recommended to member countries that IASC standards be used in cross-border offerings and listings. The enforcement of International Financial Reporting Standards (IFRS) by exchange regulators will be crucial to the eventual acceptance of the IFRS around the world…In October2002, the IASB and the Financial Standards Accounting Board (FASB) issued a memorandum of understanding, which formally stated their commitment to the convergence of IFRS and U.S. GAAP” (Meek and Wayne, 2004). Jose Marrero and Thomas Brinker (2007) explain the efforts of the IASB and the FASB to merge their practices. “Over the last two decades, research indicates that developing a framework of global accounting standards favors the recognition of culture. Cultural differences will impact a nation's final consensus regarding accounting standards. However, after years of discussion, a solution to the dilemma of merging culture or international cultures and accounting standards has yet to be found. Currently, the International Accounting Standards Board (IASB) and the FASB are working on a principle-based framework for global financial reporting standards the cooperation of both the IASB and FASB will yield a uniform body of accounting standards allowing financial and investment advisers to view global investment opportunities on a more level playing field…” (Marrero and Brinker, 2007). They also point out why certain business owners may not want to follow global practices, “Further, business owners are unwilling to abandon their localized business practices to appease the accounting standards imposed on...