Bonus Research Paper
There have been many reports regarding the United States switching from Generally Accepted Accounting Principles (GAAP) in favor of the international standards, International Financial Reporting Standards (IFRS), followed by most of the world. This modification would represent one of the prevalent accounting rule changes for public companies based in the U.S. Among other issues, it would likely dislodge the Financial Accounting Standards Board, or FASB, as the U.S.’s chief accounting authority, incorporating it under the London-based International Accounting Standards Board (IASB).
Many ask why the companies in the U.S. would want to switch over to IFRS. First we need to know the difference between the two approaches. The main difference between the GAAP and the IFRS is the approach each takes to the standards. The GAAP is rules-based while the IFRS is a principles-based methodology. The GAAP consists of a complex set of guidelines attempting to establish rules and criteria for any contingency, while the IFRS begins with the objectives of good reporting and then provides guidance on how the specific objective relates to a given situation (Pologeorgis). Switching to IFRS will help companies, investors, and the public globally compare their financial statements easier. By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier (Albrecht). If every country has a different set of financial standards, while multinational companies exist in different countries, it is difficult to compare how each company stands because there is no consistency. Consistency is a key factor in comparing statements. Without the one set of global standards, it will be more difficult, if not impossible, to compare with their competitors due to extra finances and time. With an international accounting standard in place it allows companies and competitors to be able to compare with each other. The SEC, agreed with the fact that financial statements need to be comparable worldwide. An international language of disclosure and transparency is a goal worth pursuing on behalf of investors who seek comparable financial information to make well-informed investment decisions. Consistency is not only important for comparability, but also for everyone to understand financial statements internationally. International financial reporting standards make financial statements easily understood. The majority of people do speak English which allows people to conduct business globally. Furthermore, the markets and the economy of today are much more on a global level and not a domestic level. With the U.S. switching over to IFRS from GAAP, it allows our country to become a part of that global economy. The United States accepting this switch to IFRS helps people, domestically and internationally; understand accounting standards all over the world. Everything will be as one; which makes the world one step closer to teamwork and unity. Along with the international understanding and acceptance of IFRS, it also allows for U.S. companies to stay competitive in today’s globalization of markets. Lastly, the United States should switch to IFRS because it helps multinational corporations. For example, such a move would bring efficiency and cost savings to a company like Procter & Gamble, whose foreign subsidiaries are already using IFRS. Recently, the company just began thinking about an organization-wide conversion to IFRS. For companies that are multinationals, they are already considering their own personal switch to IFRS. Although it will cost them millions to initially convert, the switch will save them on the ongoing costs of annually converting their foreign reports to U.S. GAAP. With the usage of IFRS, a company’s position strengthens in negotiations with credit institutions by reducing the cost of borrowing, due to the...
References: 1. Albrecht, David. 2008. Why Switch to IFRS from GAAP? Available from Internet, http://profalbrecht.wordpress.com/2008/12/20/why-switch-to-ifrs-from-gaap/, accessed 18 November 2013.
2. Iwata, Edward. 2009. U.S. considers costly switch to international accounting rules. Available from Internet, http://usatoday30.usatoday.com/money/companies/regulation/2009-01-05-international-accounting-rule-switch_N.htm, accessed 18 November 2013.
3. Pologeorgis, Nicolas. 2013. The Impact of Combining the U.S. GAAP and IFRS. Available from Internet, http://www.investopedia.com/articles/economics/12/impact-gaap-ifrs-convergence.asp, accessed 18 November 2013.
4. Briginshaw, John. 2008. What will the International Financial Reporting Standards (IFRS) Mean to Business and Investors? Available on Internet, http://gbr.pepperdine.edu/2010/08/what-will-the-international-financial-reporting-standards-ifrs-mean-to-businesses-and-investors/, accessed 18 November 2013.
5. Wharton University of Pennsylvania. 2009. Mind the GAAP: Analyzing the Proposed Switch to International Accounting Standards. Available from Internet, http://knowledge.wharton.upenn.edu/article/mind-the-gaap-analyzing-the-proposed-switch-to-international-accounting-standards/, accessed 18 November 2013.
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