Will there be one set of accounting standards in use through out the world in the next five years?
The SEC (Securities and Exchange Commission) which oversees the accounting practices of publicly traded corporations. Is currently implementing plans for the convergence of GAAP into the IFRS as the standard for the U.S. and the world. Currently 110 developed, mid level, and developing countries use the IFRS as their accounting standard. The SEC has stated that they would like to converge to the IFRS by the end of 2014 but have found that this imposes extra costs on firms in a time of economic uncertainty. One major point to take away from the SEC’s ambitions is that they understand the need for one set of accounting principals and its potential benefits. With increasing globalization of capital markets there is demand for a transparent accounting standard that will allow investors, management, and governments to seek clarity in reporting financial transactions. The SEC hopes that convergence over time will remove costly accounting conversions that firms and investors would have endured if change was implemented overnight. Some changes that the SEC expects to see by the end of 2011 are the conversion of debt and equity, leases, consolidations, and financial instruments.
The next paragraph underlines some of the key differences between GAAP and the IFRS. IFRS outlaws LIFO (last in first out) inventory valuation where GAAP uses both FIFO (first in first out) and LIFO. Property, plant and equipment are assets that are valued differently using IFRS. The IFRS allows revaluation of assets were GAAP uses cost as its valuation method. Intangible assets cannot be revaluated under GAAP but under IFRS intangible assets can be revaluated when an active market exists for the intangible asset.
So why is the IFRS the future of accounting, and why is the U.S. scrambling to convert? The IFRS is more transparent, and is easier to implement than GAAP. This...
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