Advantages of Ifrs Adoption

2081 Words Feb 14th, 2011 9 Pages
Advantages of IFRS Adoption for the U.S. Investors

1. Introduction The adoption of IFRS would have many benefits to the United States investors for it would improve standardize the reporting formats, financial reporting quality, and provide more accurate, comprehensive and timely financial statement information. By far, many countries have already adopted IFRS, so the United States would benefit greatly by conforming to global IFRS network. In this paper, I will analyze reasons that the adoption of IFRS would benefit the U.S. investors in terms of improvement of reporting quality and comparability. Next section describes the history and background of IFRS. In the third section, I discuss the arguments among people of
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GAAP and IFRS In this section, I provide specific examples of main accounting difference between U.S. GAAP and IFRS. These differences are likely to decline over time as the IASB-FASB convergence project continues. Luzi, Christian, and Peter have explained the key differences in their 2009 working paper as follows: a. Fair value accounting While fair-value accounting is in many ways conceptually appealing, it is often difficult to implement (Ball, 2006), and could be incompatible with the current legal, institutional, and political environment in the U.S. as the use of fair-value estimates is often viewed as increasing the amount of discretion given to managers (Watts, 2003). b. Revenue recognition IFRS only have two primary revenue standards plus a few interpretations on revenue recognition that intended capture all revenue transactions. These principles apply without additional details or specific provisions for particular industries. For example, in the software industry, U.S. GAAP set out very specific rules and higher thresholds for recognizing revenue than IFRS. These rules have affected the business and selling strategies of U.S. software companies, which in turn implies that the adoption of IFRS could bring strategy adjustments for these firms (PwC, 2008). c. Classification of equity and liability Certain financial instruments that are classified as equity under U.S. GAAP have to be

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