To: CRO, The Greatest Life Insurance Company
Date: March 28, 2015
RE: Convergence of GAAP and Solvency Standards in the US, Canada and Europe
Executive Summary
There have been a number of proposed and upcoming changes to GAAP and solvency reporting standards in the US, Canada and Europe in recent years. In particular, significant efforts have been made to increase convergence between US GAAP and IFRS. The following report discusses the pros and cons of convergence between standards in different jurisdictions, as well as convergence between GAAP and solvency standards, in relation to insurance contracts. Here, the term ‘GAAP’ refers to financial reporting for investors, shareholders and creditors. Solvency standards refer to the regulatory requirements imposed on insurers. The jurisdictions discussed have been limited to those in which The Greatest Life Insurance Company operates in: namely, the US, Canada and Europe.
The Greatest Life Insurance Company should support the convergence of GAAP standards as well as the convergence of solvency standards in different jurisdictions. However, the Greatest Life Insurance Company should not support the convergence of GAAP and solvency standards:
• Distinct benefits exist in convergence of GAAP in different jurisdictions. Comparability between companies that operate in, or are listed in, different countries, will be significantly improved. Greater comparability leads to better information for investors, more efficient capital
Various attempts have been made by Equitable Life to avoid insolvency, primarily at the expense of policyholders, but it was too late. The liability, worth £1.5 billion at the time it froze the value of all current with-profit policies, was going to swell even more if interest rate were to fall further, and nothing could possibly stop this from happening. There is still a lot of debate about the adequacy of regulation, and possible measures the Financial Services Authority (FSA) should have imposed on Equitable Life and other life insurers when it formally took over responsibility for the regulation of insurance in January 1999. There are also many fingers pointed at regulators who did not express any concern over the liabilities of Equitable Life in the early 1990s, when there was possibly still enough time to reverse the misfortune. One thing for sure: by failing to properly hedge its liabilities, Equitable robbed its policyholders of their peaceful retirement, and mistakes of such an enormous scale should never happen again. On 2/12/00, The Times published a
Deloitte Touche Tohmatsu (2008). IFRS and U.S. GAAP A Pocket Comparison. Retrieved on November 7, 2011 from: http://www.iasplus.com/dttpubs/0809ifrsusgaap.pdf
Due to the forecasted high demand in the future, Gobias Industires, Inc. plans to report the company’s financial statements as soon as the next year. However, the argument is whether the company should report its financial statements consistent with the US Generally Accepted Accounting Principles (US GAAP) or the International Financial Reporting Standards (IFRS), when IFRS may be the reporting standard for US companies in the near future. I suggest Gobias Industries start reporting financial statements under both US GAPP and IFRS because the company is a U.S. based potential global firm.
This difference may create a big challenge for management of U.S. entities that were required to report their consolidated financial statements under U.S. GAAP but have
The purpose of this report is to look at the advantages and disadvantages that would occur if the United States were to switch their financial reporting standards from U.S GAAP
Pologeorgis (2012) stated that the diversity of accounting principle has an essential impact on the stock markets, corporate management, and financial reporting. He pointed that when people seeking for international capitals, varies of dissimilar accounting principles create discrepancies in their financial reporting. If people cannot understand the differences between IFRS and GAAP, they may have the chance to make the wrong decisions and loss money in the capital markets. Pologeorgis (2012) also mentioned that international investors have to relearn the new principal in order to be more familiar with the international standards. Based on above, there is a keen motivation for people to understand the differences and similarities of GAAP and IFRS. This research will show business people the main similarities and differences of GAAP and IFRS.
As the responsibilities of the global harmonization of accounting standards IFRS and GAAP transfer to IASB, FASB’s influence is waning. Advantages of the convergence include high quality financial reporting, which lowers cost of capital for investors and the cost of borrowing for companies. However, there are disadvantages to be noted, such as the costs of introducing IFRS to current and potential accountants and the risk of reducing the uniformity of financial reports due to the lax rulings of IFRS, which promotes earnings management amongst companies. Although arguments regarding the convergence remain prevalent, the completion of IFRS and GAAP is inevitable. Come year 2015, accountants, investors, and companies alike will discover whether or not the pros outweighed the cons; or vice versa.
US GAAP and foreign GAAP are similar but there exists some problems between them especially on how financial statements are presented, how revenues are recognized and on what the fair market value is. According to Hernán A.
Baye, M.R., Prince, J.T. (2014). Managerial Economics and Business Strategy. New York, NY: McGraw-Hill Irwin
GAAP (Generally Accepted Accounting Principles) determine the content and format of financial statements. SEC (Securities and Exchange Commission) requires publicly traded companies to issue annual audit. Concerns are about adequacy of disclosure; and behavioral implications are secondary.
The globalization of business activity has resulted in the need for a uniform set of accounting rules in all countries. With U.S. corporations doing so much business in other countries, it is imperative that the SEC and international regulatory boards devise a set of rules and regulations that would benefit both parties. If this did not happen, international companies would be able to do whatever they wanted without repercussion because of the discrepancies in the differing sets of rules. Accomplishing this universal set of rules would allow companies to list securities in any market without having to prepare more than one set of financial statements. There have been so many
The board acknowledges the diverse nature of regulatory framework in developing concrete and uniform standards. These standards help in proposing and clarifying a complete guidance as well as demonstrating the understanding of complex issues in accounting. Moreover, help in demonstrating advanced knowledge in the application of accounting standards in the preparation and analysis of financial statements.
In the area of social work, people who find themselves in an emergency happen to have help from the police. Social work exists in all of the United States, however in certain areas law enforcement is applied and a large number of activities were mostly know for order and peace making. Usually, over 40 percent of most cases, such as, telephone calls requesting assistance to the police involve in social work, unlike crime that is just over 15 percent of time. Areas as giving first aid and looking for missing children in the social work happens a lot. “This very early writing described the hiring of social workers within a police department in Rochester, New York. Social workers intervened in marriage and family problems and in cases involving
GAAP is exceptionally useful because it attempts to regulate and normalize accounting definitions, assumptions, and methods. Because of generally accepted accounting principles one is able to presuppose that there is uniformity from year to year in the methods that are used to prepare a
The US Generally Accepted Accounting Principles (GAAP) is a set of international accounting rules which originated from the United States. US GAAP can be defined as a set of accounting principles, standards and procedures that companies use to compile their financial statements (Elliott & Elliott, 2008). The International Financial Reporting Standards (IFRS) on the other hand are accounting rules originating from the United Kingdom. International Financial Reporting Standards (IFRS) are a set of accounting rules designed with a common global language for business affairs so that financial accounts of companies are understandable and comparable across international boundaries (Devinney, Pedersen & Tihanyi, 2010).