The Convergence Of Accounting Principals

926 WordsNov 17, 20154 Pages
The Convergence of Accounting Principals When it comes to financial accounting, there are two sets of standards that seem to have incongruent rule and principal based views on the way things should be done. These standards include the Generally Accepted Accounting Principals (GAAP), which is rule based, and International Financial Reporting Standards (IFRS), which is principal based (Waybright p.260). Despite opposing views, the two have been attempting to fully converge since 2002. Historically, the concept of converging companies has been around since the 1950’s when the term harmonization was introduced. Harmonization was coined to “reduce the differences among accounting principals” (FASB). Then, in 1990, the term harmonization was replaced by convergence. The Convergence Project between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), started to make way in October 2002 when the Norwalk Agreement publicized the merging of both sets of standards. The Norwalk Agreement is a signed understanding by both FASB and IASB to ensure the compatibility of financial standards and future programs. These two committees, along with the Securities and Exchange Commission (SEC), have been working together to improve the accounting standards of GAAP and IFRS. “The IFRS includes most European countries, Canada, Mexico, China, and Russia”, (Waybright p.259), while GAAP is only used in the U.S. The Norwalk Agreement pledged to
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