The Convergence of Two Accounting Systems and the International Financial Reporting Standards

Despite those enormous advantages, it has been argued that IFRSS adoption lead to significant costs. The main argument is that IFRSs do not consider local needs and priorities as every country has their own ‘business environment, legal systems, cultures, language and political environment’ (Henderson and Peirson, 2000 cited from Malthus, S., 2004). However, to overcome this problem, IASB can accommodate flexible reporting standards that enable companies to choose alternatives that are more suitable for their external condition. It is opinion of some opponents of IFRS adoption that IAS is ‘insufficiently detailed’ (Uddin,M.S., 2005, p.4) that require accountants’ and auditor’ professional judgment. However, overly detail might be contra productive and not flexible in anticipating every changes and differences.

SEC will not require American companies follow IFRS at least until 2015. If they follow IFRS, accounting could become simpler and more flexible since the guidance of IFRS. (Frye, 2009) The foundation of IASB and the time of responses is questioned by a report from SEC. It also address it will be costly if American public companies adopt IFRS. (Rehm, 2011)

IFRS’s are a single set of accounting standards at a global level for all sectors. Accounting standards are trustworthy statements is the reflection of financial statements to be presented to the stakeholders . United kingdom has already adopted IFRS since 2005.I would be discussing on adoption of IFRS by United kingdom for this paper. The United

The five research articles I have chosen to further my research on the convergence between U.S. GAAP and IFRS are The Implication of US GAAP and IFRS Convergence on American Business by Austin Willmore (2015), IFRS adoption by country by PWC (2015), International Financial Reporting Standards and American Generally Accepted Accounting Principles: the Convergence Lessons by Kuzina (2015), The economic impact of IFRS - a financial analysis perspective by Seay (2014), and Accounting for Leases The New Standard by CPA Journal (2016). These articles are related to my topic, where these researchers researched and analyzed the financial statement reporting on convergence of the U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), and certain accounts when adopting IFRS present a different result in the financial reporting for U.S. reporting companies when U.S. GAAP standards combined with IFRS. Also, these research articles discuss the existence of two systems of standards, U.S. GAAP and IFRS; and the issue and difficulty of the process to fully converge.

Since 2002, Financial Accounting Standards Board (FASB) and International Accounting Standards Board’s (IASB) have been working toward “convergence” of US General Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). They have made significant progress in efforts to converge critical accounting standards such as those dealing with revenue recognition, financial instruments and leases. Once these projects are complete, the "era" of convergence will be at an end. Nevertheless, the benefits for investors of eventually getting to consistently applied, high-quality, globally accepted accounting

The purpose of this paper is to describe what accounting convergence means and assess the likelihood of the convergence being completed and implemented in the next five (5) years. IFRS is the principle based set of standards that establish standards and dictate specific treatments. IFRS has become a global standard for companies when preparing financial statements. IFRS consist of multiple reports stated on the Wikipedia website. The two reports that will be discussed in the paper are IFRS and GAAP. GAAP is an Accounting Standard that provides guidance for financial

With the growth of international business there is a need to standardize financial statements globally. Presently there are “approximately 120 foreign private issuers currently that report to the Commission using IFRS financial statements.” By standardizing accounting practices investors will be able to make informed decisions based on comparability and accuracy of financial statements. The SEC released this statement in 2008, “We believe that IFRS has the potential to best provide the common platform on which companies can report and investors can compare financial information.” The SEC has created a “Roadmap” or plan to convert US GAAP over to IFRS. According to The Committee of

Over a decade ago, it was believed that the whole world would likely adopt the Generally Accepted Accounting Principles (GAAP). At the point in time, the International Financial reporting Standards (IFRS) was only about ten years old. In the last decade, the IFRS has been adopted in many growing countries. Currently, it is anticipated that the U.S. will converge its GAAP with the international IFRS, leaving behind only a modified IFRS. This may occur as early as 2014.

A set of internationally recognized accounting standards facilitates capital flows across borders. Globally accepted standards make financial information readily comparable for its users. Foreign investors are more inclined to put money into a U.S. company if they are familiar with the company’s financial reporting. Conversely, U.S. investors will find it easier and less risky to invest in foreign companies when they know the local accounting standards (Epstein 2009). This will make U.S. companies and capital markets more competitive, since it saves costly reconcilition of different standards. Preparers, investors, auditors, and others will benefit from these cost effieciencies, since a Results of an IFAC Survey among accounting leaders around the world with respect to the importance of convergence to International Financial Reporting Standards for economic growth in their countries:

In 2001, The International Accounting Standards Board (IASB) was established to develop the International Financial Reporting Standard (IFRS). ). The first IFRS was issued in 2003 and European Union (EU) members committed for requesting all listing company to apply the IFRS in their jurisdictions and will effective on year 2005 (Brussels, 2000).

In a previous study on the usefulness of convergence, a comparison of firms implementing IFRS in 27 countries matched against sample of similar size and industry firms in the US found, the use of converged IFRS standard by US firms instead of US GAAP led to a more established accounting system with value relevance comparability (E.Barth, R.Landsman, Lang, & Williams, 2012, p. 6). In contrast, Jamal et al (2010) state “The need for a global accounting regulator is overstated. A global regulator is unlikely to help achieve the stated goals of comparability and consistency of financial reporting on a global basis” Based on the joint standard of IFRS15/ASU606 issued, there appears to be a compromise on both IASB and FASB’s part to include and exclude certain aspects therefore, although the gap is reduced, full convergence is far from being achieved. The decision makers at IASB therefore, due to inability to achieve the true goal of convergence, is resorted to undertake a vague position and compromise with the ‘allocation model’ (now known as ‘performance obligation’ model in the final joint standard issued) (Biondi, et al., 2014, p. 29). Nevertheless, in terms of usefulness to stakeholders, the joint standard addresses the problem arising from the original IAS18&IAS11/ASC605

With complete notion and awareness of how each country has their set of rules, “the goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements” (Rouse, 2011). This view is meant to provide general guidelines, as well as international comparisons through conventional and edifying means. To bring broader and vivid objectives, IFRS replaced IAS, the older standards, in order to bring a more comprehensive and simplified accounting procedures.

International Financial Reporting Standards (IFRS) describes a common method or modality by which the financial reporting of different business organizations is carried out. Initially, different countries used to have their distinct and separate standards of financial reporting. Financial reports are possibly obtained from the financial statements of any business organization. A financial statement as principle mode enables a company to present its f0inalncial information to the outsiders who may have the interest of having the knowledge of a company's financial status. They give the position of a company's financial status, comprehensive income statement, cash flow statement, and equity changes statement.

The International Financial Reporting Standards (IFRS) is the international accounting standards developed by the ISAB. The ISAB have set up the Disclosure Initiative to examine where IFRS could be improved.

International Financial reporting standards (IFRS) and General accepting accounting principles (GAAP) convergence issue began in the late 2000’s. International Financial Reporting Standards (IFRS) are a set of standards stating how particular types of transactions and other events should be reported in financial statements. Therefore, business and accounts can be understood from company to company and country to country. General accepting accounting principles (GAAP) are set of common accounting principles, standards and procedures that companies use to produce their financial statements. GAAP are a combination of accurate standards that are simply the commonly accepted way of recording and reporting accounting information.