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Follow-Up Discussion
Choose one of the articles that your classmates have posted, and provide your own reaction to it.
Classmates post below
Re:Module 6 DQ 1 – International Financial Reporting Standards and American Generally Acceptepted Accounting Principles: The Convergence Lessons.
Hi Class,
The article titled International Reporting Standards (IFRS) and American Generally Accepted Accounting Principles addresses the lessons learned behind the convergence of IFRS. The article discusses the impact on standardizing reporting based on empirical research that is also used by SEC and the board of trustees of the IFRS board. The Financial Accounting Standards Board (FASB) and International Accounting Standards board came together in to 2002 and created the Norwalk agreement to transition into a unified standards system in an effort to resolve political and technical accounting issues. IFRS has had trouble gaining traction as companies have done their own evaluation to explore the pros and cons. The U.S. was involved in developing new versions of IFRS as part of the convergence; however, they failed to apply IFRS in 2012. This decision, as documented by the SEC was made because of the high costs projected in transitioning domestic companies to abide to the new standards and confusion it would create for investors.
Prior to the application deadline, the SEC completed a “workplan” to evaluate the repercussions involved with making the transition in 2010. This involved extensive research to determine when IFRS could be applied and how it would be implemented. In 2011, the SEC published further research titled “Analysis of the application of IFRS in practice” which utilized consolidated statements from Fortune 500 largest revenue company list prepared in accordance with IFRS. This study revealed that transparency required improvement, disclosures were questionable, and that the diversity in IFRS application made it hard for companies to be compared to one another. Essentially, the study revealed that GAAP includes contains more detail and is more specific on its requirements. As a result, the SEC has not transitioned US companies to follow IFRS.
In my opinion, the studies conducted on behalf of the SEC were necessary. The research was needed in order to relieve any doubt and evaluate advantages and disadvantages. Since public companies, seek out investors from all over the world, having financial statements that follow the same standards for comparison, is beneficial. Since there are differences in standards, foreign investors must evaluate U.S. financial statements from a different lens. The workplan uncovered some of the struggles that IFRS is facing today, such as the lack of precise accounting treatment. Additionally, there are still countries that have not adopted IFRS, as IFRS has yet to make improvements such as defining accounting principles for all industries, and narrowing down some its context. Moving forward, if plans on convergence arise at full speed again, now the SEC has a foundation to build on as they know exactly what is needed in order to make the transition. Establishing a relationship between both boards could help to eliminate some of its biggest differences related to recognition of assets and liabilities.
Pita Wolford
Reference:
Kuzina, R. (2015). INTERNATIONAL FINANCIAL REPORTING STANDARDS AND AMERICAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: THE CONVERGENCE LESSONS. Socio-Economic Problems & The State, 12(1), 160-168. Retrieved from: https://lopes.idm.oclc.org/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=111329128&site=eds-live&scope=site
Expert Answer
As we know all that US-GAAPS are being by the most of the companies in the country but when apex body of accounting professionals see the different accounting practices within the country and worldwide as well then they thought that there should be an uniform accounting system for presenting financial statements. That was a good initiative no doubt because IFRS will give us many positive results but as we see in given case that SEC tried to implement these IFRS but faced some major issued every time. Hence major question arises if IFRS going to generate good results then what is the problem in implementation?
Answer is quiet simple that old pattern of accounting have deep roots amongst the companies and accounting professionals as well so no need to eradicate these roots in a single effort because it will result more severe pain in compare to good results hence SEC and other apex body should try to implement IFRS as per convenient of companies and accounting professionals as well.
International Accounting Standards Board (IASB) in London came with the idea of IFRS to bring a uniform accounting practices. IFRS is a demand of present because in present ear of globalization & privatization a company or business unit is not limited to a particular geographical location and to a particular country. So it becomes necessary to be a similar and uniform pattern of financial statements otherwise misinterpretation and misleading results will be conveyed to final users.
Finally we can say that uniformity in financial statements is must for good, solid an a comparative study of these statement hence adoption & convergence of IFRS becomes much necessary hence SEC should try seriously to implement these standards with some needed relations for companies having great problem in implementation. Proper training to accounting professionals is also needed for good implementation. SEC should make all corporates aware about this good initiative too because it will help in quick and smooth implementation.
By accepting IFRS, we can eliminate some major issues of difference between GAAPS and IFRS because after adoption of new standards there will be a single format and uniform principles of recording & presentation. Hence all major differences in accounting principles will be automatically resolved.
